The Seattle/Puget Sound retail market ended the first half of 2017 at 3.9% total vacancy and rents grew 3.2% year-over-year.
Vacancy rates are at a 10-year low as reduced levels of new supply combined with robust leasing have helped Seattle retail landlords cash in. With muted retail construction throughout the region, rents will continue to rise for the foreseeable future. Demand remains elevated due to massive amounts of net migration to the region, resulting in accelerating household creation and buoyed even more so by high-paying tech jobs. As more residents pour into the Seattle area for the available jobs, retail trade has surged year-over-year, adding 8,200 employees in the industry in the Seattle-Bellevue-Everett metro from June 2016 to June 2017. Overall, taxable retail sales in Washington State have increased about 25% since 2012 to $63.2 billion in 2016. E-commerce continues to eat into department store sales as online sales in the state grew by almost 12% in 2016 while in-store sales dropped by half a percent. Retail remains in flux as an industry overall as thousands of stores such as Macy’s and J.C. Penney will be closing nationwide over the next couple of years. However, in well-located retail centers where both job growth and population growth are stellar, such as Seattle and Bellevue, retail is doing more than fine. Washington State’s Employment Security Department projects retail trade to grow at an average of 2.9% per year from Q2 2016 through Q2 2018 in King County. Due to the current market fundamentals and economic indicators, we will see another strong year in Seattle.
- Seattle has seen over 1 million SF of new retail space over the last twelve months and about 250,000 SF of new supply will deliver over the final two quarters of 2017.
- 754,909 SF were completed in the first quarter of 2017, with over half of that attributable to the new IKEA in Renton.
- Demand from retail tenants remains robust due to above-average population and job growth, especially in the technology and healthcare sectors.
- Absorption should continue to post sizable numbers through the remainder of 2017 as retail will continue its upward trajectory along with the increased buying power of its population.
- With vacancy rates so low, upward pressure on rental rates will continue as construction levels remain far below the region’s historical average.
- A strong local economy and continued household growth will keep Seattle’s retail sales increasing quarter after quarter, assisting the strength of the retail market overall and helping retail landlords make the case for higher rents.