The Puget Sound retail market continued to progress in Q2,
as tenant demand remained high.
Overall quoted NNN rental rate for all submarkets rose to $22.93/SF
Upticks in new construction and deliveries were huge contributors to retail growth across the region in Q2 2018. Puget Sound retail sales increased by $1.4 billion quarter over quarter and are expected to increase another $4 billion over the next year. Nationally, sales increased by 0.5% in the month of June, and 6.6% year over year. E-commerce continues to disrupt the traditional retail business models, with Amazon garnering 49% of all U.S. online retail expenditures. Vacancy in Puget Sound returned to its 2017 year-end recorded level of 3.5%, as absorption dipped by 21% this quarter. The region saw the highest total SF of deliveries since Q1 2017, with the grocery sector accounting for the majority of the construction. On the Eastside, Bellevue Way in the CBD is still the prime location for high-end retail space, and rents continued to soar in that area. The Bellevue Collection shopping center, for example, is fully leased, a remarkable indication of the market’s limitations for retailers. Owner Kemper Development reported 31% sales increases year over year, prompting it to move forward with a 200,000-SF expansion of the Bellevue Collection to begin construction later this year. Challenges remain, however, as the sector continues to evolve. The Tacoma Mall Sears, for example, is one of 48 stores slated to close this fall, leaving a huge availability in a changing market.
- Costco’s 150,000-SF store in Tacoma was the biggest delivery of the quarter and expanded the wholesaler’s footprint to Pierce County.
- The 262,626 SF of deliveries this quarter was the second-highest total since Q4 2015, trailing only Q1 2017 when more than 750,000 SF was introduced to the market.
- Best Buy’s lease of 46,500 SF at Lynnwood Square in the Edmonds/Lynnwood submarket was the largest deal signed in Q2.
- The Shopping Centers sector saw the highest absorption in the region at 484,486 SF. Conversely, Mall properties recorded 225,201 SF of negative absorption as demographic shifts and e-commerce continued to force a reconsideration in the occupancies of traditional retailers.
- As 2018 progresses, rents should continue to increase as demand from all types of retailers remains strong.
- At the end of June, Amazon made a push into the healthcare industry by acquiring PillPack for $1 billion. This may cause CVS and Walmart, among others, to rethink their consumer strategies and look for ways to reinvent their business models — including how they occupy real estate. Further Amazon expansion into new sectors may also result in more joint ventures or technological advancements from other brands hoping to avoid losing additional traction.