The Seattle/Puget Sound industrial market maintains its torrid pace.
The regional vacancy rate was pushed down to 2.8% to end Q3 2016, creating a very favorable market for industrial landlords. The low amount of existing available space has helped push rental rates up dramatically. Warehouse rental rates edged up at least 6% year-over-year in each of the five Puget Sound markets. Regional net absorption totaled 975,080 SF for Q3 2016 while year-to-date absorption surpassed 3.2 million SF, already 110% of the absorption at this time last year. With such a tight market, industrial developers are moving forward on speculative projects throughout the region to capitalize on this mismatch between industrial supply and demand. In the Northend, Underwood Gartland’s project in South Everett has already landed its first tenant – Columbia Distributing for 145,000 SF, leasing 73% of the project. Down in Kent Valley, the 2nd largest industrial park on the West Coast, Segale Properties is well underway with 371,000 SF on Lot 3 of Pacific Gateway Business Park in Kent. Puyallup-Sumner, the largest submarket in Pierce County, is setting itself apart. With its proximity to the Port of Tacoma and access to major freeways, Puyallup-Sumner totals 34% of all industrial space under construction in the region, over 970,000 SF. Dermody Properties is developing two projects in this emerging area totaling almost 300,000 SF. Looking forward, we expect strong leasing and low vacancy rates to continue as tenants such as FedEx, Amazon, Ekos/BTG, and Boeing have rumored requirements of over 100,000 SF.
- With record low vacancy rates and solid rental rate growth, the industrial development pipeline is expanding throughout the Puget Sound. Projects continue to break ground without a tenant signed, showing the real strength of this industrial market.
- 32 buildings delivered 4 million SF of industrial property to the Puget Sound during 2015. This year will fall short of last year’s total, but not by much. Almost 3.7 million SF are due to deliver by the end of 2016.
- Kent Valley warehouses remain in high demand, recording the second straight quarter of 500,000+ SF net absorption; 54% of total absorption for warehouses this quarter, regionally. 52% of Q3 2016 total net absorption is attributable to Kent Valley submarkets.
- Northend and Kent Valley submarkets combined make up 81% of total net absorption for 2016. Despite delivering over 701,000 SF of new supply so far this year, Pierce County has totaled over 129,000 SF of net absorption year-to-date and 43% of 2016’s new supply has already been occupied.
- With industrial demand not letting up, we expect vacancy rates to remain low for at least the next two quarters before new speculative construction comes online. With a possible slowdown in 2017 combined with an expanding development pipeline, the vacancy rate will spike eventually, but until then, rental rates will likely continue trending upward.