The Seattle/Puget Sound industrial market is poised to maintain its sizzling streak into 2017.
Regional vacancy continued its decline to 2.6% by the end of 2016 as positive net absorption topped 4 million SF for the second consecutive year. Leasing activity in the Kent Valley was again the key contributor to the vacancy drop, recording 619,902 SF of net absorption in Q4, over 76% of the region’s total. Warehouse rents are increasing significantly throughout the Puget Sound as the construction pipeline expands to keep up with incessant demand. There is 4.7 million SF under construction, despite the delivery of 8.1 million SF over the last two years. Boeing already shed 8% of its U.S. workforce in 2016 with approximately 4,000 laid off in the Seattle area. In Washington, the manufacturing industry lost 6,300 jobs during 2016. Still, the newly-elected Trump administration has promised to increase infrastructure spending, deregulate the energy sector, and encourage domestic manufacturing – all of which would greatly assist the continued growth of industrial markets nationwide. Amazon announced it is hiring 100,000 more full-time U.S. workers by mid-2018 with at least 60% of that going to its expanding fulfillment center network. U.S. construction spending hit a 10-year high in November while Washington added 12,800 construction jobs over the course of 2016. As Seattle is a still-growing major metropolitan area with a tight industrial market, land restraints for future development, and access to major ports and airports – the industrial outlook for 2017 remains bright for landlords and developers as the options for tenants remain few and far between for now.
- 2.3 million SF delivered in Pierce County during 2016, accounting for over 57% of all new supply for the year.
- Boeing’s 1.3 million SF 777X Wing Plant in South Everett that delivered in May accounted for 31% of the 4.1 million SF of deliveries in 2016.
- Manufacturing properties recorded over 411,000 SF of net absorption during Q4, 42% of which occurred in the Northend.
- Kent Valley warehouses remain in high demand as 583,069 SF of net absorption recorded during Q4, bringing the 70 million SF market to an astonishing 1.8% vacancy by the end of 2016.
- With demand spilling over into 2017 and large block leasing at new construction continuing, we expect vacancy rates to remain low until September, though will likely edge back up toward end of the year as more speculative supply becomes available. Rental rates should continue to rise until more space delivers and Seattle/Puget Sound industrial investments will remain a top item on the wish lists for institutional capital.