The Seattle/Puget Sound retail market continues to grow
with vacancy at 3.5% and NNN rental rate growth of 0.8%.
Vacancy rates remain at a 10-year low as two more deliveries hit the market this quarter. Downward trends in construction continued and rents are expected to keep marching up as a result. The influx of highly-skilled tech and life science workers, along with an uptick in residential construction, have helped keep retail demand high in the market. Due to the migration of these workers, regional buying power continues to increase and has grown 25% since 2013. The Puget Sound region added a total of 15,000 wholesale and retail jobs in 2017, according to the Puget Sound Economic Forecaster. E-commerce has further dominated department store sales as online figures in the state grew by almost 11% since 2016. Conversely, in-store sales increases failed to eclipse 3%. This could prove costly for cashiers, as the upcoming introduction of Amazon Go could force grocery retailers to eliminate checkout lines entirely as a way of staying competitive in the market. Notable Puget Sound markets, Seattle and Bellevue, saw the number of well-paid residents go up in the region, which helped brick-and-mortar retailers such as Target and Zara generate positive outputs at the end of 2017. 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. Triple-net rates are quoted at $28.35/SF in Seattle and $26.95/SF on the Eastside.
- Seattle has seen nearly 1 million SF of new retail space over the last twelve months, with the vast majority coming from over 845,000 delivered in Q1 2017.
- The largest delivery of 2017 was Ikea Renton, which took up 406,000 SF in the Renton/Tukwila submarket.
- Demand from retail tenants remains strong as employment, population, and household income are increasing faster than the any other national market.
- Even though the Seattle region saw negative absorption dating back to Q4 2016, there was a total of 710,011 SF of positive absorption over this same period for the region.
- Vacancy continues to remain low and will likely drive rents higher in the coming quarters as construction is projected to dip even more in 2018.
- A growing regional economy headlined by technology and e-commerce will also have a positive impact on rents in the future. 868,909 SF of retail space is currently under construction in the market, most of which is slated for completion in Q2 2018. A majority of this future inventory consists of The Village at Totem Lake, a lifestyle center that will expand the affluent Eastside market.