The Puget Sound industrial market continued to escalate
in the final three months of 2018.
The Puget Sound industrial market continued to escalate in the final three months of 2018 as demand, driven by e-commerce, remained strong across all product types. Unoccupied space in newly delivered properties impacted vacancy, however, despite a fourth straight quarter of positive absorption. The slight uptick in vacancy had little effect on rental rates, which saw growth in reflection of ongoing tenant competition.
The Puget Sound’s vacancy rate rose to its highest level since Q1 2015 at 4.1%, driven by more than 1.6 million SF of new deliveries in Seattle, Kent Valley and Pierce County. Prologis Georgetown Crossroads in Seattle, a first-of-its-kind, three-story warehouse totaling 589,615 SF, was one of seven buildings to deliver this quarter. Per the norm for most new industrial buildings, a portion of that property has already been leased — 97,000 SF to Home Depot. E-commerce continued to play a significant role in market dynamics as Amazon committed to a new lease exceeding 53,500 SF at Prologis Park Kent and Wayfair occupied 81,000 SF at Northwest Corporate Park, both in Kent, among other events. The largest transaction this quarter was Young’s Market’s lease of the entire 287,832-SF DCT Hudson Distribution Center in Auburn. Investor demand for Puget Sound industrial properties dipped slightly in Q4, though value per SF continued to increase. In Bothell, SteelWave PCCP closed on the purchase of Canyon Park Business Center at 1909 214th Street SE for $145.5 million ($230 PSF). Two other transactions also exceeded $100 million this quarter: Safeway Distribution Center at 3647 C Street SW in Auburn for $144.5 million ($126 PSF) and Des Moines Creek Business Park at 21222 24th Avenue S in Des Moines for $111 million ($217 PSF).
- Nearly 1.7 million SF delivered in Q4, more than double last quarter’s total. Prologis Georgetown Crossroads was the largest property completed during the quarter, followed by the 542,750-SF DCT Blair Distribution Center and the 229,016-SF IPT Sumner Distribution Center in Kent Valley.
- 94% of Q4 deliveries were located in Pierce County, as the submarket continued to generate high demand from tenants.
- In addition to e-commerce, big distributors and big box retailers influenced demand for warehouse space in all submarkets.
- Pierce County saw the two biggest leases of 2018: SBS Transportation, which took up 444,428 SF at the IPT Tacoma Logistics Center, and Best Buy, which closed on 405,000 SF at Frederickson Pacific Industrial Park.
- Moving forward, activity in Pierce County will likely have the greatest impact on the market in 2019, as more than 3.2 million SF of projects are currently under construction.
- Rents will continue to increase, but the added supply will give tenants more options.
- Over 4.5 million SF of projects have been proposed for development in Frederickson, a submarket to watch in the coming year. One property, the Panattoni Frederickson 184, broke ground this quarter, with an estimated completed date of Q1 2020.