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September 22, 2020
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Seattle Industrial Market Saw a Strong First Quarter 2020


This report was provided to us by the Seattle office of real estate services firm Kidder Mathews

The Puget Sound region’s industrial market 1st quarter results saw the vacancy rate decrease from 4.8% to 4.6% as net absorption of 943.2k sf outpaced deliveries of 251.5k sf. There was a drop in sales activity in the 1st quarter from $179.6 mil (1Q 2019) to $98.2 mil (1Q 2020). This was primarily due to the increase in the excise tax rate that went into effect January 1.

Year over year employment (January 2019-January 2020) grew by 70,859 jobs (up 3.2%) with 8,600 jobs gained in key industrial sectors (manufacturing, construction, wholesale trade, and transportation and warehousing). This is a much better start to the year than the previous two years, but unlike the prior two years, the more recent COVID-19 pandemic is affecting societal and economic conditions in a manner not experienced in recent history. However, in most markets, it is not yet clear to what extent real estate market conditions are and will be affected. Related complicating factors include fluctuations in the stock market and changes in mortgage interest rates. Market analysis includes observing both facts and market reactions. This analysis becomes more complicated when there is no data and market participants themselves are facing uncertainty and are not yet able to form any clear consensus as to the potential effects of these factors.

In general, real estate investors and real estate capital are mostly patient, and focus on longer views that would likely bridge the effects of the current disruptions. This was proven in the Seattle markets in the 2008 recession where there were few forced sales and real estate investment lead the recovery, starting less than two years after the market crash. So far, the economic impact on COVID-19 is clearly negative. Businesses in discretionary retail, travel, and leisure the most immediately affected, with no real significant hit on the industrial market. Based on interviews of professionals familiar with the industrial market, they expect some negative results over the next one or possibly two quarters. These include prospective tenants now on hold pending how their businesses will be impacted over the next few months as well as pending sales either put on hold or not happening at all.

Three gauges on likely hits to the industrial market include employment, trade activity at the Ports of Seattle and Tacoma, and institutional capital markets. As noted above, through January 2020, our region’s employment was up 3.2%, which is pre-COVID-19. The Puget Sound Economic Forecaster’s initial 1st quarter forecast projected employment growth of 2.0% in 2020, but this was subsequently revised to an increase of only 0.5%, with a loss in jobs in the 2nd quarter (26,400) followed by a modest recovery in the 3rd quarter (+8,750 jobs), and gaining momentum in the 4th quarter (+17,500 jobs). Sectors that impact the industrial market are expected to lose 12,500 jobs in 2020. These include manufacturing (- 6,300 jobs), construction (-4,200 jobs), and transportation/warehousing (-2,000 jobs).

On the trade front, the Northwest Seaport Alliance February report indicates container volume for February 2020 was down 3.1% from February 2019. They expect March 2020 volumes to be deeply impacted by the COVID-19 virus, contributed by ship cancellations in 2020.

The institutional capital market has come to a halt. Properties listed for sale have been pulled from the market and efforts to sell have been put on hold. Properties under contract have had their due diligence period extended as the buyers are attempting to get some clarity of what is going on. The challenge starts with underwriting. Lenders will want to know where are market rents at. At this point, nobody knows because this has all happened within the past 30 days. While debt is cheap, it will be tough to get unless the property has a bullet proof rent roll. In short, while we have seen a drop off in sales due to the higher excise tax rate that went into effect January 1, very few sales are expected in the next couple of quarters.

The end result, vacancy rates will likely increase next quarter due to the following:

• Governor Inslee’s stay at home order coupled with companies grappling with their businesses due to COVID-19 will likely impact leasing demand
• While current leasing activity is likely to be impacted, there is still over 4.5 msf of leases signed and tenants ready to move-in over the next nine months. Some of these leases may be canceled, but this will certainly help offset the near-term falloff from leasing
• There is over 7.1 msf of construction activity. Nearly 32% is pre-leased. If leasing demand falls off, this will push vacancy rates upward. The other unknown is if any of these projects will be put on hold.
• Softening any negative impact on the industrial market is the near-term demand for medical-related products (masks, ventilators, etc.) needed to help treat the victims of the coronavirus.

Bottom line, we are in crazy times not previously seen.


A total of 251.5k sf was delivered this quarter. Factor in the net absorption of 943.2k sf, and the region’s vacancy decreased from 4.8% to 4.6%. Vacancy is expected to increase over the next quarter given COVID-19 as discussed above.


Construction remains very active with 30 buildings totaling 7.09 msf underway. Thurston and Pierce Counties continue to be the most active with 3.59 msf (7 buildings-Thurston) and 2.53 msf (13 buildings-Pierce), followed by Snohomish County (7 buildings totaling 585.6k sf).


Region wide, average asking rents rose in four submarkets, held steady in one and lower in one other. See individual markets for additional detail.


Absorption was positive at 943.2k sf for the quarter. Pierce County incurred the highest in positive absorption at -579.8k sf, followed by East King at 349.7k sf and Snohomish County at 338.2k sf. These offset negative absorption in South King (-221.2k sf) and Seattle Close-in (-104.2k sf).


• Morgan Stanley Service Group purchased BridgePoint Kent from Bridge Development Partners-130.6k sf | $19.83 mil, or $203/s.f.
• Exeter Property Group acquired Rexam Beverage Can in Kent from SDS Lumber & Plywood-97.5k sf | $16.7 mil, or $128/s.f.
• RealTerm US Inc acquired SPO Logistics-Renton from Scannell Properties-50.7k sf | $12.2 mil, or $244/s.f.
• Prologis continued to be active with the acquisition of 236 of Black Rock owned portfolio that included 24 properties located in South King and Pierce Counties. Total portfolio sale was $4.0 bil.


• Kimberly Clark-The Cubes at DuPont Corporate Center – 747.5k sf
• Amazon – IAC Commerce Center, SeaTac – 341.9k sf
• Wilmar Corporation – Pacific Gateway Business Park, P-152 – 245.7k sf
• Southern Glazer’s – Sumner Corporate Park, Wenatchee Building – 175.7k sf
• Amazon – Everett Commerce Center B – 167k sf
• Amazon- 18340 NE 76th Street, Redmond-142k sf


• Vacancy increased from 2.9% to 3.0% with negative net absorption of -104.2k sf
• SJS Mechanical purchased the Barcodes West Building from Falonbridge Enterprises-21.6k sf | $5.65 mil, or $262/s.f.
• Jareba LLC acquired NW Corporate Park Seattle, Building H from Mywking LLC-13k sf | $5 mil, or $303/s.f.
• Average asking rental rates on a blended basis (office/warehouse combined) increased by $0.03/s.f., to $1.22/s.f.
• Lease rates are expected to range from $1.00 to $2.00/s.f./month, NNN for medium- and high-grade buildings in the next six months.
• Yard rates will vary from $0.25 to $0.35/s.f. going south to north depending on size and whether it is paved, graveled, and fenced.


• Vacancy increased to 5.9% compared to 5.7% from the prior quarter. This is due to negative net absorption of -221.2k sf.
• 1.99+ msf of signed leases with expected occupancy over the next nine months; this should reduce vacancy over the next couple of quarters.
• 241.7k sf is currently under construction. The largest project is Prologis Park Renton (164.5k sf)

Notable sales in the 1st quarter include:

• Morgan Stanley Service Group purchased BridgePoint Kent from Bridge Development Partners-130.6k sf | $19.83 mil, or $203/s.f.
• Exeter Property Group acquired Rexam Beverage Can in Kent from SDS Lumber & Plywood-97.5k sf | $16.7 mil, or $128/s.f.
• RealTerm US Inc acquired SPO Logistics-Renton from Scannell Properties-50.7k sf | $12.23 mil, or $244/s.f.

Notable leases in the 1st quarter include:

• Amazon – IAC Commerce Center, SeaTac – 341.9k sf
• Wilmar Corporation – Pacific Gateway Business Park, P-152 – 245.7k sf
• UNFI-Valle Centre Building 2, Auburn 132.3k sf
• Krafter’s Land Cabinetry-1201 Andover Park E, Tukwila, - 71k sf

Panattoni and Blackstone Group acquired 42 acres (usable) from Boeing for $62 mil ($33/sf) at 21403 68th Ave S, Kent
Average asking rents (blended) held steady at$0.80/s.f. Shell rates on new construction are in the mid $0.60s/sf with office add-on now $1.00/s.f.
Older existing buildings are achieving shell rents in the low to mid $0.60s and $0.80 to $1.00/sf for office add-on
Sale prices are expected to range from $150 to the low $200/s.f.; land values will range between $25 to $35/sf for fully improved sites.


Vacancy decreased from 2.9% to 1.5% with positive net absorption of 349.7k sf. One project was delivered during the quarter (Boulder Building at Snoqualmie-60.2k sf) This market continues to remain very tight as several tenants unable to find space have relocated to other markets where rents are lower and supply (slightly) more plentiful.
Two projects totaling 147.5k sf are under construction. The largest is: Redmond Ridge, Building 113 (140k sf).
Majority of leases signed are under 10k sf. The largest lease was 142k sf by Amazon at 18340 NE 76th St in Redmond. Leases signed with move-in expected over the next 9 months totals 303k sf.
Asking rental rates increased $0.05 to $1.36/sf NNN warehouse lease rates with high-bay warehouse manufacturing space should range between $0.80 to over $1.00/sf/mo, with most in the $0.90-$1.00/sf range. Office rates are between $1.50/sf to $2.00/sf.
Sale prices are between $180-$250/sf. (owner/users at the high end), and over $300/sf for flex properties.
Land prices run from $20-$50/sf for a premium site, although there is a limited amount of land ready for development.


Vacancy decreased from 3.6% to 3.0%. There were no deliveries of new product, while net absorption was a positive 338.2k sf.
Leases signed but not yet moved in totals about 335k sf.
Largest lease transaction was Amazon (167k sf) at Everett Commerce Center B
Largest sale closing this quarter was Par Business Park Buildings A and B by Tabit Partners from C Bolum Family LLC-31.9k sf | $7.0 mil, or $220/sf.
Seven buildings (585.6k sf) are under construction including Marysville I-5 Industrial Center, Buildings A and B (246.6k sf), and Gayteway Business Park, Buildings B and C in Arlington (129.6k sf).
Blended rents increased $0.01 to $0.87/sf Warehouse lease rates should range $0.60-$0.80/sf/mo, NNN in the closer-in submarkets and lower ($0.50-$0.55/sf) in the outlying markets.
Office rents are $1.25-$1.50/sf for second generation space and $1.35-$1.40/sf for new space.
Sale prices are should range $150-$225/sf for buildings in the 5K to 20k sf range; $110-$170/sf for buildings in the 20k sf to 60k sf range. Flex space will be higher (between $200-$300/sf).
Land values should range $5-$19/sf with ample supply of industrial-zoned sites.


Vacancy decreased from 6.4% to 5.9% due to 579.8k sf of net absorption. Deliveries of new product totaled 191.3k sf.
Largest lease is Kimberly Clark at The Cube at DuPont Corporate Center, Building A (747.5k sf). Other notable leases include:

• Southern Glazer’s – Sumner Corporate Park-Wenatchee Building – 175.7k sf
• Mainfreight USA – Prologis Park-Tacoma, Building A – 119.4k sf
• American Fast Freight-7400 45th Street Ct E., Fife-98.4k sf

Leases signed but not yet moved in totals just over 1.67 msf.
Construction activity remains solid with 2.53 msf underway.
Largest projects include The Cubes at DuPont Corporate Center, Building B (494k sf), The Viking (438k sf) in Puyallup, Canyon Road Logistics (301k sf), SeaPort Logistics Center (269k sf), and Prologis Park Sumner (263k sf).
Blended average rents increased $0.07 to $0.72/sf. Shell rates ranged $0.55-$0.65/sf/mo, NNN, plus add-on office rates of $0.90-$1.00/sf/mo.
Sale prices will range from $140-$185/sf for new or smaller buildings. Second generation buildings will be lower in the $50-$100/sf range.
Land values typically range between $16-$18/sf for premium sites.


Vacancy increased held steady at 4.0%. There were no deliveries and absorption was a very modest 938 sf.
Leasing activity consisted of mostly smaller tenant spaces. There is 149.4k sf in leases signed but not yet moved in.
Four projects are under construction totaling 3.59 msf, the largest include Hawks Prairie Logistics Industrial Park (1.92 msf), 575.9k sf at 7816 Hawks Prairie Road, 575.9k sf at 7816 Hawks Prairie Road NE, and 510k sf at Bridge Point Lacey, Building A.
Nearly 1.8 msf of proposed projects in the pipeline.
Challenge for some of the developments continues to be the ongoing endangered Mazama Pocket Gopher habitat issue.
Rents were down $0.01 to $0.47/sf, blended. Shell rents range between $0.40-$0.44/sf on larger spaces and office add-on rates were $0.80-$1.00/sf.
Smaller spaces are $0.45-$0.55/sf on the shell with office add on at $0.90-$1.00/sf.
Building sales are expected to range from $80-$150/sf.
Land values range between $5.00-$10.00/sf
Author: Randy Gilliam, MAI, Kidder Mathews Valuation Advisory Services
Source: CoStar Data

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