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November 29, 2022
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Seattle Industrial Vacancy Rate Drops to 4.2%

5/16/22

This report was provided by real estate services firm Cushman & Wakefield

ECONOMY: Labor Force Nearing Full Recovery Heading Into 2022

Entering the third year of the Covid pandemic, the industrial sector has been largely unaffected, as most workers are considered essential and have worked onsite throughout. Employment in the greater Seattle area reached nearly 2.1 million jobs during the first quarter of 2022, a rise of 106,300 jobs year-over-year (YOY). The unemployment rate dropped 180 basis points (bps) YOY to 3.9%, slightly above the US unemployment rate of 3.6%. With all this in mind, the labor market in the Puget Sound region is seemingly back to pre-pandemic levels.

SUPPLY AND DEMAND: Vacancy Continues to Drop, Absorption High

The Seattle industrial market reported a vacancy rate of 4.2% in the first quarter of 2022, down 130 bps YOY. Vacancy was highest in the South Sound at 7.5% (down 450 bps YOY) and lowest in North Pierce County at 2.9% (down 220 bps YOY). Vacancy for the entire market is forecasted to decline further over the next twelve months as steady demand for premium product, especially for space closer to the ports, intensifies. Overall absorption for the first quarter was reported at positive 1.4 msf, a colossal improvement from the negative 524k sf reported a year ago. The delivery of nearly 700,000 sf to the market – nearly 75% preleased – was a huge help. Large move-ins in Kent, Frederickson, and Lakewood were also factors in the positive absorption.

PRICING: Average Rents Surpass $0.90 Mark

The Seattle industrial market asking rents increased to an average of $0.94 per square foot (psf) on a monthly NNN basis, a YOY increase of 16.1% (+$0.13). The rents were highest in the Seattle In-City market ($1.30 psf) and the submarkets of University Place ($1.97 psf), Parkland/Spanaway ($1.18 psf), and Puyallup ($1.17 psf). Prices are expected to continue rising in the second quarter, due to low vacancy rates, new premier space, and the expansion of e-commerce and 3PL companies throughout the region.

CONSTRUCTION: 688k sf Delivered in Q1

The Seattle industrial market inventory welcomed 688k sf of new space in the first quarter. Notable deliveries include Pacific Gateway – Bldg 1 (342.2k sf; partially leased to Veritiv) in the Kent submarket, Puyallup Logistics Center (197k sf; fully leased to Red Dot) in the Puyallup submarket, and Lakewood Logistics Center - Bldg V (148.4k sf; partially leased to Sound Publishing) in the Lakewood submarket. Over 6.6 msf of under construction projects were available at the end of the quarter, with 2.3 msf in the rapidly growing South Sound market. Nearly 5.8 msf of the space under construction is due to deliver in 2022. Another 20.6 msf of proposed projects is in the pipeline. Over 8.2 msf of the proposed projects are in the South Sound market, where developable land is less expensive and rental rates are lower than the submarkets located closer to or within Seattle and the Kent Valley.

LEASING ACTIVITY: 5.7 msf Leased to Start the Year

Leasing activity in the Seattle market was off to a fantastic start in the first quarter of 2022, with nearly 5.7 msf leased. Several deals accounted for the sizable figure, the most significant of which was Floor & Dιcor preleasing 1.1 msf at the FRED310 project. In other key deals, Samsung renewed and expanded 545,000 sf at Prologis Park Tacoma – Bldg A in the Tacoma submarket; Tempur Sealy leased 495k sf at The Cubes at DuPont – Bldg B in the Dupont submarket; and Bunzl renewed its 254k sf space at Rainier Park of Industry – Bldg 6 in the Sumner submarket. With opportunities to expand in the South Sound and beyond, companies will continue to seek large blocks of space
for leasing opportunities.

OUTLOOK

• The Puget Sound industrial market is seemingly fully recovered from the pandemic, as rents and vacancy have returned to its pre-pandemic levels. The region will ride this momentum throughout 2022 and beyond.

• 3PL & e-commerce occupiers have been instrumental in driving the rise in leasing activity and will continue to do so. Many logistics firms have focused on renewals.

• Absorption will remain in the positive due to occupiers signing deals for large blocks of space, especially preleases.

• Rents are forecast to rise due to low vacancy, new construction, and tenant demand.


This report was prepared by Brian Cagayat, Research Analyst, Cushman & Wakefield





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