Outlying Seattle Submarkets Positioned for Retail Expansion
By Hank Wolfer, First Vice President of Investments, and Derek Peterson, Associate, Marcus & Millichap
National retail chains favor Seattle’s surrounding neighborhoods. Prior to the pandemic, retailers were taking notice of strong demographic trends in the submarkets surrounding Seattle. Between 2009 and 2019, the number of households across the metropolitan area grew by 13 percent, nearly double the national rate. High homeownership costs directed many of those new households to the suburbs where living expenses are lower.
Following rooftops, multiple developers have pursued expansion opportunities in these areas, with recently opened projects in locations like Renton, Frederickson and Shelton. These new floor plans are drawing prominent retailers, including 7-Eleven and medical provider DaVita Dialysis, as well as fast food operators like Popeyes. Although initially challenged by lockdowns, these facilities are poised to benefit from the ongoing economic recovery.
Suburban properties are outperforming urban counterparts. While no tenant was free of pandemic-induced challenges, operations outside the urban core proved more resistant on average. Vacancy in downtown Seattle rose 80 basis points over the 12-month period that ended in March. This is compared with a 60 basis point climb in Tacoma and a 20 basis point increase in the Southend. Moving through the rest of 2021, metro-wide vacancy is anticipated to decrease slightly as customers return to stores and require more space. Asking rents should continue to improve as well, especially in the Southend where deliveries for 2021 are negligible. The average marketed rate for the submarket has already grown by more than 10 percent between April 2020 and March 2021. This is well above the 2.7 percent gain recorded in downtown Seattle for the same period.
Public transit extensions improve suburban retail outlook. Retail properties in the Northend and Southend are poised to benefit from ongoing light rail expansions. This transit system will eventually extend from South Snohomish County through Sea-Tac Airport and down to Federal Way, cutting some cross-market commute times in half. While these projects will not be fully completed for some time, the boost in population mobility will aid Seattle’s ongoing suburban residential expansion and associated demand for nearby retailers. Several existing assets situated along these new transit corridors may be well suited for repositioning, in addition to new development opportunities that may arise around future rail stations.