Pacific Northwest Industrial Market Stays Stable

by Jeff Shaw

— By Vanessa Herzog, SIOR, CCIM, Principal, Lee & Associates | Seattle —

Industrial markets in the Pacific NW are adjusting to new parameters but remaining steady. Vacancy rates are hovering around 7% in the 6-county region along the I-5 corridor (Arlington to Vancouver, WA). Leasing activity slowed in the first quarter but started picking up as we progress through the second quarter. New construction is active with permitted projects, but the regional project pipeline is diminishing, not due to demand, but due to high land price expectation, stabilized rental rates and continued high costs of new construction. We think this trend will continue well into 2025 leaving Developers and Land Sellers frustrated. Regionally, large land parcels are difficult to find or assemble, leaving Developers looking at infill assemblages, land use changes or full site redevelopment. IOS specialized properties are slowing in demand from Tenants. Finally, we are seeing the small owner user facilities for sale or lease, and the demand from this user group level off. 

Here are some statistics: Total Inventory at 398M SF, Current Vacancy rate 7% (27.8M SF), Market Asking Rates $1.12/SF/Mo., Sublease Space 20% of total vacancy (5.6 M/SF): New Construction underway 9.9M SF. Demand for good quality product remains strong from Tenants, best exampled by the absorption of newer buildings offering 32’ to 36’+ CH, trailer parking, larger quantities of power available, strong security at the site. Landlords are being asked for turnkey Ti’s, and concessions are back in play for the most common available SF range. 

Building Sales: The first six months produced 22 building sales above 25,000 SF. Of that 14 were investors and 7 were Owner Users and 1 Government. SF Pricing averaged $213/SF, and Cap rates were mid 4’s% to just above 5%. Highest dollar sale: the recent purchase of Gayteway Business Park in Arlington, WA by EQT Exeter. This is a 365,000 SF four building project, priced at $193/SF included additional land for development. Next in line are Park East Business Park at $55 M (NWBC), Emerald Corporate Park Bldg. C at $45 M (Invesco) and Seattle Distribution Center at $44.5M (GID).

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