Puget Sound’s Industrial Leasing Activity is Explosive in 2021

by Jeff Shaw

By Brian Cagayat, Research Analyst, Cushman & Wakefield

Washington officially reopened at the end of the second quarter of 2021, lifting most of the COVID-19
restrictions that had been in place for more than a year and bringing a mixture of relief and uncertainty to residents and businesses. Workers in the industrial sector were mostly considered essential, so many continued to work onsite through the pandemic. The industrial sector was also instrumental in helping aid and support everyone through the pandemic conditions, with some of those leading industrial users based here in the Puget Sound.

Brian Cagayat, Research Analyst, Cushman & Wakefield

New leasing activity in the Puget Sound region has been explosive in 2021, totaling 14.1 million square feet in the first half of the year. This has nearly equaled the 15 million square feet of annual activity tracked in all of 2020. Net occupancy growth still remains a bit in the red through the first half of 2021 with a negative 423,000 square feet of absorption. However, we expect a considerable portion (of over 10 percent) of the 29.1 million square feet of leasing activity signed since 2020 to translate into net growth in future quarters once those companies officially take occupancy. Ecommerce and 3PL firms have been the main occupiers, taking large blocks of space at the outer edges of the region, from as far south as Lacey and as far north as Arlington.

Construction is also on pace with 2020 figures. About 1.8 million square feet has been delivered so far in 2021, which is nearly 200,000 square feet above the 1.6 million square feet completed at mid-year 2020. Meanwhile, about 5.9 million square feet of the 10.8 million square feet of space currently under construction is slated for delivery by year’s end. 

Landlords and tenants alike have been focusing on the rapidly growing South Sound market, where land is cheaper for development and rental rates are traditionally lower than the submarkets closer to downtown Seattle and the industrial-heavy Kent Valley. The same could be said for the Northend market, where Amazon has preleased nearly 3 million square feet in two projects. This includes Project Roxy (aka Amazon at Arlington) in the North Snohomish submarket and LogistiCenter at Mountain View in the Everett submarket. 

Vacancy grew slightly year over year in the Seattle market, rising 120 basis points from 4.3 percent to 5.5 percent. Despite the additional space, the rate is forecasted to drop over the next 12 months as demand for
premium product is expected to grow considerably. Rent also rose year over year, ending the second quarter at a rate of $0.92 per square foot on a monthly, triple-net basis. This was an increase of 4.1 percent (+$0.04) year over year. Prices are expected to rise through the rest of the year due to the region’s low vacancy rates, new
premier space expected to deliver, and the expansion of ecommerce and 3PL companies throughout the region.

Industrial buyers are still attracted to the Seattle market despite the pandemic’s effects on investment sales. According to Real Capital Analytics, a total of $1.3 billion in industrial product has traded since the beginning of the year, a 138.2 percent year-over-year change. Sales are almost certain to surpass the $1.9 billion that traded during 2020.

The Seattle industrial market’s outlook remains positive, with leasing activity and tenant demand expected to outpace new construction.

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