Seattle has always been a strong industrial market, known for its busy ports and, more recently, its position as one of the most successful tech hubs outside of Silicon Valley. As the global economy continues to shift toward the Internet of things (IoT), Seattle industrial space is catapulting into a new category of demand.
That growth is spurred on by companies like Microsoft, Amazon and Google, which continue to expand their footprints here and generate a growing inflow of technology, population and industrial requirements.
Ryan Madson, EverWest
The ports of Seattle and Tacoma were ranked among the busiest in the nation at the end of 2018. They collectively processed nearly 3 million TEUs (or 20-foot equivalent shipping container unit) in volume. Year-over-year, Seattle’s TEU has also grown by 27.5 percent, one of the fastest growth rates of all U.S ports.
This activity has kept the Puget Sound industrial vacancy rate at 4.9 percent as of the second quarter of 2019. Industrial inventory in close-in areas of South Seattle like the Georgetown submarket has tightened to an even lower 1 percent vacancy rate. Rents, meanwhile, have increased north of $1.20 per square foot as more and more buildings are converted to creative office and multifamily uses. Space that is available is being filled by operations requiring close proximity to population hubs. One example of this is the Home Depot, which announced it will take down about 100,000 square feet in the new Prologis Georgetown Crossroads, a three-story industrial warehouse minutes from downtown.
Tenants seeking lower rents and greater availability (think Amazon, light industrial and manufacturing) continue to look farther south into areas like the Kent Valley for relief. Vacancy in these regions sits in the mid-5 percent range, while rents are in the $0.70 range depending on submarket and product class. EverWest has been bullish in this area for several years.
Opportunities for new development in the Kent Valley are being curtailed, however — at least for now — by an interim land-use zoning ordinance passed by the Kent City Council in April. The council unanimously voted to limit new industrial footprints to 125,000 square feet and no more than one dock-high loading door per 40,000 square feet. This moratorium is set for one year as the city conducts long-range planning on the optimal industry mix, tax base and traffic patterns for its geographically constrained market
This may push greater attention even farther south to Pierce County, where millions of square feet of active industrial construction is underway. Average rents in this county sit almost $0.20 per square foot lower than Kent, which are nearly half the rent of Seattle’s port-adjacent industrial space.
Regardless of where they land, we expect industrial interests of all kinds to continue to pick greater Seattle for its demographics and economy — and for the Puget Sound industrial market to continue to outperform for the foreseeable future.
— By Ryan Madson, managing director, EverWest. This article first appeared in the August 2019 issue of Western Real Estate Business magazine.