Seattle’s Industrial Market Pauses During COVID-19
By Jeff Forsberg, Principal, NAI Puget Sound Properties
It has been interesting, to say the least, since our governor issued the stay-at-home order on March 23 and we all started contemplating a future where we’d never have to get out of our pajamas. Though our market’s industrial sector isn’t immune to disruptions, the immediate fallout from the COVID-19 pandemic is not quite as dire as some might have projected.
The Seattle industrial market comprises about 223 million square feet. This essentially covers the area between the two major ports (Seattle and Tacoma) in our region. Bolstered by large lease transactions with PCC Logistics (400,000 square feet), Darigold (284,067 square feet), Scotts (245,185 square feet), Ikea
(200,000 square feet), Infinity Global Express (203,505 square feet) and Filson (126,028 square feet), our market posted respectable second-quarter lease stats.
The current vacancy rate hovers at 5.05 percent, which is great for any market but slightly above average on what we have seen here over the past 10 years. The average monthly shell rate has remained flat at $0.659 per square foot, but apart from a few subleases, we haven’t seen a dramatic reduction in rent.
Driving most of these trends is the rising use of ecommerce – and you can’t talk ecommerce without mentioning Amazon. Amazon’s presence in our market is nothing new, but its appetite over the past 12 months has been staggering. By our calculations, Amazon currently occupies 5.6 million square feet in our region. More than half of this (2.52 million) was taken in the past year.
Land is awfully expensive in our region, ranging from $35 to $40 per square foot in the heart of Kent, if you can find it. Given the high land basis and rising construction costs, we thought we might see a pause in some new construction here, but that doesn’t seem to be the case with 7.3 million square feet under construction. In fact, LINK and Panattoni just announced they’re breaking ground on a 54-acre former Boeing site. The five-building business park will total 807,897 square feet once it’s completed in 2021. One casualty of this slowdown has been our once-vibrant sales market. The second quarter marks a nadir of low activity with only seven significant deals. The numbers are misleading as 933,441 square feet traded hands last quarter, but if you consider that 685,974 square feet of this was Industrial Realty Group’s acquisition of the hodgepodge six-building Supervalu site in Tacoma, you get an idea how slow things were.
Where we go from here is anyone’s guess. Will reshoring of manufacturing make an impact? What kind of impact will Washington State’s projected $8.8 billion revenue shortfall have over the next three years? We know local businesses are still shedding jobs at a decent rate, and that trend tends to point to a slow and prolonged recovery. These are unprecedented times, but the good news is we can get out of our PJs and get that hair cut now.