The Puget Sound region may be home to the growing online retail giant of Amazon, but bricks and mortar retail development is in the best shape it’s been in since the beginning of the Great Recession. After five consecutive years of strong employment growth and resultant in-migration of highly paid tech workers, the Seattle market is continuing to enjoy gains in retail sales volumes, which are projected to grow 4.5 percent in 2016.
Demand for retail space has pushed overall vacancy rates to 3.7 percent throughout the metro area. For the 12 months ending on June 30, 2016, there were only 500,000 square feet of new space built. This is in contrast to the recent annual absorption that has exceeded 1 million square feet. Overall vacancy rates reflect the demand for new space and asking rents have climbed correspondingly.
The majority of new retail construction is occurring in mixed-use projects, such as ground-floor spaces at new residential developments. The largest chunk of retail space currently under construction, however, is within the $1.2 billion expansion of Kemper Freeman’s Bellevue Collection in Downtown Bellevue. In all, the project will add 375,000 square feet of new retail, which is 85 percent pre-leased. The 200,000-square-foot former JC Penney at Bellevue Square is also being repositioned. Ownership worked for 12 years to buy out the struggling department store that had anchored the mall for 54 years. The three-level department store has been renovated for specialty retailers that include apparel chains Zara and Uniqlo, as well as a Whole Foods 365 store.
TRF Pacific began construction on a 110,000-square-foot neighborhood center in Sammamish with Metropolitan Market as the grocery anchor. Another shopping center under construction is the 200,000-square-foot Olympic Towne Center anchored by Fred Meyer in the growing Gig Harbor area of Pierce County. A lifestyle center of up to 450,000 square feet at the Everett Riverwalk brownfield redevelopment in Snohomish County (known to locals as the former tire fire site) is also in the planning stage.
The saga of local grocer Haggen’s rapid expansion, subsequent decline and bankruptcy in 2015 has resulted in several of its locations sitting vacant, although some have been converted into fitness clubs, medical clinics and the like. Sports Authority’s 2016 bankruptcy is sure to affect its 14 Puget Sound stores. A lease auction was held in June 2016 but the disposition of these properties is not yet known.
Investment sales have been limited due to a lack of willing sellers. One recent high-profile sale is the Whole Foods-anchored, 73,800-square-foot retail portion of the 2200 Westlake property that transacted in February.
With limited new supply coming online in the next several years, the outlook for the retail market remains very positive for the balance of 2016.
— By Gregory Bucklin, Director, Integra Realty Resources — Seattle. This article first appeared in the October 2016 issue of Western Real Estate Business.