Our recent market activity spotlights the differential between the Haves and Have-Nots. Third quarter 2011 was exceptional for large, Class A facilities in Kent Valley. Thanks mostly to international corporations, direct vacancy rates dropped about 1 percent point and now hovers at 7.89 percent. We have also experienced net absorption of 348,358 square feet. This marks the fourth consecutive quarter of positive net absorption, bringing the annual total to 968,784 square feet.
After experiencing record corporate earnings and large cash reserves, companies like Brooks Sports, Amazon, Sealed Air, Graybar, Electrolux, Bunzl, Pacer, International Paper, Sealy and more have expanded or looked to expand their presence in our market. Seeking state of the art, 30’ clearance, ESFR distribution facilities, these corporations have caused a shortage of Class ‘A’ space and a rent hike of 5 percent to 10 percent. However, regional and local companies are still struggling, while the mid-size market that services those spaces has not significantly recovered. On average, spaces available in that size range (over 66 spaces at press time) have been on the market for about 18 months.
Unlike the otherWest Coast ports, container traffic in this Pacific Northwest region hasn’tt increased dramatically. To date, the Port of Tacoma shows a modest 1.9 percent gain in TEUs at 963,000, whereas the Port of Seattle is reporting an 11 percent drop in container traffic.
One of the reasons for the recent growth might be the resurgence of Boeing, especially in its North Everett location. After a three-year delay, the Boeing 787 Dreamliner is ready and the company is ramping up production to meet orders. It is also rumored Boeing may create an industrial super site to service the Dreamliner and the company’s newly acquired Air Force tanker contract. If this happens, it will mean a boom for the entire Puget Sound area’s industrial markets, as many of the tenants in the Kent Valley are suppliers for Boeing.
After nearly 3 years on the sidelines, some new construction should hit the region next year. In fact, Prologis is looking to break ground on a speculative 184,300-square-foot building in Fife that would be erected on the old 13.87-acre Richtor Farm site. The company acquired this site earlier this year for $1.6 million. There are also two build-to-suit projects in the works: Alsco has acquired the 6.08-acre Verizon site in Kent where it plans to construct a 69,600-square-foot laundry facility. Hospital Central Services Association also plans a slightly larger laundry facility at the 5.99-acre M Street site in Auburn. Plans have already been submitted for a 146,000-square-foot facility.
Unfortunately, investment activity is not as robust as it was in the beginning of the year, but this is likely due to a lack of inventory rather than a waning of institutional demand. Due to demographics in our area and the geographic restrictions on growth, institutional-grade industrial property is as hot as ever. Valley Avenue Business Park, a five-building, 443,000-square-foot park in Puyallup will support this claim. Reportedly under contract for close to $90 per square foot, the ultimate pricing on this project surprised many in our market.
So where do we go from here? The general consensus is that the market is slowly recovering. The big box boom will hopefully increase the smaller end-users’ confidence and spur them into activity. Given our national slow job growth and the restraint on capital, we don’t believe our market will boom back anytime soon, but slow and steady gains will get us out of this recession.
– Arie Solomon, principal, NAI Puget Sound Properties in Bellevue.