As a key member of Seattle’s Industrial Services team at Cushman & Wakefield Commerce, Tony Kusak, SIOR, joined our Q&A to speak about the future of the industrial market in Seattle and the Puget Sound region. Kusak has represented industrial clients nationally and locally. Read to find out how Kusak sees the industrial market is evolving in our region.
2017 is shaping up to be another great year for the industrial market, how much longer can we expect this market performing at this level?
The duration of the current expansion cycle in the industrial market is a topic on minds across the globe. This industrial expansion has been unprecedented on the demand side while incredibly controlled on the supply side. There are paradigm shifts in segments such as e-commerce that are significant drivers in this expansion. Developers and lenders have learned many lessons from the last recession that have provided stability to this expansion. Currently, market participants are not seeing many chinks in the armor and are busy managing strong market demand.
We are continuing to see a strong industrial market locally and in many major markets across the world. E-Commerce and same day delivery will continue to evolve the market. This disruptive technology will continue to result in changes in building design and market dynamics.
There’s a shortage of supply of industrial space relative to demand, so given the lack of supply, do you see more industrial development happening in the next 3-5 years and if so, where?
We expect to continue to see speculative development in the Kent Valley marketplace, primarily along the I-5 corridor between Tacoma and Seattle. The markets South of Tacoma are going to continue to primarily serve as build-to-suit markets with strategic speculative construction. We are seeing significant redevelopment of legacy industrial sites through the core market. This is most evident in South Seattle although the theme of redeployment of legacy industrial has been a theme across the market that we expect to continue for several years.
Will the industrial product change? Is the old industrial product that exists now sufficient enough to cover the needs of new tenants and if not, what will that new product look like?
We are certainly seeing a strong preference towards more functional industrial real estate. Properties that have been built in the last 10-20 years lease significantly faster and at higher rates than product built in the 1970’s, 1980’s or before. Design specifications for state-of-the-art industrial are continuing to evolve. Speculative buildings are now being delivered in Seattle at clear heights of 36 feet, with developers paying particular attention to features such as trailer parking, car parking and building configuration. This continued evolution will likely increase the separation between older and newer product.
What are companies today looking for when they’re looking for a good industrial asset?
Users in the market for an industrial facility are focused on a number of factors, with each user having specific ranking of the criteria. Location has been a key attribute in the current market expansion. In addition, clear height, sprinkler systems, trailer parking, dock door equipment are all examples of important needs to be met when satisfying needs of an industrial occupant.
We are focused on evaluating the importance to users of some of the recent evolution in facility design. Developers are now delivering buildings with new features, and we are interested to see which features are most important to the tenant community. We are also tracking closely the evolution of the South Seattle marketplace where trends such as same day delivery have brought new attention and redevelopment.
In terms of investment in this market, who are going to be some of the investors entering the market in the next 3-5 years?
The Seattle industrial market has been regarded to have terribly high barriers to entry and has seen few new players to the market. The investment for an out-of-town national developer to enter Seattle is great due to the limited availability of land, which increases competition, and the challenges managing the entitlement process due to issues such as wetlands, topography and soils. Investors seeking to buy existing product often struggle to understand the unique market dynamics and come up short in their underwriting. All this said, there have been several organizations, many that have participated in the market previously and are now returning to the market. We expect they will grow their presence in coming years along with existing investor/developer companies such as Dermody, Trammell Crow Company and Crow Holdings Industrial to name a few. There are other investor/developer companies that have not yet found their entry to Seattle but are getting prepared to make a splash.
When thinking about leasing rates, how do you see this market evolving in 2017? Will vacancy shrink more and leasing rates go up and if so, to what levels?
We are seeing much of the speculative development lease prior to delivery or just following delivery. This trend has existed for the last several years and resulted in the declining vacancy. We see this trend continuing.
What are some of the more significant deals you’ve done in the last year?
Our team has completed several major tenant representation, agency leasing and investment transactions in the past year. One major transaction included the sale of the 57.5 acre former Interfor mill in Tacoma, WA to Industrial Property Trust where our team is representing Industrial Property Trust in the leasing of their 1.2 million square foot development.