By Meghan Hall
The rise of e-commerce has changed the demand for industrial space across Seattle as fulfillment and distribution centers are competing with traditional manufacturing and warehouse businesses for limited space close to the bulk of the city’s population. For Avenue 55, the Seattle-based developer of Track 6, this is positive news; the market will continue to support the development of its 212,516 square foot industrial project in Seattle’s South of Downtown (SODO) neighborhood. The development, which just received its Master User Permit a few weeks ago, is positioning itself as an ideal company headquarters opportunity for growing companies in the region.
“That’s one thing that is driving the market, e-commerce and next-day delivery, and having a facility that is close to rooftops,” explained Joe Blattner, Avenue 55’s founder and president. “In Seattle, the industrial market is spread out from the central business district and the ports. That’s why [tenants] pay to be close in.”
Track 6, located on Andover St., sits on 2.5-acres. The new development will be four stories and feature 54,000 square foot floor plates, a ground floor with 24-foot clear heights, wide column spacing, forklift-rated freight elevators and 108 surface parking stalls. The building is designed to accommodate a vast array of tenants, including storage, distribution, R&D, manufacturing and assembly. Craft Architects is the project’s architect of record.
“The space needs in Track 6 is super flexible and meant to accommodate a wide variety of uses,” said Blattner.
And, in a rare decision for industrial development, Avenue 55 has made the decision to build up. Historically, said Blattner, industrial spaces in and around Seattle have been single story, and it simply made more sense to expand outwards. However, an increasingly constrained real estate market, along with the changing needs of industrial tenants, prompted Avenue 55 to construct a four-story building.
“From a cost perspective, it hasn’t made common sense to go high,” explained Blattner. “But as prices and rental rates have increased, it has made economic sense to go ahead and develop up rather than out. Seattle, in particular, is a very tight market. It has water on one side, mountains on the other, so it is very hard to find property and certainly everything close-in has been developed out.”
Additionally, said Blattner, business owners and their workforces are looking to keep their commutes short, not just between their business entities, but between work and home.
“Business owners often have skilled labor that is loyal and neither the owner nor the labor wants to travel to get to a facility that they need to either expand or gain efficiency,” said Blattner.
According to Kidder Mathews’ 2019 Q1 Industrial Market Report, while the first quarter saw negative absorption of about 110,000 square feet, and construction volume at 5.8 million square feet is high, Seattle’s industrial market will remain strong and rental rates will continue to rise. Kidder Mathews states that the region’s employment growth is slated to reach 2.6 percent, while import volumes are up 10.9 percent.
In South King County in particular, where Track 6 is located, the neighborhood saw vacancy rates rise to 5.35 percent, but Kidder Mathews attributed the spike to companies such as Uline relocating outward. 38 leases totaling just over 1.4 million square feet are expected to take effect in the next nine months, filling open vacancies in the South King County market. Average asking rents (blended) increased to $0.75 per square foot, and rates on newer product, like Track 6, will continue to increase. Shell rates on new construction buildings currently sit. At the mid-$0.60s per square foot, with office add-ons now $1.00 per square foot, states the report.
Track 6 is about 8 months from starting construction, said Blattner, although the Avenue 55 has already started marketing the property, which has garnered a lot of interest. While no leases have yet been signed, Blattner anticipates that interest in the property will also pick up pace as it nears completion. Buildout for the $60 million project is anticipated to take 12 months.
“I think it’s highly likely that at least a portion of Track 6 will lease prior to completion,” said Blattner. “Traditionally in this market, industrial tenants don’t lease until properties are completed; for whatever reason they haven’t typically made their real estate decisions that far in advance.”
Blattner cited Avenue 55’s experience with its West Woodland Business Center in Ballard. While smaller at 71,640 square feet, the property was more than 50 percent leased before construction was finished, said Blattner.
However, Blattner believes that as development throughout Seattle continues, tenants will be forced to sign leases earlier than expected as they learn to plan and account for future growth.
“I think it’s going to be a trend; traditional industrial space in the SODO area has been commonly commodity distribution, and that type of space has been readily available,” said Blattner. “I think that’s changing. Commodity space is moving south and flex and assembly space is moving further in, and that requires making real estate decisions further in advance.”