By Jack Stubbs
The Seattle and Puget Sound-Eastside industrial markets look poised for promising quarters ahead, if the data from recent reports are anything to go by. Cushman & Wakefield recently released two reports – MarketBeat Seattle Industrial Q4 2022 and MarketBeat Puget Sound-Eastside Industrial Q4 2022 – which provided respective overviews of the state of the industrial markets on either side of Lake Washington.
Generally speaking, the Seattle Metro Area saw positive economic growth towards the close of 2022. In terms of supply and demand (relative to vacancy and absorption rates), the Seattle and the Puget Sound-East side markets provided contrasting results: the Seattle industrial market reported relatively stable vacancy rates and decreased absorption rates while the Puget Sound-Eastside industrial market saw year-over-year decreased vacancy rates and year-to-date positive absorption rates.
The Seattle industrial market reported an overall vacancy rate of 3.4 percent in the fourth quarter down 140 basis points year-over-year. The highest vacancy was in the South Sound submarket (posting a vacancy rate of 4.2 percent, down 650 basis point year-over-year); and lowest in North Pierce County, which posted a 2.1 percent vacancy rate, down 160 basis points during the same time frame.
The Seattle industrial market is at a crossroads, the report notes, due to steady demand for premium space, which suggested a continued decline of the overall vacancy rate. However, with 6.9 million square feet set to deliver in 2023 – and with nearly 75 percent of the space as-of-now unspoken for – vacancy rates might well rise from their current levels, especially considering uncertainty surrounding the economy. Just over 890,000 square feet were absorbed throughout the fourth quarter, which marks a significant decrease from fourth quarter 2021, which posted 2.9 million square feet of absorption. Year-to-date absorption reached 2.4 million square feet, a substantial regression from the 10.6 million square feet posted in 2021.
Meanwhile, the Puget Sound-Eastside industrial market reported a vacancy of 2.8 percent in the fourth quarter of 2022, marketing a decline of 70 basis points over the last year. In terms of overall vacancy rate trends, Eastside vacancy – which historically has been lower than that of Seattle – is expected to remain low through the first half of this year, as supply continues to be added to the existing inventory.
Overall absorption for Puget Sound-Eastside market reported negative absorption of -103,000 square feet, which marked a significant decline from the positive absorption figure reported in fourth quarter 2021 (244,000 square feet). Year-to-date absorption for the industrial market was 635,000 square feet, marginally overtaking the 522,000 square feet recorded in 2021. Looking ahead, 2023 is expected to bring the Eastside back to pre-Covid levels, notes the report, with the addition of 3.9 million square feet of new inventory slated to come online in the coming year.
Both the Seattle and Puget Sound-Eastside markets saw increases in the average asking rents in the fourth quarter, due to somewhat differing factors. The Seattle market saw average asking rents increase to just under $1 per square foot, which represented a year-over-year increase of 10.5 percent.
Across Lake Washington, the average asking rent in fourth quarter 2022 was $1.37 per square foot, marking a 4.4 percent increase year-over-year. In the majority of the Eastside submarkets – particularly those near the Microsoft headquarters and Meta’s Oculus satellite locations in Redmond – average asking rents are at or exceed $2 per square foot.
Construction activity in the industrial market – both in Seattle and the Puget Sound-Eastside – was robust in both cases, according to the report.
The Seattle industrial market added 3.6 million square feet of new inventory in 2022, with just over 85 percent of leases in place. New construction dropped by nearly 62 percent year-over-year, with 9.5 million square feet of new construction reported in 2021. The new year will bring a substantial increase in inventory, with just under 7 million square feet scheduled to deliver to the market. Notably, The South Sound market contains 4.5 million square feet of space under construction and just under five million square feet of proposed space.
The 3.5 million square foot FRED310 project in the Frederickson submarket accounts for roughly 88 percent of the space under construction in the South Sound and just under 40 percent of the space under construction in the Seattle market.
In terms of respective leasing activity in the Seattle and Puget Sound-Eastside industrial markets, results were mixed in fourth quarter of 2022.
Some of the largest, noteworthy leases in the fourth quarter of 2022 included Floor & Décor’s pre-lease of 1,118,480 square feet in the previously-mentioned FRED310 project; and Samsung’s lease extension – for just under 545,000 square feet – at Prologis Park in Tacoma.
Overall, year-to-date leasing activity in the Seattle market reached 13.8 million square feet for the year, which marked a substantial decline from the 19.1 million square feet of leasing activity in 2021. The submarkets of Kent (4 million square feet), Fredrickson (1.8 million square feet) and Tacoma (1.1 million square feet) accounted for most of the year’s leasing activity.
The Eastside market, meanwhile, saw just over 346,000 square feet of new space leased, which brought the year-to-date total to 2.8 million square feet. Notably, leasing activity fell by just over 57 percent quarter-over-quarter, and 70 percent from mid-year figures, a trend that continued towards the end of the year. Some of the most key Eastside leases included GXO Logistics’ expansion for nearly 469,000 square feet in BOMARC Business Park in Everett; OnTrac’s prelease of 234,458 square feet in Everett’s Baywood Park property; and Meta’s new lease for just over 208,000 square feet in Redmond’s Park and Willow Ridge, Building D.
Undoubtedly, the Seattle and Puget Sound-Eastside industrial markets have both – albeit due to differing factors – experienced contrasting periods at the end of 2022. Looking ahead, it seems like most signs point to healthy and upward trajectories.
