By Jon Peterson
Denver-based DCT Industrial Trust is planning to start constriction this quarter on the 240,000 square foot DCT Fife Distribution Center South warehouse/distribution in the Tacoma/Fife sub-market of Seattle.
The company has had strong pre-leasing on this project. It has just completed a lease with an un-named tenant to lease the entire project. According to the company’s 2015 second quarter earnings supplemental report, the projected total investment in the project is $18.8 million or $78 per square foot.
“I think that this level of leasing even before we start construction shows the tenant demand interest in the market. Our timing on this project is good as we should be completed with the development hopefully by the end of the year,” says Patrick Gemma, a senior vice president for DCT. He works out of the company’s regional office in Seattle located at 701 Fifth Avenue.
The DCT Fife South project will also have an office component that will be roughly 2 percent of the project’s square footage. The balance will be allocated to distribution space. The project covers a total of 12 acres of land.
DCT does have a recent history in the Seattle market of both buying and development assets. “In the last year, we have spent $60 million to acquire existing properties in the region in four or five transactions in the Seattle market. The total square footage of the industrial portfolio that we own in the region now stands at 2.5 million square feet,” said Gemma. This portfolio has a current occupancy of 95.5 percent.
The publicly traded real estate investment trust considers investing capital in a variety of sub-markets around Seattle. These would include Renton, Kent, Auburn and Tacoma/Fife.
The company believes in the strong fundamentals of this particular market, which make it an attractive place for additional investment.
“The market is land constrained, which makes it a difficult place to bring new inventory into the marketplace. Demand from tenants is very strong. This creates a situation where you have seen strong rental rate growth over the past two years in the double-digit range. This market scenario means one that is controlled by the owners and not the tenants,” said Gemma.
Seattle remains a tight market for warehouse/distribution properties. The current vacancy in the market for this kind of industrial assets is 5 percent. Many of the tenants move their products on a regional basis in the Pacific Northwest.
There is a great deal of capital trying to buy industrial assets in the Seattle market, and as a result many of the recent deals happening in the marketplace have produced cap rates in the low five percent range. These returns are based on the property’s current net operating income.