The Puget Sound region’s industrial market continues to struggle in an attempt to keep up with fierce demand, as many prospective tenants are forced to either wait for new space to be delivered or existing space to become available.
According to JLL’s report published last week titled, “Active Industrial Requirements in the Region Far Outweigh Development,” the region’s industrial tenant demand of nearly 18.7 million square feet is outpacing current development at a rate of six times its office market, which is notably one of the tightest in the country.
Alex Muir, a research manager for JLL in Seattle, said the report was put together in order to take a closer look at the development to demand ratio, after seeing that a staggering 7.2 million square feet of office space is under construction. Muir says that six million square feet of demand for office space is also a very high number. “Obviously tech companies are flocking to the market and it’s growing quickly,” he added. “A few years back there was some concern about overbuilding, now we’re seeing that space is being pre-leased pretty quickly and those concerns have died down.”
However, Muir says the industrial market is on the opposite side of the spectrum, with so much tenant demand that brokers wonder if there is nearly enough development happening. “It’s really about taking a look again to the development versus demand ratio on office compared to industrial, and the amount of demand on the industrial side is really just impressive,” Muir said.
The bulk of the industrial development is in Seattle’s southend, down in Kent Valley and Pierce County, so the 18.7 million square feet of demand does not include the northend or eastside. Muir says these two markets are much different market because they are more of a flex industrial mix, whereas the Kent Valley southend is more of a true distribution center industrial market.
The region’s industrial market vacancy rate sits at an incredibly low 2.7 percent, even after over 1.1 million square feet was absorbed in the third quarter, according to JLL’s 2016 third quarter Industrial Insight report. Almost 2.7 million square feet of industrial product has been delivered this year and another near 3.2 million is under construction set to be delivered by 2017. However, the report says that the supply cannot keep up with the high demands of the region’s land-constrained market.
The report also explained that tenants coming into the market seeking space for the first time will quickly understand the tight conditions and competitive environment due to a lack of options for available space. There are only three existing available spaces over 250,000 square feet, however, 20 different tenants are still seeking spaces of this size. Other tenants, such as Graebel Companies, IKEA, Western Distribution Center, Smart Warehousing, and Expeditors are actively seeking spaces over 100,000 square feet. The report says that as competition intensifies each quarter, it is becoming more common for tenants to consider earlier renewals just to secure their future needs.
The report continues on to say that over the last year, regional asking rents have gone up 11.8 percent. These asking rates in the Southend are between $0.45 and $0.55 per square foot per month for shell space and $0.95 per square foot per month for newly-developed or built-out office space.