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Life Science’s Explosion, Industrial’s Journey North and Multifamily’s Suburban Growth: A Look at the Puget Sound’s CRE Market

Seattle, Bellevue, Alexandria Real Estate, Spring District, NorthPoint, Broderick Group, Kidder Mathews, Savills, Colliers International
Courtesy of Toan Chu

By Meghan Hall

The beginning of 2021 has already produced a world of change for both the economy and Puget Sound commercial real estate market as it continues to deal with the impacts of the coronavirus. All asset classes have seen both growth and challenges over the course of 2020, but industry experts remain confident in the potential of the wider market. The Registry spoke with four experts as part of its recent outlook event about life sciences growing influence in the office market, industrial’s expansion and the future of multifamily development.


Industrial was once again quick out of the gate at the beginning of the year, continuing its historic rise spurred by e-commerce and retail shifts well underway during 2020. As demand for industrial product has continued to grow, developers and investors are expanding their reach in the region more than ever, looking beyond the traditional Kent Valley to markets in the north such as Marysville and Arlington for growth.

“Industrial, as everybody knows…has really been the darling of the real estate sector,” stated Kidder Mathews Executive Vice President Patricia Loveall. “Supply chain logistics is everything in terms of being able to get products to people in their homes during this very trying time.”

According to Loveall, competition for land in the core of Seattle is as competitive as ever, with land trading for $110 per square foot. Lease rates for industrial are sitting between $1.25 per square foot and $1.50 per square foot triple net—rates that are sustainable given the submarket’s vacancy rate of just 3.5 percent. 

In the face of rising costs and competition, and as industrial operators and landlords look to serve the wider Puget Sound, it only makes sense to move both further north and south.

“I think it’s been a necessity that we’re looking at other markets,” said Loveall. “They have to look at other markets in order to serve [those populations] on a timely basis…It’s a natural migration.” 

Loveall highlighted NorthPoint’s acquisition of 425 acres of property north of Seattle as an example of the industry’s thirst for developable land. Dermody, Panattoni and a number of other major players are also in the market and are continuing to get bigger, stated Loveall, even as  new investors join the fray.


The multifamily asset class has experienced more mixed results. On the investment side, sales were down across the board, with sales dropping as much as 50 percent in Seattle and as much as 90 percent in Snohomish County. The lack of sales volume comes not just from demand steeply dropping off, but from fewer listings hitting the market—a big change from previous years as capital continued to pour into the region.

“Seattle has been a darling of institutional money really for the last 15 to 20 years,” stated Tim McKay, a senior vice president with Colliers International. “…The spigot had been turned all the way, and money has been pouring in for the last 10 years…there was a buyer for every 100-plus unit site.”

McKay attributes much of the slowdown in investment to uncertainty caused by eviction moratoriums, moratoriums on rate increases and just general instability resulting from the economy’s latest market correction. However, suburban markets have maintained stable fundamentals, with both Snohomish and Pierce counties seeing rent increases, and a slight vacancy decrease of just one percent.

However, development of multifamily housing is still seeing plenty of activity—but the number of new projects breaking ground may dip until demand re-emerges. McKay also notes that there is plenty of demand in secondary and tertiary markets, especially among low-income, student and senior housing developers.

“This is the dip,” said McKay. “It’s amazing how many people have been waiting to jump into the market.”


The local office market has also had its ups and downs over the past year, but for those familiar with the office market, answers as to how the asset class will evolve might finally be in sight. This has held true particularly on the Eastside, as major companies continue with their plans for growth.

“In 2020, the conversation was really centered around what is the future of office space,” said Eric Meussner, a principal with Broderick Group. “It feels like big tech answered that, making some very long-term commitments to office space on the Eastside.”

Across the region, supply is up and demand is now, with the market posting 17 percent vacancy in the fourth quarter of 2020. But for major tech tenants committed to the market, and even landlords, investor confidence remains.

“Landlords are not panicking,” stated Senior Managing Director of Savills, Eric Blohm. “Until they start losing deals to the sublease market, they are going to hold steady. There’s no need to negotiate against themselves.”

With plenty of sublease space on the market, Blohm acknowledges that tenants do have more of an upper hand in negotiations. Smaller companies without balance sheets may be more patient and more cautious on re-entering the market, but others who have a better grasp of their long-term needs could benefit by solidifying a lease agreement in the short-term. Blohm stated that tenants shouldn’t “get drunk on the face rate,” but to focus on the net effective rate, which includes concessions. 

When it comes to investment and development, trophy assets are continuing to attract major institutional investors.

“The Eastside is as hot as ever…I don’t think numbers actually matter on the Eastside,” McKay pointed out. “It’s just about getting your hands on land or an existing building, and you’ll figure the rest out later.”

Meussner and Blohm both agreed, with McKay. Currently, there are more than 500,000 square feet of requirements for office space in downtown Bellevue, requirements that have cropped up since the beginning of 2021. Meussner added that over 30 percent of the Bothell market is expected to trade hands in the next six months as the submarket’s life sciences cluster continues to rapidly expand. Blohm noted Alexandria Real Estate Equities as an example.

“They’ve never had a presence in Bothell…Bothell was a four-letter word for them,” Blohm said of ARE. “…[But] scientists have to be in the office; what they produce is dependent upon their real estate.”

Alexandria now owns more than 1.5 million square feet in the market, and a variety of other major Eastside transactions have bolstered confidence. The Spring District’s Block 16, which traded to Brookfield Asset Management Real Estate Fund, sold for more than $1,000 per foot. Nicola Wealth Real Estate acquired Studio 7500 in December. The sale price of $932 per square foot was a new record price for the Redmond office market. The experts also cited Vanbarton Group’s $217 million acquisition of Millennium Corporate Park, as well as TPG’s acquisition of the North Creek Parkway Center for $62.1 million, as other major transactions important to the local office market.

“The theme there is that these are all well located, long-term leased, credit opportunities,” said Meussner. “The institutions have a long-term view, so they’re looking past the immediate pandemic and into the future.”


Looking ahead, Blohm, Loveall, Meussner and McKay all agreed that each property type holds promise as the market continues to recover. Investors are continuing to keep their focus on the long-term outlook of the market and momentum continues to rise heading into the second quarter of 2021.