By Jack Stubbs
Sea-Tac Airport, located about 14 miles south of downtown Seattle, is currently one of the only major, public airport that runs commercial flights out the city. However, the Paine Field Airport in Everett, which will begin hosting commercial flights in late 2018, will bring a new dimension to the local marketplace in more ways than one.
The airport is set to impact the local office and industrial markets in Snohomish County, according to a recent second quarter 2018 report recently released by Colliers International, “The Paine Field Effect on the Northend CRE Market.” According to research associate at Colliers International’s Bellevue office Denin Grcic who wrote the report, the Paine Field Airport is set to contribute to wider growth in the surrounding region in the coming months. “I think in general with the terminal opening up and with the amount of traffic it will introduce to the area, that in and of itself provides more business opportunities and more incentive to go through that area considering that the airport will be the second major way in and out of the area aside from SeaTac,” Grcic said.
With 34,500 employees and a 6.85 million square foot industrial footprint, Boeing has historically been one of the primary drivers of Everett’s industrial market, according to the report, and perhaps the economic engine of that part of the region. The airport currently outputs more than $68.7 million in sales and supports 905 jobs annually, 630 of which are direct. Additionally, major airlines Alaska, United and Southwest have already announced planned service to and from the airport, which will accommodate up to 2,350 daily passengers. Alaska will provide flights to Portland, Phoenix, Las Vegas and California.
Grcic thinks that the imminent opening of Paine Field further establishes Boeing’s commitment to the surrounding area. “I think [Paine Field] further cements Boeing’s commitment to the area and them expanding their presence in Everett and the surrounding area. It’s always been their territory, so I think we’ll see perhaps more of their employees drawn to that area and to the local residential market,” he said.
It is also expected that the airport will have an impact on the surrounding commercial market, as well, due to increased traffic throughout the area, with developers optimistic about the business opportunities likely to follow the opening of the airport, according to the report. Historically, Everett has seen lower industrial vacancies compared to the rest of the Northend market and reached a two-year low of 3.4 percent as of first quarter 2018. As of first quarter 2017, the vacancy rate in Everett hovered around 4.1 percent. Additionally, asking rent for specialized industrial properties increased 9.4 percent in first quarter 2018 and by 4.3 percent for flex properties year-over-year.
Grcic thinks that with the opening of Paine Field developers will look to turn land development sites into potential industrial or hospitality opportunities. “The area has historically had lower vacancies in the industrial market, especially over the last couple of years, and space continues to become more scarce for warehouse space in particular. I think we’ll see some of these land developments turn into warehouses or hotel properties.”
There are several proposed industrial projects in Everrett, indicating that the local market is set for growth in the coming months. Some of these include Panattoni’s 201,534 square foot Glacier Peak project—a distribution facility set for completion in March 2019—Latitude Development’s Latitude Business Park, a 82,215 square foot project set for completion in early 2019; and Achilles USA Inc.’s Achilles Corporate Park, a two-building project totaling 137,700 square feet. Other in-the-works projects include FedEx BTS’s 122,000 square foot Mountain View Business Centre and Sabey Corp.’s 80,000 square foot Everett Technical Park IV.
The commercial office market, also, is set to expand with the introduction of Paine Field to the local market and the city of Everett is already attempting to accommodate requirements aggregating 520,000 square feet of office space, according to the report, and more than half of these requirements are for space in the South Everett submarket, the future home of Paine Field. The report also indicates how declining vacancies in the Bothell office market south of Everett have driven companies—such as Juno Therapeutics—further north, closer to the airport.
Everett in particular, and the Northend market in general, has historically had a job market impacted by the presence of Boeing—but an increasingly tight market means that companies are looking to locate further north, according to Grcic. “The area has always kind of been a source for talent, for Boeing especially. The job market there is fairly stable, but I think how tight the market has gotten south is starting to push these companies north,” he said. “I don’t know if their talent pools of the companies will be affected, but the area becomes a lot better to move into with the airport and the demographic shifts occurring there. Once [these companies] move in, industrial and office rents will start climbing, as well,” Grcic added. Sales volume in the Northend has historically been lower than other Puget Sound region submarkets, with pricing averaging $186 per square foot in recent years, a figure that is projected to reach $200 per square foot by 2020, according to the report.
In terms of sales and investment activity, Grcic predicts that the new airport will spur more for-sale and investment opportunities in the surrounding region. “I think we’ll see a lot of the surrounding developments and for-sale properties and sites showcase a lot more interest; I think investment activity will continue to increase as well,” he said.
There have been a number of sales throughout Snohomish County indicating that investment activity in the region has already been occurring. On May 4th, the Boeing Harbour Pointe Technical Center, a 335,000 square foot Boeing-occupied office/research facility in Mukilteo, sold for $25 million, or approximately $75 per square foot, according to public records filed with Snohomish County. The buyer was MRM Mt. Vernon LLC, an entity affiliated with property management firm InCity Properties, and the seller was Dallas, Texas-based Prescott Realty Group Inc.
Bothell, in particular, has been a hotbed for transaction activity over the last few months. On February 28th, New York-based Blackstone Group sold the two-story, 43,800 square foot Canyon Park for $9 million or approximately $205 per square foot to Bellevue-based JM2T Properties LLC. On March 9th, three parcels in Bothell located at 21516 23rd Dr. SE.—which include three research and development buildings totaling approximately 150,000 square feet—sold for $21.5 million when Taylor Development Inc. acquired the land from Seattle-based Immunex Corporation, a biotechnology company.
On March 13th California-based Donahue Schriber—following up its acquisition of three other shopping centers in Gig Harbor, Covington and Bothell for a total of $140 million—acquired the 125,616 square foot Canyon Park Place shopping center in Bothell for $52.5 million, or $417 per square foot, from Terramar Retail Centers.
Further north in Lynnwood, which is approximately seven miles south of Paine Field, there have been various sales across the hospitality and commercial sectors. On January 31st, Boston-based Partner Therapeutics acquired an 89,000 square foot research and development building for $45.6 million from New Jersey-based Sanofi-Aventis U.S. LLC. On March 21st, the 80-room Holiday Inn Express located at 2519 196th St. SW changed hands between two private investors for $12.6 million. Most recently, on June 1st, The Redstone Group acquired the 5-story, 69,798 square foot Sparling Technology Center from California-based JB Matteson for $15.4 million, or approximately $220 per square foot.
In broader terms, the prediction is that Paine Field will contribute to changing demographic trends as well, according to Grcic. “I think the airport will also have an effect on surrounding demographics and will make the surrounding area more attractive. The shifting demographics, especially in terms of household incomes, are all predicted to increase, as well,” he said. In the Northend market, the median household income was $59,681 and is projected to reach $66,146 by 2022, a 10.8 percent increase. The population, which sat at 98,894 in 2017, is expected to reach 105,018 by 2022, marking a 6.2 percent increase. By income bracket, the number of households earning between $100,000 and $149,999 in the Northend was 5,352 in 2017, a figure that is expected to reach 6,580 by 2022.
And while investment activity in the commercial and industrial markets will be further boosted by the introduction of Paine Field, these shifting demographics are happening at a time when the investment in the multifamily market in the surrounding areas has been active as well.
As one notable example, SeaLevel Properties on June 18th spent $7 million to acquire a 5.44-acre site within the Port of Everett’s 65-acre Waterfront Place Central mixed-use project from the Port of Everett. The project, slated for completion in 2020, is located at 1300 W. Marine View Drive and will include 266 units of housing, and the recent transaction represented a landmark moment for the city of Everett. “This is a historic transaction for the Port of Everett,” Port of Everett Acting CEO Lisa Lefeber said in a statement. “This property sale allows housing on the waterfront for the first time in Everett’s history, and creates the population necessary to support a vibrant Waterfront Place project.”
As another example of the evolving multifamily sector in Everett, in late March 2018, Northwest Washington’s behavioral healthcare leader Compass Health received $4.5 million in funding from the Washington State Housing Trust Fund to help finance an 82-unit affordable housing project for people with chronic behavioural issues. The project, slated for the 3300 block of Lombard Ave. in Everett, is scheduled to be complete sometime in the middle of 2020.
And similarly to SeaLevel Properties’ in-the-works project at the Port, the affordable housing project came at the right time for the city of Everett. “The Housing Trust Fund really came through at the right time to meet a critical community need,” said Tom Sebastian, president and chief executive officer for Compass Health in a statement. “This will be a much-needed boost for Snohomish County. It’s no secret that affordable housing and homelessness are big challenges in our region and we’re excited to help more people get off the street and into the housing and services they need to regain lives of meaning, recovery and purpose.” Compass Health also received local funding support from Snohomish County in the Fall of 2017 for the project and will apply for additional public funding this summer.
There have been several transactions in the multifamily markets in Everett and Lynnwood over the last several months as well. In December 2017, MG Properties Group acquired the 123-unit Newberry Square Apartments in Lynnwood for $33.8 million, or approximately $274,797 per unit, from Fairfield Residential. In late January 2018, New Standard Equities acquired the 120-unit Green Leaf Cedar Park Apartments in Lynnwood for $24 million.
In Everett, TruAmerica acquired the Walden Pond Apartment community in mid-December 2017 from Holland Partner Group for $67.7 million, or roughly $214,240 per unit. In late January 2018, Aukum Group acquired the 204-unit Waterstone at SilverLake Apartments for $47.1 million from Everett-based Metco Management Group. In another disposition by Metco, on April 3rd Artemis Real Estate Partners purchased the 148-unit Garden Court Retirement Community in Everett for $49.7 million, approximately $335,810 per unit.
In addition to the various investments and transactions that have occured in the local multifamily market in recent months, it is expected that Paine Field will contribute to job growth in the broader Northend market once it becomes operational later this year. Research conducted by MIT in 2013 found that over half of Fortune 500 headquarters are located within 10 miles of a hub airport, according to Grcic’s report. And according to the Washington State Office Financial Management, the Lake Stickney census tracts surrounding the airport added 2,130 people since 2010, which represented a 52.3 percent increase.