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Report: Puget Sound Industrial Market Holds Strong, but Not Immune to Impacts of COVID-19

Colliers International, Seattle, Volvo Logistics, Alphabroder
Courtesy of Colliers International

By Meghan Hall

Throughout the past six months, many industry experts have maintained that the industrial sector has remained largely untouched by the current pandemic and trade war, with fundamentals for the first half of the year remaining relatively stable. However, a new report released at the end of the third quarter by brokerage firm Colliers International indicates that while industrial has fared far better than other asset classes during COVID-19, the sector is entirely immune from its impacts. Four of the region’s six markets saw negative absorption and vacancy increases.

“Industrial, I think, is continuing to shine very brightly and have some really positive market fundamentals, but that doesn’t mean it is unscathed from pandemic and trade war influences,” explained Colliers International’s Puget Sound & Portland Research Manager Jacob Pavlik. 

By the end of the third quarter, the Eastside, Kent Valley, Northend and Seattle markets saw 657,000 square feet of negative absorption. On the opposite side of the spectrum, Pierce and Thurston counties—which accounts for 30 percent of the regions inventory—saw 942,000 square feet of positive absorption. 

A number of moves impacted absorption in many of the Puget Sound’s markets; according to industry reporting, Volvo Logistics vacated 116,000 square feet in Kent, while Alphabroder, a clothing manufacturer, downsized its space by 163,000 square feet. Across the Puget Sound, there is currently just under 14.5 million square feet of vacant space, translating to a direct vacancy rate of 5.9 percent. Sublease space accounts for about 2.1 million square feet, or just under one percent, of the regional total. According to Pavlik, the companies that have struggled the most have been those with limited reserves and resources.

Pierce and Thurston counties, on the other hand, continued to do well as demand for warehouse and e-commerce space continued strongly into the third quarter. 1.4 million square feet of industrial was delivered during the quarter, 95 percent of which was warehouse product in Pierce County. Demand for such space is unlikely to wane, with Colliers stating that e-commerce appetite for warehouse product is “seemingly endless.” Thurston County, for example will increase its inventory by 25 percent in the next 18 months.

“Pierce [County] has the Port, so it’s got a lot of activity there even in light of other supply chain issues,” noted Pavlik. “Thurston County has fairly robust market statistics; I think being right between Portland and Seattle, it is bound for some positive industrial growth over the next few years.”

The third quarter also saw sales volume begin to tick up slightly. At the end of Q3, with investment activity up 178 percent from the previous quarter. However, sales volume remains substantially lower than the $470 million quarterly average from the previous three years. 

Overall, however, industrial still continues to hold its own, despite some impacts that have slightly moderated market fundamental. Colliers predicts that heading into the next several months, the industry will largely hold stable.

“The market rebalances from time to time; for industrial, I wouldn’t think this period of rebalancing would constitute as something to recover from,” stated Pavlik. “I think in the next six to 12 months, we’re going to see a lot of what we have seen in industrial. Industrial is going to stay the course that it has over the last few quarters.”

Colliers predicts that it could take longer for the market to absorb the more than 6.2 million square feet of industrial space currently in the pipeline as a result of less leasing activity, and that rents could soften as a result. Overall, Colliers’ outlook for the region is relatively healthy. Thanks to the rapid growth of e-commerce and life sciences manufacturing industries within the region, the brokerage firm believes the industrial market will bounce back in the near-term and remain strong in the long-run.