By Meghan Hall
The nature of Seattle’s industrial market is at a tipping point; as land and rental prices have rapidly increased over the course of the last market cycle, the faces of those doing business in Seattle’s urban markets have changed. Traditional industrial owner-users, many of whom used to occupy space in the South Seattle submarket, are increasingly moving further out in an effort to watch their bottom lines. A new wave of industrial users, many of whom focus on lighter trades or are tech-oriented, have moved into the region over the past several years. The changes have prompted developers such as San Francisco-based Terreno Realty to think ahead when it comes to repositioning industrial properties. For Terreno, this meant revitalizing South Seattle’s 234,000 square foot Sodo Row in a way that would attract a wide variety of tenants.
“We have finally had enough companies relocate here, expand here, and we’re starting to see a focus on companies that are looking for more of a creative space to locate to, but not your traditional industrial,” explained Tony Miltenberger, executive vice president at Kidder Mathews, the firm hired to market the property for lease on behalf of Terreno. “South Seattle has historically been comprised of owner-users in the same facility for many years. Only recently have prices escalated enough to where people are looking to relocate as things get more expensive.”
Terreno paid $42 million in 2017 for Sodo Row, previously occupied by Sears as a parts and service center. While Miltenberger said Terreno briefly considered completely redeveloping the site, located at 4786 First Ave., the firm chose to repurpose the former building instead. The building’s exterior was soda-blasted to expose the original bricks. The inside received the same treatment to show off the structure’s original beams and timbers. The building also features 50,750 square feet of office, showroom and HVAC-served space, and its bays are divisible by between 31,460 and 62,920 square feet.
“This building is not going to be for a machine shop or down and dirty industrial tenant,” said Miltenberger. “We’re trying to find these-higher-end industrial users.”
Some of these users are those who are looking to centralize their production, corporate and showroom spaces. Part of the goal is to sign tenants whose businesses will build off of and feed one another, similar to tenants in other submarkets like life sciences or technology. Other businesses in the vicinity of Sodo Row currently include Bartholomew Winery, Siren Tavern, Elsom Cellars, Seattle Cider Company and Shobox SODO.
“There’s never been just one area for those groups,” said Miltenberger.
The effort to attract high-end industrial has been paying off. Sodo Row signed its first tenant just recently: Wave Broadband. Wave leased 31,600 feet in the development’s Bay One, splitting the company, who was formerly entirely based in Kirkland, into two locations. Currently, there are still the North Bay and five additional smaller Bays to lease. However, Miltenberger says the property has garnered a lot of interest from a variety of tenants. Although Kidder Mathews and Terreno began marketing the project about six months ago, interest has picked up with the building’s delivery and Miltenberger has toured several tenants interested in leasing the remainder of the space.
“We’d like to see it leased up in short order,” said Miltenberger.
Navigating the Puget Sound’s commercial real estate market with an evolving product type has also meant that Kidder Mathews has had to adjust its approach to marketing developments like Sodo Row. According to Miltenberger, this meant not just reaching out to industrial brokers and those familiar with South Seattle, but brokers from all over the Puget Sound who specialize in office and retail, as well.
“We’re on the forefront of it, so it’s not quite as simple,” explained Miltenberg. “It’s not quite, ‘Let’s build it and they will come.’ I think we’re going to get in front of this, and this is where the market is going.”
As industrial product continues to change, Miltenberger predicts that developers will be keen on incorporating not just hard manufacturing capacity into their buildings, but office and showroom space as well to cater to a constantly diversifying tenant pool.
“We think that this will be a trend that continues ad gentrification continues to happen,” said Miltenberger. “We’ve just never had the growth from jobs and housing before. It had to reach critical mass and that’s finally starting to happen.”