The Seattle-Tacoma Metro Area ended Q1 on a high note as nearly 155,000 new jobs were created over the past three years, pushing numbers up across the board, including population, median household income gains, spending and retail sales. According to the 2Q19 Seattle-Tacoma Local Retail report recently released by Marcus & Millichap, the Seattle-Tacoma metro had the highest number in the nation for rate of growth in retail sales, rising 10 percent in the last 12 months. Combined with the increase in population, new inventory will continue to drive low vacancy rates and increasing investment trends, and the Seattle-Tacoma Metro area can expect to remain optimistic in the coming quarters. However, the prominence of online retail sales and big-name corporations could cause lenders to become more cautious, creating uncertainty in an otherwise bright future retail landscape for the area.
The population of the Seattle-Tacoma Metro Area has grown by nearly 178,000 people, as has the economy. From 46,700 jobs created by employers one year ago to 52,600 in the past four quarters, Seattle-Tacoma experienced a drop in unemployment rate to 3.8 percent in March, according to Marcus & Millichap’s report. This is compared to the U.S. average of 1.3 percent.
Over the past five years, Seattle-Tacoma has clocked in an additional 237,100 residents, 178,000 of which were added in the last three years. This is 1.2 percent annual increase compared to the 0.6 percent national average. Median household income numbers in the Seattle-Tacoma metro are also higher than the national average, coming in at $85,475 by the end of Q1 2019, as compared to the national average of $64,259.
All of these factors have led to an increase in discretionary spending, which has positively affected the retail sector in the Seattle-Tacoma Metro Area creating a national average high. On average, each household in the area spent $8,867, compared to a national average of $3,971, and each individual spent $3,482, compared to a national average of $1,544. In comparison, the Portland Metro Area reported $3,784 per household, with individuals spending $1,485, and the Salt Lake City Metro area reported $5,423 per household, with individuals spending $1,755, according to 2Q19 local retail market reports released by Marcus & Millichap.
Investors are finding richer opportunities in Tacoma and Snohomish County, where neighborhood centers are trading $50 below the metro average of $200 per square foot with cap rates in the 7 percent range, according to the report. Along with these lower entry costs and higher returns, strip centers throughout the metro are averaging just over $210 per square foot at first-year returns starting in the mid-5 percent range.
This, coupled with a total of 700,000 square feet of new inventory which will be delivered by the end of 2019, means the outlook for the retail sector throughout the end of 2019 remains strong.
Developments in the area include FieldhouseUSA, an athletic and entertainment venue, which is slated to open its first location in the metro, filling the remodeled former Sam’s Club at the Outlet Collection Seattle in Auburn. The Eastside submarket will receive the largest portion of new inventory at 247,900 square feet through the construction of the Village at Totem Lake in Kirkland at 93,000 square feet. This steady construction pipeline, according to the report, helped keep the vacancy rate at a cyclical low of 3.8 percent. As a whole, the vacancy rate for the metro area has not risen above 5 percent since mid-2014, in part due to the construction pipeline and the absorption of 694,200 square feet keeping the vacancy rate steady year-over-year.
These continued low vacancy rates have stimulated retail rent growth to $21.55 per square foot at the end of Q1 2019, according to Marcus & Millichap’s report. Experts predict these numbers will rise to $22.50 per square foot, piggybacking off of a 6.3 percent surge last year. Rent continues to outperform, with a total 21 percent increase since the beginning of 2015.
The outlook for the retail sector remains strong continuing through the next couple of quarters, although uncertainty with legacy retailers and a consumer preference for online sources has caused lenders to become more conservative. As of now, however, experts still expect the retail sales forecast in the metro to outperform the national average between 2018 and 2023.