Two giants from widely different realms of industry, The Boeing Company and Microsoft, play major roles in the local economy and in the generation of demand for industrial space of varying types. To these may be added Seattle’s major port and the recent increases in trade flows. As noted in the opening section of this report, moreover, shipping activity through the port is expected to increase as a result of a new route by a major carrier that will utilize the local port.
Demand for space, accordingly, has been strong in the recent term. Reis reports more than 1 million square feet of positive net absorption in the local warehouse/distribution sector for the first half of the year alongside no new supply deliveries. The total for the second quarter alone, erasing first quarter’s negative activity, was nearly 1.2 million square feet. Last year’s total alongside a negligible supply addition was 320,000 square feet. Occupancy levels and trends also are favorable. Vacancy as of the second quarter was 10.5%, down fully 100 basis points for the quarter, down 80 year-over-year. Despite the favorable profile otherwise, construction of warehouse/distribution facilities remains nearly non-existent. The 122,000-square-foot Majestic Glove headquarters and distribution center, which completed in September in Everett, will stand as the completion sum for the year as a whole for this market segment. No space of this type, meanwhile, was underway as of mid-September. At $6.43 psf and $6.02 psf, mean asking and effective rents were up 0.3% for the quarter following losses of 0.2% the quarter before. In July, 192,000 square feet of positive net absorption shaved 10 basis points from the vacancy rate while each mean rent grew by 0.2%.
Amid no newly delivered supply, net absorption of Flex/R&D space for the first half of the year was counted by Reis at 116,000 square feet, 61,000 of which occurred during the second quarter. Vacancy ended the
period at 13.7%, down 30 basis points for the period, down 160 year-over-year and relatively low by current national norms. At $9.97 psf and $9.19 psf, second quarter asking and effective Flex/R&D lease rates were up 0.1% and unchanged for the quarter following gains of 0.5% and 0.7% the quarter before. July followed with 41,000 square feet of positive absorption, a 20-point decline in vacancy and rent growth at 0.0% and 0.1%, asking and effective. No space of this type will complete this year; no projects were under construction per report date. Indeed, current construction consists solely of two manufacturing facilities with a combined total of 347,000 square feet. Both started in May. The largest of the pair is a 240,000-square-foot development for B/E Aerospace in Everett.
Both the warehouse/distribution and flex space markets should hold firm over the remainder of the year. Rental increases at about 1.5% and 1.0% are expected, respectively, for the two markets. “Continued strength in leasing will result in additional absorption and further declines in vacancy rates through the balance of the year,” states Cushman & Wakefield.