Economic uncertainty continues to weigh on the Puget Sound region, with inflation and softening fundamentals impacting the industrial market. Inflation for the 12 months ending in June 2025 was 2.7%, relatively unchanged from last quarter. Washington’s index closely mirrors the U.S. City Average, but the underlying drivers differ. In Washington, core inflation (excluding food and energy) was 2.4%, compared to 2.9% nationally. Washington experienced steeper increases in food (+4.8%) and energy (+5.0%) prices, while the national rates were +3.0% and +0.8%, respectively. Notably, fuel prices in Seattle were 28.8% above the national average in 2024.
Market activity remains suppressed in 2025. The markets remain segmented, with the 30,000 SF to 150,000 SF spaces overrepresented in the available inventory and not seeing strong activity. Regional industrial vacancy rose to 8.1% in Q2 2025, up from 7.1% at year-end 2024 and well above the cycle low of 2.9% at year-end 2017. Availability currently sits at 10.8%, with 1.9% available for sublease. Below are a few notable points:
- New product added to the inventory totaled 2.18M SF bringing the regional inventory to 409.6M SF, across Thurston, Pierce, King, Snohomish, Skagit and Whatcom counties.
- Construction activity continues to decline—from 14.1M SF at year-end 2022 to 6.04M SF in 21 active projects today. Preleasing remains sluggish at 15.1%, with 88.8% of preleased space concentrated in Pierce County.
- Investment sales are slowly making a comeback, but owner-user transactions remain the dominant product trading.
Washington State employment stands at 3,643,300 (June 2025, preliminary, Employment Security Department, WA), a -5.7% decrease year over year. The four-county region contained 2,267,500 (preliminary June/May 2025), or 62.2% of the State’s total. The preliminary June figures show an increase of 2,900 jobs, or 0.1% with Wholesale Trade growing by 2.6% while Construction shed 6,500 jobs, -4.9% of the total that includes mining and logging jobs. Education and Health Services rose 2.7% and Leisure and Hospitality rose 1.7%, predominantly on the seasonal hiring.
The Federal Reserve cut interest rates by 25 basis points in November and December 2024, bringing the target rate to 4.25% to 4.50%. The March 2025 meeting led to no change in the Fed’s rate and the upcoming July meeting is anticipated to hold as well.
The ten-year treasury continues to hover in the low to mid-4.0% range through Q2, 2025. In terms of lending, Life Companies are moving upward in the spreads required, teasing lower spreads of 135 to 220 basis points over the ten-year treasury but rates have declined somewhat to the 5.7% to 6.6% range. CMBS spreads declined in Q1 and have remained in the 250 to 350 basis points range. Banks/Credit Unions have seen a modest decrease in lending rates, slipping from the 6.5% to 7.5% range of Q1 to 6.0% to 7.0%.
The Northwest Seaport Alliance reports YTD (through March 2025) container volume as 1,635,784 TEUs (Twenty Foot Equivalent), a 5.1% increase from the same period in 2024. However, volumes dropped sharply in May (-9.4%) and June (-14.7%) due to new tariffs. If this trend persists, it could significantly affect regional industrial markets.
SKAGIT / WHATCOM COUNTIES
A growing industrial market is the Skagit / Whatcom counties, the north end of the I-5 corridor through Western Washington. This market totals 20.9M SF in 798 buildings. This inventory represents a wide range of quality and generally smaller buildings and tenant suites. Vacancy is 1.38% with one, 4,000 SF building added to the inventory in Q2 2025. Absorption was 220,902 SF in 2023, but 2024 saw negative absorption of (-53,016) SF continuing into Q1 2025 with (-108,739) SF Q2 has offset some of the negative absorption, absorbing 126,726 SF. Rent continues to soften even in this tight market, moving from
$1.02 PSF at YE 2024 to $0.92 PSF. in Q2 2025.
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