Economic uncertainty remains elevated amid ongoing tariffs and workforce reduction efforts of the new administration. Inflation in the region in 2024 was 2.7%, below the national rate of 3.0% (The Puget Sound Economic Forecaster, Vol. 33, Is. 1, March 2025). Core prices show Seattle at 2.8% compared to the U.S. city average of 3.2%. Washington personal income increased 0.7% in 2024, while the national increase was 3.2%.
Activity in the industrial markets has stabilized over the past nine months, though at a slower rate than in 2022 and 2023. Market segmentation persists, with the 30,000 SF to 150,000 SF spaces overrepresented in the available inventory and not seeing strong activity. In the regional market, Thurston County through Whatcom County, there are 250 buildings with 311 suites available in this size range. Of those, 243 spaces are located in King and Pierce counties.
The office market continues to be sluggish region wide, with availability at 17.3% across 249 million SF of inventory. The CBD has been hit particularly hard, with 34.9% of the 38.7 million SF available and 29.7% vacant.
The regional retail sector, Thruston County north through Whatcom County, totals 214.7 million SF of inventory with 3.6% a vacancy.
As of Q1 2025, the industrial market’s regional vacancy is 7.2%, up slightly from 7.1% at year-end 2024 and the recent low of 2.9% at year-end 2017. Availability currently stands at 9.1%, with 1.8% available for sublease. Below are a few notable points:
New product added to the inventory totaled 1.28 million SF, bringing the regional inventory to 407.39 million SF, including Thurston, Pierce, King, Snohomish, Skagit and Whatcom counties.
Construction activity is in decline, dropping from 6.3 million SF in Q4 to 5.7 million SF in 26 projects, showing that the smaller projects are still active. Preleasing is low, at 10.0%, with 89.9% of preleased space located in Pierce County.
Sales activity has picked up, particularly among investment sales. The average transaction size increased, along with the average capitalization rate, which rose to 7.68% in Q1 from 6.31% in Q4 2024. A total of 3.02 million SF of buildings changed hands.
Washington State employment stands at 3,651,800 as of March 2025 (preliminary, Employment Security Department, WA), representing 0.7% year-over-year growth. The four-county region reported 2,276,300 (preliminary March/February 2025), or 62.3% of the state’s total. Preliminary March numbers show a decline of 6,400 jobs, or -0.3%. Construction saw the largest decrease, at -2.0% with the Q1 numbers showing 124,400 jobs. This is down 6.4% from the March 2024 numbers. Small gains were made in Transportation/Warehousing (0.3%), Information (0.7%) and Professional Business Services (0.2%).
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. The ten-year treasury has been hovering in the low to mid-4.0% range for Q1, 2025 (ycharts.com). 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 6.5% range. CMBS spreads have declined modestly as well, moving to 250 to 350 basis points over the ten-year rate and Banks/Credit Unions are lending in the 6.5% to 7.5% range.
The Northwest Seaport Alliance reports YTD (through March 2025) container volume as 832,568 TEUs (Twenty Foot Equivalent), a 19.0% increase from the same period in 2024. Q1 2025 volumes exceed Q1 2024 volumes in each month. Vessel calls are up 8.0% but auto imports are down 18.1%.
Click here to subscribe to Kidder Mathews market research.