Seattle Industrial Market Report

1st Quarter 2022

Posted In — Market Research | Market Report

The region’s industrial market began the year with strong net absorption of just over 4.0 million sf with an additional nearly 9.1 million sf under construction.

Here are the numbers for the region for the past three months.

– 3.01 million sf was added to the total supply (net of demolition of older product). The region now totals just over 360 million sf.

– Projects under construction total nearly 9.1 million sf (54% pre-leased), led by the Northend (3.7 million sf) and Pierce County (2.2 million sf).

– Positive net absorption of 4.0 million sf, led by South King County (2.2 million sf).

– Vacancy rate for the region decreased from 4.3% to 3.9% as absorption outpaced deliveries.

– Average asking rental rate has remained stable, at $1.05/sf/month.

– 101 properties closed this quarter, $773 million at an average of $234/sf. A list of notable sales is below.

The industrial market continues on an upward trajectory, as on-line shopping drives demand for fulfillment/distribution facilities. Employment growth has been good, the region has added 105,500 jobs, a 5.1% increase between January 2021 and 2022. Total regional employment now stands at 2,162,100, with 73.3% of the 240,600 jobs lost to Covid recovered. Manufacturing has been relatively stable over the past year, with a gain of 200 jobs. The largest gain has been in the transportation and warehousing segment, with 4,100 jobs added, a 5.0% increase. Wholesale trade has also increased, adding 1,700 jobs. Aerospace manufacturing continues to shed jobs, losing 1,300 over the past 12 months.

Looking ahead at 2022, there is continued optimism.

– The Puget Sound Economic Forecaster’s March 2022 reported employment growth in 2021 at 1.7%, almost a full point below the previous forecast of 2.6%. 2022 is anticipated to be higher, forecast at 3.5% but headwinds are noted. It was noted that employment in the construction industry fell by 1,000, an indication of a lack of available workers.

– The Seattle area consumer price index finished 2021 at 7.6%, with the forecast for 2022 at 5.0% before declining to 2.1% in 2023. Several factors contribute to this: rising fuel prices, increased shipping costs, a result of the shipping disruptions during covid, and high cost of construction materials.

– The Northwest Seaport Alliance reported 3,736,206 TEUs for 2021, a 12.5% increase over 2020 and 1.6% below the peak in 2018. January 2022 saw a decrease in volume blamed on dockings that were omitted but February came back at 298,046 TEUs, the highest for the month of February. Phase I of the T-5 terminal modernization is complete and the north berth is open. Phase II is underway with completion anticipated mid-year 2023.

– Leasing continues to be strong with 6.4 million sf. leased and scheduled to move in over the next 9 months.

There are some concerns that we continue to monitor. These include:

– Construction costs have skyrocketed with significant increases in lead times. Developers have been mostly successful increasing rents to offset these higher costs, but shortages continue to exist.

– As of April 4, 73.9% of Washingtonians have been vaccinated for Covid-19. Cases are well below the seven day average peak in January of 6,809, now at 455 cases. The pandemic may be slowing as we move into Spring but unlikely to disappear completely.

– The Federal Reserve raised interest rates 0.25% in March 2022. Bloomberg reports additional increase likely this year.

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