Industrial activity in the Puget Sound region has picked up modestly over the past nine months, though not across all suite sizes.
While brokers report increased activity since the start of 2024, completed leases remain elusive. Inflation peaked at 10.1% in June 2022 and declined to 3.0% in October 2024, remaining slightly above the U.S. City Average of 2.6%. Core prices remain elevated at 3.8%, exceeding the national index by 50 basis points. Regional employment has increased 3.4% between November 2023 and November 2024 with manufacturing up 2.0% and significant gains in education and health services (6.1%) and government (6.8%). However, the technology sector shed 6,500 jobs, a decline of 4.6%. The labor participation rate continues to slip, from 63.7% in May 2024 to 63.2% in October, down from 64.3% from a year earlier.
For the industrial markets at Q4 2024, regional vacancy is 7.9%, up from 7.4% in Q2 and the recent low of 3.6% in Q4 2022. Availability currently stands at 10.3%, with 1.8% available for sublease.
Below are a few notable points:
New product added to the inventory totaled 1.3M SF, up from 600,000 SF in Q3. The regional inventory is currently 385.4M SF.
Construction activity remains steady, with 6.3M SF underway in Q4, contained in 19 projects. 81.2% of the construction activity is in Pierce County, with the start of Bridge Point Tacoma 2M and the continuation of the FRED310 project in Frederickson. Preleasing is at 19.7% with 90.7% of these leases located in Pierce County projects.
Sales activity continues to move to more investment sales in Q4, with 65 properties closing and an average capitalization rate of 6.3%, down from the Q3 level of 7.0%. 2.7M SF of buildings traded, on 847-acres.
As of November 2024, Washington State employment reached 3,631,400, reflecting a 1.3% year-over-year increase (preliminary data from the Employment Security Department). Employment in the four-county region accounts for 62.7% of the state’s total, with 2,275,700 jobs. The Boeing strike distorted trends, particularly in the manufacturing segment, but gains in Q4 were evident in government and health and education services, each adding 1,600 jobs. Year-over-year, information jobs declined by 6,500, a 4.5% decrease, while the construction sector saw a reduction of 5,100 jobs, a 3.7% decrease.
The Federal Reserve cut interest rates by 25 basis points in December, on top of the 25-basis point cut in November, bringing the target rate to 4.25% to 4.50%. The ten-year treasury has been trending up through 2024, ending Q4 at 4.6% (tradingeconomics.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 being in the 6.0% to 6.9% range. CMBS lenders are still looking for 300 to 400 basis points over the ten-year rate and Banks/Credit Unions are lending in the 6.3% to 7.5% range.
The Northwest Seaport Alliance reports YTD (through November 2024) container volume as 3,035,986 TEUs (Twenty Foot Equivalent), a 12.0% increase from the same period in 2023. 2024 volumes are over 2023 each month except for January.
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