The retail market is strong in the core markets of Seattle and the Eastside, where most of the employment growth is occurring. The balance of the market ranges from stable to slightly soft. There is positive absorption, new construction and a strong investment climate for stabilized centers and single tenant net leased properties.
Taxable sales increased 6.5 percent from 2013 to 2014. Retail sales comprise 45 percent of this total, and increased 5 percent year over year.
Vacant Space/Vacancy Rate
The vacancy rate declined by 25 basis points from 4.99 percent to 4.74 percent in the second quarter of this year. It is down from the peak of 6.33 percent in the first quarter of 2011. Total available space (total vacant as well as occupied but available) decreased from 6.14 percent to 5.81 percent. This is down from the 4th quarter 2010 peak of 8.18 percent.
- 3.50 percent
- 6.89 percent
- 6.38 percent
- 5.18 percent
- 5.60 percent
- 4.74 percent
- 4.54 percent
- 7.90 percent
- 7.82 percent
- 6.04 percent
- 6.33 percent
- 5.81 percent
King and Snohomish Counties are stabilized, while Pierce and Kitsap are the softest markets. Every county saw vacancy rate improvement.
Regionally, asking rents for direct vacancy have increased 1.5 percent over the past year. Coupled with some declines in concessions, effective rents have increased even more. Rents have experienced a greater increase in the strong trade areas. They remain fat in those regions with higher vacancies. Retail rents in the Seattle CBD range from $40 per square foot, per year to $75 per square foot, per year, triple net. Rents in suburban grocery-anchored centers range between $20 per square foot and $35 per square foot, triple net, depending on property location and condition.
New And Proposed Construction Activity
Retail development activity is moderate. Centercal is underway on Silverdale Trails, a 212,000-squarefoot center that is anchored by a New Seasons food store. Junior anchors include HomeGoods and Total Wine. Centercal also acquired Totem Lake Mall, which will soon represent a major new development. Wakefeld Development is underway on The Marketplace at Smokey Point, a 209,000-square-foot center anchored by Dicks Sporting Goods and Hobby Lobby. TRF is getting ready to break ground on an 110,000-square-foot center in Sammamish that is anchored by Metropolitan Market, while Principal Real Estate Investors will soon break ground on a new center in Bellevue that will be leased by REI, HomeGoods and Trader Joes.
Market Demand, Net Absorption
Last year's net absorption was very strong at 2,193,000 square feet - much higher than the 2013 number of 313,000 square feet. Absorption in the first half of this year has totaled 883,000 square feet, which is about 12 percent higher than the level absorbed in the first half of 2014. Growing retailers want functional space and, in many places, they are willing to pay rents that support new construction.
The regional market is targeted by institutional investors for core product because of healthy economic conditions. Several core centers have sold recently, but single tenant net leased assets are a dominant retail investment product for private capital. The current demand is equity driven, versus the debt-driven demand of 10 years ago. Capital has also begun to move into secondary and tertiary markets in search of yield. With cheap debt available for the foreseeable future, cap rates are expected to remain low. Retail investment demand remains high as capital from multiple sources is still competing for best product. Trade buyers have also driven demand, which has led to further compression in cap rates.