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January 28, 2016

Industrial real estate isn't sexy, but in Seattle it sure is hot

Puget Sound Business Journal

Marc Stiles

Like other segments of the Puget Sound region's commercial real estate industry, the industrial sector is having its best year since 2006.

Big new buildings are going up, but that's not enough to keep with demand. The resulting rise in rents has investors clamoring to buy, with $2.4 billion worth of properties trading hands in 2015. That's a whopping 202 percent increase over the previous year, according to international research firm Real Capital Analytics.

The data goes a long way toward dashing the conventional wisdom that the industrial market, with its boxy, gray buildings, is dull compared to the office market and its glassy high-rises, such as the ones Amazon.com is building in Seattle.

But just as Amazon is driving the region's office market, it's also fueling the industrial market. Amazon's growth, along with record aircraft production at Boeing and wage hikes at Microsoft, are among the reasons for the expansion of the industrial market, according to Randy Gilliam of commercial real estate company Kidder Mathews.

More money in people's pockets means more money to buy things, which pass through warehouses, such as new Amazon facilities in DuPont and Kent.

An uptick in international trade is also contributing to the expanding industrial market. Through November, year-to-date container volumes at the Northwest Seaport Alliance (the Seattle and Tacoma ports) were up 6 percent, according to Kidder, and November's volume was up 18 percent over November 2014.

Another real estate firm, Colliers International, reports the following data.

  • The region's vacancy rate fell to 3.9 percent at the end of last year. That's well under the pre-recession low of 5 percent in early 2008.
  • Last year, 32 new buildings totaling nearly 4 million square feet were completed, while another six buildings totaling 1 million square feet are now under construction.
  • Asking rents for "flex" space, which has offices as well as warehouse space, are up 25 percent year-over-year in Pierce County.
  • For raw industrial space, rents are up between 6.4 percent in the Northend to 14 percent in-city in South Seattle. At 13 percent, the Eastside isn't far behind. In the Kent Valley, which is the region's largest submarket, rents are up 8.3 percent.

For the full story, go to Puget Sound Business Journal.

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