SEATTLE - The Seattle region's industrial market finished 2015 with a positive net absorption of just over 5.0 million square feet, marking the fifth straight year of positive absorption since the end of the recession in 2010, according to a report from Kidder Mathews. Over this five year period, net absorption totaled nearly 19.2 million square feet, while the region's total supply increased by about 7.6 million square feet. The end result saw vacancy rates drop from 8.65% at the end of 2010 to 4.62% at the end of 2015.
So how long will this ride continue? The answer is it will likely continue through most of 2016, but with slower projected employment growth, we could be seeing the start of a cooling off from the pace of the past four years. This from Kidder Mathews' First Quarter Seattle Industrial Report, released this week.
Through the first quarter of 2016, net absorption was positive at nearly 1.4 million square feet, as pre-leasing in late 2015 gave a boost in occupancy this quarter when tenants moved into their spaces. New deliveries totaled nearly 1.3 million square feet in the first three months. With demand slightly outpacing deliveries, the vacancy rate inched down to 4.56% from 4.62% three months ago. Construction activity is down to seven projects totaling nearly 1.1 million square feet. The majority of this construction is in Pierce County and South King County. One year ago, construction activity totaled about 4.0 million square feet. While construction activity has slowed with the recent wave of deliveries, there is still nearly 8.7 million square feet of product in the pipeline region wide. Pierce County has the most, at 4.6 million square feet, followed by Snohomish County (1.9 million square feet) and South King (1.3 million square feet). Of the 8.7 million square feet, nearly 1.2 million is anticipated to break ground in 2016.
Looking beyond pre-leased and future move-ins, the region's employment picture as reported by the Puget Sound Economic Forecaster indicates that there is evidence of "changes in the wind." After a strong recovery where our region was outpacing the nation, the forecast for 2016 is for employment to grow by 1.8%, similar to the national forecast. This compared to the 2.9% growth in 2015 and 2.8% in 2014. While these changes point to lower job growth, the economists believe that there is little reason for alarm. With regional job growth converging with the national growth, the belief is that if the nation avoids a recession over the next few years, (a likely prospect given its slow rate of recovery) so will the region. One thing to watch locally is the building boom, which may have peaked. If signs of overbuilding suddenly emerge as the economy loses steam, then a drop in construction may point us in a different direction.
During 2015, 56,600 jobs were added. The growth was primarily in the services sector. Other sectors showing good growth included construction and government. Job growth in 2016 is projected to increase by 35,500 jobs, with the services sector expected to gain 38,700 jobs that will help offset losses in goods producing (3,200 job losses).
While Boeing has been reducing its workforce in the state and moving jobs to non-union states (they now employ fewer than 80,000 workers in Washington state), their new CEO appears to have smoothed things over with the recent negotiations and approval of the latest contract with Boeing's largest union. Over the next several months, it will be interesting to see if Boeing is still committed to Washington state.
VACANT SPACE/VACANCY RATE
Nearly 1.3 million square feet of new product was delivered in the quarter with net positive absorption at 1.4 million square feet, and the region's vacancy declined to 4.56%. This compares to the high point of the recession when vacancies were nearly 9.0%. One market, Seattle, continued to see its total supply shrink by nearly 19,000 square feet as older product was removed from inventory, the report notes.
With several projects completed in the first quarter, there are seven projects totaling 1,079,596 square feet still under construction. This does not reflect a slowdown, but more of a breather, the report says. Fourteen projects totaling nearly 1.2 million square feet are slated to break ground in 2016.
Depending on the submarket, rental rates have generally been increasing over the past year, with some adjustment in rents in certain submarkets, the report predicts.