Future Cities
2022 North America Industrial Big Box Review & Outlook: Puget Sound
March 11, 2022 5 Minute Read
The Puget Sound industrial market continues to attract growing investor interest with its steadily declining vacancy rate and record-high absorption levels. Key drivers of demand include the region’s e-commerce, logistics and wholesale consumer goods industries, which have thrived through the COVID-impacted business environment. Building values, land prices and rents are steadily increasing. Some tenants in need of additional space have been forced to relocate farther south along the I-5 Corridor.
Demographics
More than 4.7 million people live within 50 miles of the urban core, with a 7.1% expected growth rate over the next five years—the highest of any major West Coast market. More than 11 million people live within 250 miles, with a 6.3% expected growth rate in five years. A total of 4.3 million households are within 250 miles.
Figure 1: Puget Sound Population Analysis
Source: CBRE Location Intelligence.
According to CBRE Labor Analytics, the local warehouse labor force of more than 53,000 is expected to grow by 5.0% by 2030. Seattle has the highest wage for non-supervisory warehouse workers of any market in this report at $19.17 per hour, 28.6% above the national average.
Figure 2: Puget Sound Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been four economic incentives deals totaling $500,000 at an average of $587 per new job in the Seattle metropolitan area, according to Wavteq.
According to CBRE’s Location Incentives Group, among the top incentive programs offered in metro Seattle is a sales/use tax exemption for machinery and equipment that is used directly in manufacturing, warehouse or research & development operations. Service charges rendered for installing, repairing, improving or cleaning the machinery and equipment are also exempt from sales tax.
Figure 3: Puget Sound Top Incentive Programs
Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
The Northwest Seaport Alliance, which includes the ports of Seattle and Tacoma, is the fifth-largest container gateway in the U.S. The ports are less congested than their California counterparts and provide a shorter direct route to Asia. Union Pacific and BNSF rail lines link the ports to the Midwest.
Seattle-Tacoma International Airport is home to 24 air carriers and ranked 17th in North America for air cargo handled in 2020. Interstate 5 gives the region direct access to the entire West Coast.
The ports are less congested than their California counterparts and provide a shorter direct route to Asia.
Capital Markets
Numerous investors entered or expanded within the Puget Sound region last year. Scarcity of available land is hindering new development, so investors are looking for opportunities farther afield. Projects north and south of the core are attracting investors to the market and will continue to do so in the years ahead. There is a strong appetite for any new construction, attracting many forward sales and commitments to purchase.
Figure 4: Cap Rate Comparison
Source: CBRE National Partners.
Supply & Demand
The Puget Sound industrial market posted a solid 2021, with many fundamentals remaining on par with 2020. Leasing activity totaled more than 7.2 million sq. ft. last year, a 20% increase from 2020. General retailers & wholesalers dominated activity with a 44.8% share of total leasing activity. Net absorption totaled 5.2 million sq. ft., on par with 2020. The average first-year taking rent increased to $7.87 per sq. ft., 11% higher than 2020 and the fifth highest in North America.
Despite a rise in the vacancy rate last year, the market shows no signs of overbuilding, as 60.5% of the 4.3 million sq. ft. currently under construction is preleased. The Puget Sound region will remain a strategic location for expansion in 2022. Continued demand and little available first-generation space will reduce the vacancy rate and increase average rent this year.
Figure 5: Share of 2021 Leasing Activity by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 6: Leasing Activity
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 7: 2021 Construction Completions vs. Overall Net Absorption
Source: CBRE Research.
Figure 8: Direct Vacancy Rate by Size Range
Source: CBRE Research.
Figure 9: Under Construction & Percentage Preleased
Source: CBRE Research.
Figure 10: Historical First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.
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Contacts
John R. Miller
Executive Managing Director
James Breeze
Vice President, Global Industrial and Retail Research
John Morris
President, Americas Industrial & Logistics, Advisory Services
