3 Things to Know About Seattle Industrial

Demand for industrial product in greater Seattle is outpacing supply, PPR senior real estate economist Shaw Lupton tells us. For now. (Behind Shaw is either a complex graph, or a rare dripless Jackson Pollack painting).

1) Supply Constrained in 13

Net space removals from 2010 to 2012 helped pull vacancies in Seattle to within a percentage point of their prerecessionary low a feat few warehouse markets nationwide can claim, Shaw says. And vacancies will decline to about 5.7% by the end of the year, before new supply starts to catch up with demand. (We're making a sitcom about two roommates who just can't get along called Supply and Demand.) High-quality distribution buildings (built after 1990 and larger than 100k SF) have even tighter vacancies, at about 4% nowso that market segment is most likely to see construction first.

2) Demand Up, But Not Stratospheric

A significant manufacturing economy and exposure to international trade via Seattle's two seaports have stimulated demand for modern logistics space in the area. The local warehouse market also benefits from strong demographic trends. There was net absorption to the tune of 3M SF in 2012, but this year wont see that much absorption, due to slower manufacturing and tradecloser to 2M SF, Shaw estimates.

3) Rental Growth Solid; Investors Will Pony Up More

The Seattle warehouse market posted solid rent gains of about 3.8% in 2012, stronger than the 1.8% gains seen nationally. As long as the market remains confident, it should be in for another strong year of rent gains, Shaw says. Transaction pricing was up by about 11.8% on a dollar per SF basis in 2012, although it remains about 11.6% below its long-term trend, implying there are opportunities to acquire buildings below replacement cost. (That should be good news to you bargain hunters.) Pricing and rent will continue their climbs this year.