Market Report 1Q 2015 Kent Valley Insider Arie Salomon, SIOR, CCIM Principal +1 425 586 5636 asalomon@nai-psp.com Jeff Forsberg, CCIM Principal +1 425 586 5610 jforsberg@nai-psp.com Taylor Hoff Vice President +1 425 586 5634 thoff@nai-psp.com Kent Channing Associate Vice President +1 425 586 5628 kchanning@nai-psp.com Patty Bell Licensed Assistant to Arie Salomon, SIOR, CCIM & Jeff Forsberg, CCIM +1 425 586 5616 pbell@nai-psp.com
1Q 2015 Kent Valley Insider Quick Stats VACANCY 4.94% Change from last CURRENT Yr. Qtr. While the message is great, these quarterly reports are starting to get stagnant. For close to two years now, our initial paragraph has gushed with glowing news of positive absorption, rising rental rates, new construction and low vacancy. It should come as no surprise that 1st Quarter 2015 numbers show positive net absorption of 1.45 million square feet, a 4.04% rise in rental rates, well over 6 million square feet of new construction in the works, and a vacancy rate below 5% - its lowest point since 2007. LEASE RATES $0.396 TOTAL ABSORPTION 1,453,654 It doesn t take a rocket scientist, least of all a handful of real estate brokers, to tell you that the Seattle area s industrial market is thriving. The bigger question, and the one that everyone should be looking at, is how long is this ride going to last? Our group has been doing this a little over 20 years; we have hindsight, but more importantly, raw data to compare this run verses the run in CONSTRUCTION UNDER 6,137,755 2007. 4Q 2007 1Q 2015 Average Shell Asking Rates CLASS A CLASS B 5,000-15,000 SF $0.436 $0.421 15,001-30,000 SF $0.411 $0.398 30,001-60,000 SF $0.394 $0.352 60,001+ SF $0.386 $0.349 TOTAL RBA (SF) 101,121,096 108,716,673 VACANCY RATE 4.07% 4.94% ABSORPTION (SF) 1,274,000 1,453,654 AVG. ASKING RATES $0.367 $0.386 NEW CONSTRUCTION (SF) 1,800,000 6,137,755 As you can see those numbers are eerily similar. Should we be nervous of another collapse? Submarket Total RBA (SF) Direct Vacant (SF) Direct Vacant (%) Sublease (SF) Total Vacant w/ Sublease Total Vacant w/ Sublease RENTON 8,941,887 190,121 2.13% 2,400 192,521 2.15% SEATAC 2,967,517 180,295 6.08% - 180,295 6.08% TUKWILA 11,775,344 416,591 3.54% - 416,591 3.54% KENT 47,907,464 2,341,638 4.89% 127,718 2,469,356 5.15% AUBURN 21,322,688 564,598 2.65% 163,258 727,856 3.41% SUMNER 15,801,773 1,673,341 10.59% 256,804 1,930,145 12.21% TOTAL 108,716,673 5,366,584 4.94% 550,180 5,916,764 5.44%
Here are four reasons we think 2015 might be different: 1 RENTAL RATE GROWTH - The longest (but least funny) joke in the Kent Valley is that the shell rate in 1990 was $0.32 per square foot and rates are essentially still that today. Propelled by steady absorption of mid-range dock high space (our market still lacks large-user demand - but Wal- Mart s kicking of tires here has many hopeful), we have seen rent growth in the past five years at a staggering 29% in the Valley. In prior cycles, at the first sign of a downturn, local investors would cut their pricing. However, given the influx of institutional investors to all product types and sizes in the region, we feel the market is less likely to take this approach in a downturn. That is not say an institution will not cut rates and panic, we just think the deeper pockets and a higher basis in the Average Shell Rate Based upon comparison of 35,000+ SF Class A & B product over 24 clearance $0.41 $0.40 $0.39 $0.38 $0.37 $0.36 $0.35 $0.34 $0.33 $0.32 $0.31 $0.30 2 Lease Activity 2010 2011 2012 2013 2014 2015 Avg. Rental Rate project will provide a greater level of patience in times of crises. POPULATION GROWTH - They are projecting over 1 million new residents to King County in the next 7-10 years. Mostly due to Amazon s incredible growth and the booming Washington economy, our region will continue to add people and services. Recent Lease Transactions Property City Tenant Lease or Renewal Size (SF) PROLIGIS EAST VALLEY WAREHOUSE Kent KImberly Clark Renewal 516,748 NORWESCO BUILDING Fife Northwest Metal Products Renewal 324,220 SUMNER CORPORATE PARK - WENATCHEE Sumner Office Depot, Inc. Lease 174,287 FIFE COMMERCE CENTER - BUILDING B Fife Supervalu Lease 153,790 500 MILWAUKEE Algona Central Pet Renewal 117,730 TITAN BUILDING Sumner American Hotel Registration Co. Lease 107,790 FIFE COMMERCE CENTER - BUILDING B Fife Trans-Trade, Inc. Lease 102,280 PROLOGIS PARK SUMNER Sumner Green Mountain Coffee Renewal 96,000 VALLEY CENTRE CORPORATE PARK Auburn Hexacomb Corp. Renewal 60,812 IAC PORT 167 Puyallup Cabelas Lease 59,824 SEATTLE BUSINESS CENTER Kent ECCO Manufacturing Renewal 57,600 PACIFIC COAST BUILDING Sumner GKN Aerospace Lease 56,860 238TH DISTRIBUTION CENTER Kent Centrix Lease 56,369 76TH AVENUE DISTRIBUTION CENTER Kent Blue Aspen Originals Lease 53,340 PARK 277 - BUILDING 3 Auburn Scholastic, Inc. Renewal 44,712 WEST VALLEY INDUSTRIAL CENTER Kent Seametrics, Inc. Renewal 38,296 PROLOGIS MIDLAND DISTRIBUTION CENTER Tukwila Reliant Group, Inc. Lease 36,879 PROLOGIS MIDLAND DISTRIBUTION CENTER Tukwila Stelfast Lease 36,207 THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.
Southend Industrial Team Local Knowledge, Global Reach Let us show you what we can do! While we are experts in the local Kent Valley industrial market, we have a national and global reach through the NAI Global network that can tackle any commercial real estate need. National team transactions (2014): Dallas, TX - 110,000 square feet Reno, Nevada - 165,000 square feet Hazleton, PA - 150,000 square feet Romulus, MI - 33,440 square feet Ontario, CA - 200,000 square feet (current requirement) Our clients choose us for their national business because they trust our ability to manage the sale or leasing process. We ask the right questions, and we interview to find the right local broker to help; we put our client s long-term interest above our own. We are still a local, independently-owned firm, but with our NAI Global platform, we are part of something much bigger. Warehousing needs follow these demands. You just need to look to the South Seattle industrial market to see the staggering impact population growth can have on a market. Buoyed by a desire to service or be close to the CBD, South Seattle has a 2.15% vacancy and rental rates 40-45% higher than the Kent Valley (this is on functionally inferior product). This market is so hot that Prologis is even toying with the idea of building the first two-story industrial building in United States. Prologis has filed permits to construct 331,212 and 209,347 square foot buildings on a 13-acre parcel they have tied up. 3 PORTS - In Washington State, 40% of jobs are linked to trade, making it the most tradedependent state in the U.S. The combination of the recent settlement of the longshoreman labor dispute, the new alliance between the Port of Tacoma and Seattle, and the log jam at the bigger California ports should start to pay dividends here. Also, the Port of Portland might be almost completely out of the container business. Hanjin Shipping left in February, taking nearly 80% of the Port of Portland s container business with it. Now there is concern that Hapag-Lloyd, the other major carrier, will end Portland s service. That area needs to be service by someone and the neighbor to the north is the most likely candidate. The big brains behind DCT, LBA, Prologis, Gramercy and Principal have bet on this - placing big money recently in this subsection. 4 INTANGIBLES - This cycle just feels different. Institutional investors still need money to place and that might skew some outlooks. Singapore-based Global Logistics Properties paid more than $222.5 million for five industrial
buildings in the area, taking a majority stake in Blackstone s IndCor business. Prologis just paid approximately $160 per square foot for a couple of buildings in South Seattle. For all the reasons previously stated, those don t feel like crazy decisions. Although there is robust new construction, we do think that the fundamentals most of the players are analyzing are solid. The outlook is good. United States consumers are feeling flusher thanks to lower gas prices, a burst of hiring and long-awaited, if still modest, pay raises for many. Optimism remains strong. Sale Activity Lincoln Moving & Storage Building Trying to predict how long to be a buyer, where the top of the market is, and the timing of when to sell can be difficult in today s economy. All indications point to the current cycle continuing to peak volumes for a couple more years. That said, we are mindful of Lao Tzu s quote on this subject: Those who have knowledge, don t predict. Those who predict, don t have knowledge. Obviously, Mr. Tzu was never a real estate broker. West Valley @ 212th, Building R Recent Sale Transactions Sale Date Sale Price Property Name City Building Size Land Size (Acres) 04/17/2015 $11,150,000 Lincoln Moving & Storage Building Kent 115,300 6.08 1992 04/15/2015 $63,250,000 Seattle Logistics Center Seattle 360,058 13.5 1991 04/15/2015 $26,353,618 NorWesCo Building Fife 324,220 18.73 1994 04/01/2015 $ 4,725,000 Oakesdale Commerce Center - Bldg. E2 Renton 41,055 1.95 2005 03/19/2015 $18,500,000 Corporate Center 190 Kent 212,950 10.2 1989 02/11/2015 $ 3,000,000 Emerald City Paper Building Kent 31,900 1.7 1986 01/23/2015 $28,253,716 Algona II Algona 266,305 12.2 1988 01/19/2015 $ 6,395,897 Olympic Industrial Park SeaTac 94,404 4.72 1983 01/09/2015 $ 1,950,000 West Valley @ 212th, Building R Kent 13,569 0.7 2006 01/01/2015 $ 9,050,000 Northstream Fostoria Tukwila 79,020 5.01 1981 01/01/2015 $ 7,800,000 Pliant Corporate Center Kent 126,464 5.3 1980 Year Built THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.
Construction Report Sumner, Washington - Construction 6 10 1 5 E Valley Hwy E 8 9 4 W yh le Val 7 wy 3 E 2 12 11
City Owner/Developer Property Name Status Auburn Year Built Building Size Vacancy Panattoni Development, Inc. Auburn West Valley Completed Spec 2015 45,235 34,432 American Realty Advisors Northcreek In Planning Spec 2015 248,533 248,533 Orion Industries Orion Headquarters Completed BTS 2014 100,000 - DCT Industrial Walter E Nelsen BTS Completed BTS 2014 46,500 - Dupont Griot s Garage NW Logistics - Phase I Completed Spec 2014 225,000 225,000 Fife Kent DCT Industrial DCT Fife DC - Bldg. A Under Construction Spec 2015 203,400 203,400 DCT Fife DC - Bldg. B Under Construction Spec 2015 127,895 127,895 Fife 45 - North Site Under Construction Spec 2014 79,284 79,284 Fife 45 - South Site Under Construction Spec 2014 63,500 - LBA/Davis Properties Portside Business Ctr. Under Construction Spec 2015 485,000 485,000 IDS Real Estate Group FedEx Benaroya - Fife In Planning BTS 2015 300,000 - Prologis Prologis Fife Port In Planning Spec 2015 700,000 700,000 Stryker Business Ctr. - 1 Completed Spec 2014 318,195 - Stryker Business Ctr. - 2 Completed BTS 2015 893,420 - Stryker Business Ctr. - 3 Completed Spec 2014 120,559 - Lakewood NW Building Corp Lakewood Industrial Park Under Construction Spec 2015 136,300 136,300 Puyallup International Airport Centers SeaTac Seattle Sumner Panattoni/Metlife Panattoni Development, Inc. Panattoni / LaSalle IAC Port 167 - A In Planning Spec 2014 398,753 398,753 IAC Port 167 - B Completed Spec 2014 254,176 143,286 Des Moines Creek BP - 1A Des Moines Creek BP - 1B Des Moines Creek BP - 1C Under Construction Spec 2015 157,204 157,204 Under Construction Spec 2015 145,154 145,154 Under Construction Spec 2015 233,600 233,600 Riverton DC Completed Spec 2015 119,050 - Riverton DC Completed Spec 2015 79,930 - Apollo Building Completed Spec 2014 121,652-6 Titan Building Completed Spec 2014 306,457 198,667 4 Panattoni / Metlife The Steele Building Under Construction Spec 2015 205,850 205,850 12 Panattoni DCT Industrial Larsen Building Under Construction Spec 2014 62,212 62,212 9 Tamarack Building Completed Spec 2015 150,190 150,190 10 DCT Sumner South DC Completed Spec 2014 188,930-2 DCT White River - Bldg. 2 Under Construction Spec 2015 300,000 300,000 DCT White River -Coho Completed Spec 2014 648,644 648,644 DCT White River - Sockeye Completed Spec 2015 62,895 - Bob Stobie Riverside - Aaron Pckg. Completed BTS 2015 40,000-7 Riverside - US Fire Bldg. Completed BTS 2014 15,000 - Map 3 Prudential / Michelson Knapp Tarragon Salmon Creek - Bldg. A Completed Spec 2015 134,600 99,750 11 Salmon Creek - Bldg. B In Planning Spec 2015 133,100 133,100 Sumner CP - Cascade Under Construction Spec 2016 394,000 394,000 5 Principal Financial Group Sumner Golf Course In Planning Spec 2015 600,000 600,000 1 Avenue 55 / IPT Sumner West In Planning BTS 2015 120,900 120,900 8 THE INFORMATION CONTAINED HEREIN HAS BEEN GIVEN TO US BY THE OWNER OF THE PROPERTY OR OTHER SOURCES WE DEEM RELIABLE, WE HAVE NO REASON TO DOUBT ITS ACCURACY, BUT WE DO NOT GUARANTEE IT. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO PURCHASE OR LEASE.
Arie Salomon, SIOR, CCIM Principal +1 425 586 5636 asalomon@nai-psp.com Jeff Forsberg, CCIM Principal +1 425 586 5610 jforsberg@nai-psp.com Taylor Hoff Vice President +1 425 586 5634 thoff@nai-psp.com Kent Channing Associate Vice President +1 425 586 5628 kchanning@nai-psp.com Patty Bell Licensed Assistant to Arie Salomon, SIOR, CCIM & Jeff Forsberg, CCIM +1 425 586 5616 pbell@nai-psp.com NAI Puget Sound Properties Commercial Real Estate Services 600 108th Avenue NE Suite 340 Bellevue, Washington USA 98004 +1 425 586 5600 nai-psp.com