Population: 3.4 million
Rate of Population Growth: 1.8%
Median Household Income: $77,900
Unemployment Rate: 6.7%
2002 Retail Completions: 2.8 million sq. ft.
Retail Vacancy Level 2002: 5.9%
Retail Vacancy Level 2001: 4.7%
Average Rent Per Square Foot 2002: $18.80
Average Rent Per Square Foot 2001: $19.01
Source: Washington State Office of Financial Management, Grubb & Ellis, Marcus & Millichap
Though Seattle's population and income ½gures have retailers salivating, tough zoning laws and the constraints of the Cascade Mountains to the east and Puget Sound to the west protect the market from becoming overstored.
The Washington Of½ce of Financial Management estimates the Puget Sound area, with a population of about 3 million, grew by 56,000, or 1.8 percent, in 2001. Analysts project growth will remain in that range through 2008. Grubb & Ellis says the area's 2001 annual median household income topped $70,000, well above the national average of $42,228. More signi½cantly, the Seattle Times reports the Seattle-Tacoma area ranks 11th nationally in buying power, with $66.7 billion in after-tax, discretionary income.
“We're nowhere near overretailed,” says Dave Moore, senior vice president of MBK Northwest in Portland, which owns and develops shopping centers throughout the Paci½c Northwest. “Most of the major retailers have found homes, but it's been rather recent.”
And he sees no danger of over- retailing.“Land is at such a premium, retailers have to pay rental rates typically reserved for more populated areas. Our rents are 20 percent to 30 percent higher than areas with comparable populations,” he says.
Susan Zimmerman, a vice president at Insignia Kidder Matthews in Seattle, says both new and existing retailers are moving with caution. Among the more active tenants are TJMaxx, Ross, Bed Bath & Beyond, Best Buy, Babies “R” Us, REI and Cost Plus. Though drug stores have “calmed down,” she says supermarkets continue searching, with Safeway, Albertsons, Top Food, Larry's Market, Whole Foods and Kroger-owned Fred Meyer and QFC all seeking sites.
Marcus & Millichap estimates the overall average rent at $18.80 per square foot, with downtown Seattle at $36.44 and the east side at $22.45. Though these ½gures are down marginally from 2001, they are not expected to decline much further.
Given Seattle's comparatively high rents, why do retailers go there at all? For solid sales at the stores they do open. At Lakewood Town Center, an 850,000-square-foot project MBK is completing in Tacoma, Moore reports every tenant has met or exceeded projections, while the center's Safeway is the chain's No. 2 performer in Washington. “Sales have been phenomenal in the six months it's been open,” he says.
The project is emblematic of the kind of development occurring in the region. MBK acquired an underperforming 1.2 million-square-foot mall, demolished the main structure and rebuilt the property as a Main Street center. It left independently owned Target and Gottschalk's buildings standing, but built new structures for Safeway, Burlington Coat Factory and Of½ce Depot. New tenants include Michaels, Old Navy, Ross, Bed Bath & Beyond, GI Joes, PETsMART and Pier 1.
The company also sold a site to the City of Lakewood for construction of a city hall. Moore says local communities increasingly require inclusion of public facilities as a condition of approval. Langly Properties and Tarragon Development of Seattle will include a campus of Green River Community College in Kent Station, a 540,000 square foot mixed-use project built at a new commuter rail station in Kent. Seattle-based Sabey Corp.'s $100 million Tukwila Village in Tukwila will feature a library, city and medical of½ces and conference facilities as well as retail.
According to Marcus & Millichap, 1.5 million square feet is slated for completion through 2003. The ½gure is down from 2.8 million square feet for 2002, and the ½gure for 2004 is likely to be lower yet, says Gregory S. Wendelken, Marcus & Millichap's regional manager. Vacancies rose 1.2 points to 5.9 percent in September and will likely climb to 6.4 percent, but the slowed pace of construction should allow for suf½cient absorption to keep the rate from going much higher, he says.