For the third year running, Washington ranks as the third fastest growing state in the nation, according to the state's Office of Financial Management. And Plants, Sites and Parks magazine rated Washington among its top 10 "Hot Spots"for companies considering relocation and expansion.
Bearing this out, job growth projections for 1996 are 2.6%, up from the .5% to 1.5% , range of the past five years, reports Cain and Scott, Seattle. And Conway Pederson Economics, Seattle, forecasted in November that the central Puget Sound region should add 214,000 jobs over the next five years.
Big news this year was that Boeing had over $31 billion of airplane orders in [email protected] and plans to increase production. "Boeing has been laying people off the last five years," says John R. Solberg, vice president of Intracorp Real Estate, Seattle,but there's been positive job growth anyway because the economy is more balanced than it was 10 years ago." This growth is translating itself into a lot of attention from the real estate community, and some new construction, to boot, particularly for the Puget Sound area. Growth of companies such as Intel, Microsoft, AT&T Wireless, Space Labs Medical, Safeco, Weyerhauser and Paccar, and continuing relocation of new industries in the region, as well as building of a new U.S. Navy base at Everett, is stimulating commercial and retail development needed to support growing workforces.
"We're seeing a level of speculative building and fair-market sales of existing buildings unmatched outside of the North west,"says Steve Wasson, executive vice president of U.S. Bancorp.
"If you're an institutional real estate investor looking for opportunities, the stability and future of office space in ... Seattle looks very attractive," says Wasson.
CBD office heads list
Seattle's CBD heads the list of the office markets identified as the best for investor opportunities compiled by Valuation International, Atlanta, in its Viewpoint 1996.
After strong absorption in 1995, show 891,557sq. ft., the Seattle downtown market slowed during first quarter 1996, showing only 24,884 sq. ft. of absorption. However, CB Commercial reports." The signs are clear that what is driving this market is not a lack of user demand, but lack of available product. Large space users, defined as 10,000 sq. ft. or greater, will be, at worst, hard pressed to find solutions and, at best, in a very competitive environment for what little space is available."
Grubb & Ellis Co., Seattle, reported in its 1996 Seattle Commercial Real Estate Forecast, that vacancy rates in all submarkets will continue to decline by 2% to 4%. Asking lease rates are also expected to increase by 10%.
Most new office buildings, according to Del Bishop, president of SDL McCarthy, Bellevue, are build-to-suit properties, financed by private capital and union pension funds.
As many as 20 new office projects with 4.5 million sq. ft. of space are being planned, bishop says. The Eastside leads construction with 281,000 sq. ft. under way in four projects and an additional 2,527,000 planned, according to CB Commercial. Also, 155,500 sq. ft. is under construction in three projects downtown, and 1,7890,768 sq. ft. more is planned.
Industrial absorption continues
Equitable's Emerging Trends calls Seattle "one of the country's best warehouse markets, with a major port and no wide-open spaces for development."
Solberg, whose company has completed 300,000 sq. ft. of warehouse/distribution and light manufacturing space in the last 14 to 15 months, is more low-keyed, saying,Overall, it's been steady, but it hasn't been 'red hot."
The absorption rate for industrial in 1995 was 1.2 million sq. ft. more than in 1994, with most absorption occurring in the close-in Seattle market. But new construction barely kept pace with the absorption rate. Vacancy for the Puget Sound region dropped to 4.59%.
At the conclusion of [email protected], says Bishop, 30 industrial properties were under construction to add 3.4 million sq. ft. to the market. Another 4.5 million sq. ft. are in the planning stages.
"Absorption is expected to continue," reports CB Commercial, "and only the lack of developable sites will preclude a continuation of expansion in the market."
Due to the limited number of available acquisition opportunities in the Seattle market, Grubb & Ellis reports, life and pension fund investors are seeking developers to structure joint ventures.
Apartment construction lags demand
New construction doesn't keep up with demand in the multifamily market, either.In 1995, 2,000 units of rental property were built, with most activity in the single-family and condo markets, Bishop says. Rental property built in the near future is expected to be high-end
Estimates for 1996 construction of properties containing 20 units or more are: 1,400 units for King, 726 for Pierce and 123 for Snohomish. Some expect demand will be 8,000 units per year, Bishop says.
In spring '96, the five country region (King Pierce, Shohomish, Kitsap an Thurston countries) showed tightening with a 5.4% vacancy rate and average rent of $591. Thirty-two percent of properties were @offering rent incentives.
Volume forapartment investments in the King, Pierce and Snohomish counties market during 1995 totaled $425.95 million in 113 transactions, with an average price per unit of $40.184 and a cap rate of 8.8%, according to Cain and Scott. Foreclosed properties represented only four of the 33 100+unit sales.
Aetna's $32 million purchase of the 354-unit Summerwalk at Klahanie on the Eastside was the largest sale in the area.
Area is under-retailed
Seattle is under-retailed when compared to other metro markets of similar size, Grubb & Ellis reports. Puget Sound retail sales are expected to continue rising, from $29.7 billion in 1995 to $33.2 billion in 1997. Meanwhile, the area's median family income also continues to rise, from $50,400 in 1994 to $55,200 in 1996. It's no surprise, then, that a drop in retail vacancies is forecasted, from 5% in 1995 to 4% in 1996 and 3.5% in 1997.
National retailers have been seeking locations in the Puget Sound region, and big box retail development, which was prevalent during 1995, may have reached saturation. Due to limited supply of potential retail sites, creativity will be key to new projects, with some seeking alternative uses of office and industrial sites - like IKEA, which renovated an industrial building formerly occupied by Boeing in the Kent Valley - or other users trying to reconfigure existing retail space.
Almost 1.9 million sq. ft. is now under construction in 13 properties, and 4.9 million sq. ft. more is planned in 28 projects.
Inland Northwest growing, too
Growth in Washington is not confined to the western side of the state. "Employment growth and real estate activity in the Inland Northwest will improve this year over last," says Randy Barcus, senior market forecaster for the Washington Water Power Co.
Local companies are poised for growth, Barcus says, because few major employers in eastern Washington and north Idaho are engaged in industries where rapid downsizing is taking place. He says he's upbeat because of well-positioned employers in growth sectors of regional and national companies.
Last year, Egghead Software relocated its corporate headquarters to Spokane from Issaquah. Earlier this year, Machine Tech USA, designer and manufacturer of high-end accessory parts for the bicycle industry relocated from Duvall, Wash., to a 12,000 sq. ft. facility in Spokane, and Packet Engines, based in Union City, Calif., opened a development center in 3,000 sq. ft.
"Spokane's industrial market activity is alive and welt," said Tom Quigley, vice president and manager of Kiemle & Hagood Co. "We're seeing a trend in companies looking for newer space, and they're buying more than renting. There's a push for new construction."
This March, in a transaction involving nearly half the area's industrial space, Crown West Realty L.L.C., a Spokane-based privately funded real estate investment company whose owners operate commercial and industrial properties nationwide, purchased the 405-acre Spokane Business and Industrial Park from Pentzer Development Corp., a subsidiary of Washington Power Co.
Of the more than 33 million sq. ft. of industrial space tracked by Kiemle & Hagood, vacancy was 5.4% in February. Nearly 1.1 million sq. ft. of new industrial space came on line last year, most of which is owner occupied, Quigley says.
Large, national retailers entering and expanding in the market will help keep demand strong in Spokane County, according to John Morrow of Pinnacle Realty. Activity by retailers such as Office Depot, Pet Smart, Future Shop and Circuit City will push rental rates and land values up, Morrow says.