WESTERN SNAPSHOT , AUGUST 2005

Seattle Industrial Market

Metropolitan Seattle’s economy continues to improve slowly, as witnessed by the area’s job growth. In spite of the downturn, cumulative job growth in the past 5 years in the Seattle/Puget Sound market has been 3.7 percent. High technology continues to play a major role in the market. The Seattle metro area is ranked fifth nationally for concentration of high-tech businesses. One in every 4.5 jobs in the state is dependent on technology-based industries, with more  employment growth to come.

Seattle’s economic push has consumed a small submarket on the northern fringe of downtown called South Lake Union. As one of Seattle’s oldest neighborhoods, South Lake Union has an interesting history. South Lake Union became Seattle’s first industrial hub at the turn of the 20th century. Everything from sawmill operators, fiber processors, auto assemblies and airplane manufacturers resided within this district. The Boeing Company built its first hanger at South Lake Union to manufacture seaplanes.

Today, many of the heavy manufacturing companies have moved on and are being replaced with biotech and other high-end technology industries such as Fred Hutchinson Cancer Research Center, Cornish College, Merck, NBBJ, Seattle Biomedical Research Institute and The University of Washington School of Medicine.

The city’s development goal is to revitalize this aging, former-industrial hub into the area’s new lakefront urban village. Another big proponent of this revitalization is billionaire Paul Allen’s Vulcan Company, which owns approximately 58 acres in the neighborhood. Vulcan plans to build more than 10 million square feet of residential and commercial space there, complete with a new streetcar system connecting this neighborhood with the downtown core.

Seattle’s net industrial absorption exceeded 1.3 million square feet in first quarter 2005. That amount represents the seventh quarter in a row that the metro area has experienced positive absorption. Prior to that streak, the Seattle market experienced approximately 2 years of negative absorption. The industrial vacancy rate for the entire Seattle market stood at 7.8 percent at the end of first quarter 2005, an improvement of 0.2 percentage points from the preceding quarter.

Leasing activity has been brisk in all Seattle/Puget Sound submarkets. Sales activity in the last 12 months has increased compared to the prior year. Total transactions are up (139 compared to 117), total dollar volume is up ($589 million to $575 million), price per square foot is up ($71.70 to $55.61) and cap rates have lowered (7.82 to 7.99 percent).

As confidence in the industrial market continues to grow throughout the Seattle area, developers continue to push projects previously in the planning stages. Even though leasing activity is expected to remain strong through 2005, all of the new speculative development positioned to break ground in the very near future should keep the vacancy rates hovering around their current levels for at least the next year.

Jeff Crane is a principal at The Andover Company Inc./CORFAC International in Seattle.

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