Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/732258
M A R K E T H I G H L I G H T: S E AT T L E 32 • October 2016 • Western Real Estate Business www.REBusinessOnline.com SEATTLE'S RETAIL MARKET CONTINUES TO GROW The Puget Sound region may be home to the growing online retail gi- ant of Amazon, but bricks and mor- tar retail development is in the best shape it's been in since the beginning of the Great Recession. After five consecutive years of strong employ- ment growth and resultant in-migra- tion of highly paid tech workers, the Seattle market is continuing to enjoy gains in retail sales volumes, which are projected to grow 4.5 percent in 2016. Demand for retail space has pushed overall vacancy rates to 3.7 percent throughout the metro area. For the 12 months ending on June 30, 2016, there were only 500,000 square feet of new space built. This is in contrast to the recent annual absorption that has exceeded 1 million square feet. Over- all vacancy rates reflect the demand for new space and asking rents have climbed correspondingly. The majority of new retail construc- tion is occurring in mixed-use proj- ects, such as ground-floor spaces at new residential developments. The largest chunk of retail space currently under construction, however, is with- in the $1.2 billion expansion of Kem- per Freeman's Bellevue Collection in Downtown Bellevue. In all, the proj- ect will add 375,000 square feet of new retail, which is 85 percent pre-leased. The 200,000-square-foot former JC Penney at Bellevue Square is also be- ing repositioned. Ownership worked for 12 years to buy out the struggling department store that had anchored the mall for 54 years. The three-level department store has been renovated for specialty retailers that include ap- parel chains Zara and Uniqlo, as well as a Whole Foods 365 store. TRF Pacific began construction on a 110,000-square-foot neighborhood center in Sammamish with Metro- politan Market as the grocery anchor. Another shopping center under con- struction is the 200,000-square-foot Olympic Towne Center anchored by Fred Meyer in the growing Gig Har- bor area of Pierce County. A lifestyle center of up to 450,000 square feet at the Everett Riverwalk brownfield re- development in Snohomish County (known to locals as the former tire fire site) is also in the planning stage. The saga of local grocer Haggen's rapid expansion, subsequent decline and bankruptcy in 2015 has resulted in several of its locations sitting vacant, although some have been converted into fitness clubs, medical clinics and the like. Sports Authority's 2016 bank- ruptcy is sure to affect its 14 Puget Sound stores. A lease auction was held in June 2016 but the disposition of these properties is not yet known. Investment sales have been limited due to a lack of willing sellers. One recent high-profile sale is the Whole Foods-anchored, 73,800-square-foot retail portion of the 2200 Westlake property that transacted in February. With limited new supply coming online in the next several years, the outlook for the retail market remains very positive for the balance of 2016. Gregory Bucklin Director, Integra Realty Resources — Seattle THE HEART OF THE EMERALD CITY The Downtown Seattle apart- ment market continues to surge as the current vacancy rate sits at a low 3.9 percent, according to Du- pre & Scott. This is despite nearly 3,200 new apartment units being delivered in 2015. An additional 4,000 new units will be delivered in 2016, but the real challenge ex- ists in 2017 and 2018 when a total of nearly 15,000 new units are expected to be delivered in the heart of Down- town Seattle. New construction deliveries beyond 2018 are expected to be significantly reduced as a result of increasing construction costs and a recent pullback from construction lenders. These factors have forced developers to rethink the financial feasibility of projects either under contract or recently closed and in the process of entitlement. Demand is currently keeping pace with supply as major local employ- ment drivers like Amazon, Google, Facebook, The Bill and Melinda Gates Foundation and Microsoft continue to compete for talent and hire at a ro- bust pace. Amazon alone currently employs about 25,000 in Downtown Se- attle. This could grow to as many as 70,000 once the more than 10-million- square-foot campus in South Lake Union is completed in the coming years. New construction in close-in submarkets like South Lake Union, Belltown and Capitol Hill are achieving gross rents of about $3.25 per square foot for mid-rise construction and nearly $4 per square foot for high-rise properties. Both of these rent levels are historical highs for their respective construction types, partly due to the quality of interior finishes, common areas and unit amenities now competing with new condominium projects. For the next couple of years, rent growth in Downtown Seattle is expected to slow from the near double-digit increases in recent years to more nor- malized levels as a result of new supply. However, job growth in the high- paying technology sector, in addition to Seattle being one of the nation's most attractive gateway cities, will continue to propel this region for years to come. Chris Ross Director, HFF The largest chunk of retail space currently under construction is within the $1.2 billion expansion of Kemper Freeman's Bellevue Collection in Downtown Bellevue.