Seattle - Tacoma Industrial Investment Forecast
Seattle - Tacoma Metro Area, 2018 Outlook
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High-Paying Jobs Attracting Workers to Seattle, Creating Demand for Industrial Space

Industrial sector poised to shine in Seattle. The metro’s bellwether companies Amazon and Microsoft have aggressive expansion plans, which will create thousands of jobs and attract young workers seeking high-paid positions. Microsoft will spend billions to construct 18 new buildings on its campus. Amazon, meanwhile, recently added nearly 160,000 employees to its rosters, including thousands locally, and will continue hiring efforts in the market. All of these lucrative positions are creating demand in Seattle for housing and consumer goods, which translates to industrial space absorption. Despite healthy demand, vacancy will inch higher this year as new construction reaches a new cyclical high. Furthermore, pre-leasing activity is around 10 percent, far below the national average. The Tacoma submarket accounts for the greatest increase in speculative construction as developers expand inventory in the area by 4.5 percent this year without leasing commitments. Nonetheless, the Seattle economy is a juggernaut and rent growth will reach nearly double digits.

Seattle industrial offers coastal investors higher yields. Transaction activity was consistent in 2017 compared with the previous year, though additional gains in deal flow could be difficult to achieve unless more exchange buyers migrate into the market. Elevated cap rates, meanwhile, are sufficiently higher than in California coastal metros, which lures out-of-state capital to the metro. For properties below 25,000 square feet, first-year returns approach 6 percent and move into the low-6 percent range for properties from 25,000 to 100,000 square feet. The Downtown and South End areas will remain popular among out-of-state investors, and local buyers will explore opportunities in suburbs to achieve yields more aligned with their acquisition criteria.