In recent years, industrial demand in the Puget Sound region of Washington State has been insatiable. Driven by our two major ports, Washington is the most trade dependent state in the country. Major companies are REQUIRED to do business here and consequently need high-quality distribution warehouse space to support their operations. Barring periodic market shifts (i.e. COVID-19), the fundamentals of the Puget Sound industrial market are as strong as ever.
Pierce County has seen the most significant growth of industrial development in recent years, far outpacing every other county in the state. There are a few primary contributors to this continuing trend:
- Availability and pricing of developable land
- Migration of residents from northern counties to Pierce County
- Growing population and workforce
Companies who are long time operators in King County are quickly learning that most of their employees live south of their current operational facilities. Despite our rapid growth in recent years, Pierce County still offers more affordable land values, rental rates, and overall cost of living. Most importantly, the Pierce County industrial market has grown organically out of necessity as we are the final frontier of available developable property in the greater Puget Sound region.
POST-COVID INDUSTRIAL BOOM?
It’s impossible to say today what the lingering effects of COVID-19 will be. One safe assumption: e-commerce sales are well positioned to grow significantly.
The latest research by San Francisco-based Prologis on COVID-19 and its implications for logistics real estate breaks down what may be ahead for the sector. Among the findings are that accelerated e-commerce adoption and higher inventory levels have the potential to generate 400 million square feet or more of additional U.S. logistics real estate demand, or 150 to 200 million square feet per year for the next two to three years.
As of year-end 2019, approximately 16% of all US retails sales were done online. Compare that to our Asian neighbors (China, Japan, Singapore) where year-end online sales were roughly 44% of all retail sales.
Experts suggest that for every $1B of E-Commerce sales, 1M square feet of industrial warehouse space is needed.
The current protocols in place because of COVID-19 have required a far greater number of consumers to use “on-line” services than ever before. While there was already a trend supporting a shift to on-line shopping, COVID-19 has greatly accelerated this and shortened the timeline significantly.
Industrial land values in Pierce County have continued to evolve over the years, most notably dating back to 2017. Land availability in the northern Puget Sound counties is scarce and Pierce County has grown as the next industrial frontier out of necessity.
Historically, the secondary and tertiary submarkets in Pierce County have seen spotty activity over the past decade, typically limited to owner/user driven developments. Fast forward to 2020 and we have seen a significant increase in the activity of land sales and resulting developments. Industrial developers are building speculatively for the first time in history in several of the Pierce County secondary and tertiary markets. It has become evident that what was once a “land-rich” environment is now lacking quality development sites.
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