Puget Sound Industrial and Office Reports
Q1 2025
Puget Sound Industrial Report
Capital markets activity has returned with a fury because investors see the value of Puget Sound industrial real estate. The last three years have seen a steady increase in Q1 building sales, increasing from $159.8 million in 2023, to $221.9 million in 2024 and $326.7 million this quarter. The largest sale was REI’s 586,000-square-foot facility in Sumner, which was purchased by Madison Capital as a portfolio for $101,300,000 (allocated), which comes out to $173 per square foot. Large move-ins balanced out the move-outs this quarter, resulting in an incredibly small 39,775-square-foot net absorption, which is 0.01% of regional inventory. Accordingly, the vacancy rate stayed the same at 7.9%. Economic risks on the horizon related to tariffs could have a major impact on trade volume at the Ports of Seattle and Tacoma. This is resulting in companies pausing to gauge the near-term impacts.
Seattle Office Report
Despite an increase in the number and square footage of signed leases, vacancy rose from 30.1% to 31.2% since Q4 2024. Most activity is coming from renewals or downsizing tenants, resulting in a market where companies are shuffling between the best buildings or locations. It would be misleading to characterize the market as engaging in a “flight to quality.” Most Seattle relocations are from one Class A/A+ building to another. Rarely are tenants moving from Class B to Class A properties. With Amazon’s 5-day return-to-office mandate in effect, other companies are following suit and requiring or encouraging more office attendance, although some are still working to entice their employees back with new workplaces or neighborhoods, amenities, and perks. Still, elevated vacancy and interest rates are discouraging potential buyers from purchasing office buildings, even at significantly lower valuations than five years ago. Pier 70 was the lone sale, fetching $11 million, or $102 per square foot.
There is a significant reshuffling of tenants across the Eastside. With 23.4% of space vacant, even more in Class A buildings, tenants have a lot of options to upgrade their space. More than half of signed leases last quarter were in Class A buildings, which demonstrates a preference for high quality space. While the cost is high, the opportunity has not always been available. Prior to 2020, big tech competitively leased most of the office space on the Eastside. Now that these spaces are on the market, at the same time as return-to-office mandates are increasing the amount of time employees spend in the office, companies are taking advantage of the opportunity to secure the best spaces in the market. In a reversal of fortunes, I-90 Corridor’s Class A vacancy rate declined from 41.8% in Q4 2024 to 40.3% this quarter. Several large occupancies, including Elevate Outdoor Collective and Flexport, both taking space formerly occupied by T-Mobile.