2019 Broker’s Forecast [May Breakfast Recap]

The predictions for the year ahead at the annual Broker Forecast were as sunny as the morning itself. The words butterflies and pots of gold, and phrases like riding the top of the wave, were used amid the rising lines of the charts and statistics shared as the three key real estate professionals talked about the aspects driving tenant decisions today and for the year ahead, as well as trends driving the industrial market.

Before the panel started, we got committee updates and learned that Community Enhancement Day 2019 will benefit Mary’s Place.

Reid Rader, Senior Vice President of Eastdil Secured, moderated this year’s forecast with the panel:
• Evan Lugar, Executive Vice President, Kidder Mathews (industrial focus);
• Cleita Harvey, Managing Director, JLL (Seattle office focus);
• Tim Owens, First Vice President, CBRE (Eastside office focus).

Evan kicked off the panel by sharing trends driving the industrial market, which are primarily consumer and retail habits. In comparison to 2007, for example, consumers are now demanding one- and two-day delivery for purchases. The resulting expectations and logistics are driving rental rate increases and determining locations for industrial facilities, forcing industrial real estate closer to homes. Evan shared statistics about how Amazon’s Prime services specifically are increasing rental rates and how real estate is forcing the next point-of-contact to consumers. He pointed out that this is exactly how industrial real estate is affected by our day-to-day lives and retail habits. He believes the trends will be exacerbated with the demand for one-day Prime and services such as grocery delivery. Evan shared the new TrackSix development demonstrating how added density and verticality will start to take shape in places like SoDo. There is also a rise in “maker space” in our region where executive leadership, prototyping, and R&D functions will sit side-by-side, with the transformation from raw to finished materials happening all in one place.

Cleita followed, bringing the discussion around to Seattle central business district (CBD) statistics and growth. As expected, technology companies are the largest tenant driver, and that sector is also driving the Class A and Trophy Class A market, with the two big players being Amazon and Microsoft. There is $4M worth of office under construction and $1.3M not committed. Cleita shared that Seattle is in the same category as San Francisco and Orange County in terms of where we sit in the market. In comparison to San Francisco, Seattle provides half the amount of jobs, but the same amount of housing.

Tim presented next and focused on a handful of trends in the Eastside office sector influencing his forecast for the year: Amazon in Bellevue, technology territories for the region, and rates on the Eastside. Amazon’s increasingly large presence in Bellevue is dramatic and happened seemingly overnight (but, no, it is not HQ2). The coverage spans 3.6M square feet at 175 square feet per employee. In total, Bellevue has 433 floors of office, all but three of them unavailable … and those three are in negotiations. This caused a stir in the audience and was repeated a few times because of its significance. The office market forecast is below the 2007 vacancy rate in five different markets. Tim shared a visual mapping of technology territories for the region and the companies that encompass those territories, which he expects to have continued growth. He shared later that the demand to supply ratio for the Bellevue CBD is 2:1.

As with last year, coworking was a central topic of discussion with predictions that it is here to stay and a part of many established companies’ real estate portfolios. This is due to factors such as the flexibility, scalability, and ease of lease conditions.

With 11 years of growth in the market and the highest year on record, Reid asked the panel if we are missing any chirps from the canary in the coal mine. The response was that everyone is heeding the success with caution, yet the growth seems to be steady for now. In fact, many tenants are taking advantage of space now ahead of the tighter market to come. It was also pointed out that workplace strategy, tenant growth strategy, increasing costs for tenant improvements and relocations, and scalability are all under consideration now.

When asked about Seattle’s CBD and Rainer Square specifically, Cleita shared the demand for the building, with the 15-year sublease from Amazon, is 1.5 times the supply (cue another stir in the audience).

The silent canaries we’re all listening for as we watch continual, sustained growth are to be heeded, but not fretted, it seems. For industrial, Evan said geopolitical or trade sensitivities are key issues that could unexpectedly unhinge the market. For the Seattle office market, Cleita said global issues, or lack of supply in Seattle driving companies to find homes in other locations. For the Eastside office market, Tim said the biggest risk is also its biggest strength, which is the majority of the market based on technology firms and their products or services.

The audience had questions ranging from trends in the U-District, Tacoma, and the Paine Field/Lynnwood area, to justifying the high cost of rents, and the safety of investing in the area. Reid was able to speak to investing in Seattle as a safe bet for multiple reasons that he explained in detail. The panel also said that the city is now seen as a global gateway market for international investment, which was not the case 10 years ago.

If you're up for it, click here to read the 2018 Broker Forecast recap to see how things actually took shape.

Be sure to check out the slides and the final attendance list via the NAIOPWA app. Look for the paperclip icon (materials) for the 2019 May Breakfast.

This article was written by NAIOP Washington State and Marcom Committee member, Sarah D. Fischer, Burgess Design.

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