November 14, 2019
By Dennis Kaiser
Connect Media hosted its inaugural commercial real estate conference in Seattle last week. The afternoon of networking featured two panel discussions, one we recapped previously, titled, “Deal Flow Across the Capital Stack,” and the other, “Industry Leaders: A View from the Top.”
Today, we’ll recap the Industry Leaders panel, which was moderated by MZA Architecture’s Mia Marshall. Panelists included: Kinzer Partners’ Adrienne Hunter, Madison Marquette’s Daniel P. Meyers and Kidder Mathews’ Evan Lugar.
Kinzer’s Hunter launched the discussion noting that Seattle was probably the best market in the history of markets. The numbers back up that perspective, she argues, as the fast-growing region has retained a low vacancy rate despite all of the development activity. She pointed out that the Class A product has remained in the 1% vacancy range for the past 10 months. Plus, the market continues to attract top credit tenants and space is limited.
Kidder Mathews’ Lugar agreed, noting the industrial markets across the Puget Sound are equally strong, and institutional investors’ portfolios tend to be underweighted as far as Seattle industrial assets are concerned. The market is emerging from a time when it was “under-valued and is “catching up” with major institutional capital now finding the region attractive. That is true as well for the office sector, noted Hunter, a theme that is expected to play out over the next five years. She indicated that Seattle is “on the precipice” for attracting new institutional capital.
Madison Marquette’s Meyers pointed out that Seattle remains a relatively cost-efficient market compared to others such as San Francisco. “Seattle is at the top of the list when investors are looking for properties,” he said. Within the Seattle market, Meyers believes the next growth area will be the South market (SoDo) neighborhood, which promises to provide urban development opportunities for the coming 10 to 20 years. And there likely will be additional opportunities in the adjacent Pioneer Square neighborhood, now that the viaduct has been removed.
Hunter says they are seeing institutional owners moving into Pioneer Square now, and existing owners are taking the opportunity to improve assets, bump rents and upgrade to a higher caliber of tenants.
The Eastside is another area where continued growth can occur, notes Meyers, who says rents are higher there than they’ve ever been. He pointed out that the three key markets, Bellevue, Kirkland and Redmond, collectively account for roughly 750,000 square feet of office space, a number that rivals downtown Seattle. Though he doesn’t believe it is a question of one market competing against the other. He says it is a wise move for companies to have an office presence in both, a point that Hunter agreed with.
A challenge that Seattle must deal with is retaining its cost advantage amidst high demand and continued growth. The region must find ways to avoid some of the pitfalls of too much of a good thing that have hit other markets such as San Francisco. Hunter says finding ways to “grow sustainably” and not “outprice people” will be a big issue in Seattle.
None of the panelists see a slowdown on the horizon for Seattle and the Puget Sound region, especially for the office, multifamily and industrial sectors. The retail sector must continue to evolve and incorporate a mix of uses such as creative office, as well as more experiential elements into projects. Meyers noted that is exactly what Madison Marquette is doing at Pacific Place in downtown Seattle by creating an environment people want to come hang out in with friends, as well as shop.
A consensus among panelists was that now is the exact time to be doing what they are doing CRE-wise in Seattle because it is becoming a more international city by the year. And despite the growing pains, Hunter summed up the thought saying, Seattle is in a “unique trajectory that a lot of other markets don’t have.” That good fortune makes it a “good time to be working here through this phase,” she concluded.
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