It is said that real estate is all about location, location, location. However, when it comes to the industrial real estate market, it’s all about timing. Tacoma just happens to be in the right place at the right time.
The Port of Tacoma, comparatively cheap land and labor costs, and good proximity to Interstate 5 have made Tacoma the “new 50-yard line” for industrial real estate development, according to Travis Hale, partner at Panattoni Development Company.
Since 2014, e-commerce has grown by about 25 percent annually, according to the statistics firm Statista, driving the demand for fulfillment centers. Meanwhile, Flexe, a Seattle-based startup that connects companies to warehouse space, notes Seattle is the top market for fulfillment centers in the country, largely due to Amazon’s presence in the Puget Sound region.
More industrial space is needed, but only South Tacoma has appropriately sized land parcels available, while still being considered “close-in.”
“There is a scarcity of land that is large enough to get a building on,” Hale said. “The prices have increased drastically over the last 12 months. There is no land in Renton or Tukwila, so Tacoma has become more interesting.”
Hale is seeing a huge demand from tenants that want to be close to I-5 and have Class A warehouses, which include “all the modern bells and whistles,” like 36-foot ceiling clearances to accommodate larger trucks. Also, space for truck trailer parking is a necessity.
Hale’s company has 26 projects underway, many of them in the South Sound, including a 405,000-square-foot Best Buy fulfillment center in Fredrickson. That is why Hale said he appreciates that South Sound jurisdictions are more willing to work with developers than their neighbors to the north.
“The permitting process is easier, the business environment is easier, and they accept us with open arms,” Hale said of South Sound cities.
Vector Development Company, based in Kirkland, is observing the same trend. It recently announced plans to build a $9.5 million, 78,000-square-foot distribution center on South 96th Street in Tacoma.
“It’s hard to find the right size of land for the right cost,” said Tyler Litzenberger, president of Vector Development Company. “In Lakewood and South Tacoma there are better opportunities.”
Litzenberger runs his own analysis based on CBRE Group research reports. As of the beginning of 2018, there were 46 million square feet of leasable industrial space in the Tacoma submarket, and a 2.8 percent vacancy rate. In addition, in the third quarter of 2018, the Tacoma/Fife market added 2.5 million square feet of new industrial space over the previous 12 months.
“More space is being leased than developers can produce,” Litzenberger said. “It’s being driven by e-commerce. Big box stores continue to struggle, but there is a strong ‘last mile’ demand for both cold storage and traditional distribution centers.”
Litzenberger also sees significant interest from smaller tenants who need smaller units, a niche of the market on which Vector focuses.
Vector has two facilities currently under construction. One is a $45 million, 382,000-square-foot business park in Covington; the other is a 950-unit, Class A, three-story self-storage project in Tacoma. Vector also is interested in properties farther south in DuPont and Lacey, due to the proximity to the I-5 corridor.
Litzenberger said demand will continue to outpace supply, and it will only get stronger as e-commerce matures.
“A slowdown in the economy may have a trickle-down effect for the real estate market,” he added. “But I don’t see an end to this demand in the short-term. The fundamentals are all there.”