North Kent Valley Market

The current market the North Kent Valley (Renton, Kent, Tukwila, SeaTac and Burien) is in the beginning stages of a softening period. We still anticipate the impacts to economics will take more time to develop over the course of the next two years, and this softening is specific to the South Seattle and North Kent Valley markets. We are very positive in our outlook for the Pierce County and South Sound markets further south which will be explained further in the body of this synopsis. For the North Kent Valley, we have clear indicators our primary values peaked within the following timeline: land values Q1 2022; capital markets Q4 2022; and lease rates Q3 2023. We have seen a clear deterioration of values for land and building sales due to severe changes to interest rates; however, the leasing market remains TBD regarding a stabilization of rents within a +/- growth range of 5% moving forward into 2024/2025. To put this into perspective, the average rent growth since 2015 has been 13-15% annually through 2022. We are signaling rent growth will range between -5% to 5% over the next two years, with increases in the 7-9% range beginning in 2026. The North Kent Valley will become a “winners and losers” market with the negative to positive range predicated on functionality and location – a flight to quality.  

Vacancy continues to be the greatest story line within the North Kent Valley market. If we ran this exercise during 2021, we may find 4-5 available properties between 100,000 – 200,000 SF. This would include considerable competition for these spaces from outside prospects as well. Today, we have a consistent range of 15-18 vacancies, in conjunction with lower volumes of tenants seeking space. One unique driver in our market is the movement of the labor force further south to Pierce County due to cost-of-living challenges, which is resulting in companies leasing warehousing further south to follow quality and cheaper labor. Additionally, the further south in our market you travel, the new and higher-quality assets you will find given the development of these markets began only 15 years ago. These two phenomena run concurrently with the majority of port traffic heading south to the Port of Tacoma from the Port of Seattle along with properties further south providing lower cost modern alternatives. Again, we are in the very beginning stages of this market shift from the North Kent Valley to Pierce County/South Sound, and it could take several years to see any material impact to lease rates, if any. There is the potential for rates to “flatline,” and regaining momentum once inflation and interest rates settle into a more consistent and predictable medium. The takeaway will be the opportunities in the near term will increase, with the rates being somewhat more favorable to tenants. 

For tenants in the market the market for 100,000 – 200,000 SF continues to be active, but volumes are nearly half of what we saw last year. The expectations is these will continue to slow applying pressure to Landlords and lease up timelines. Much of the deals landing in the market today are consolidations or downsizes to more functional space. We have some growth areas (aerospace, service business, etc.), but these are limited due to the obvious impacts of inflation, challenges with borrowing capacity, changes in consumer behavior, and risk averse business strategy. Of the major logistics companies in the area, only a prominent Seattle-based tech/e-commerce company has shown to be evaluating new industrial space with a recent inquiry in the North Kent Valley market. Other than this global company, most of the movement has been local companies, or mid-tier sized businesses. The most active company in the North Kent Valley market has been our largest aerospace user who has leased approximately 800,000 SF of positive absorption in the North Kent Valley market alone.