Puget Sound Big Box Market

You know, you're going to see changes in, you know, the way those buildings are constructed because of robotics for sure. Charging stations and, and, and everything that people are thinking about that right now and doing it. Well, they're constructing it. Yeah. Correct. Yeah. Absolutely. And so those are all things that, you know, in five, 10 years from now will become standard. That's right. That not everybody is doing right now. That's right.

Welcome to our industrial advisors podcast. You have Bill Condon and Matt McGregor here again today.

Today's topic is going to be, uh, the Puget sound big box market. Um, and which means we'll define that as a starting point. So I, I consider big box to in today's environment to be 300, 000 square feet and, and above, uh, times of change, times of change. So let's talk about that. So when we got into the business, you know, 20 years ago, You know, a big deal at that time was 100, 000 square feet. Right. And so 300 was off the chart.

Like, um, yeah, like we, we rarely heard of, I remember hearing about like a 400 in my second year in the business and I was like blown away. So I think like when we start, you know, 20 years ago. A hundred thousand square foot deal was a big, it was a big deal, right? And so now I would say today, like our big box market, I would define as kind of 300 and above.

And then, you know, from a location standpoint, you know, it's changed over the years, right? I mean, Kent used to be where, when we started most of those hundred thousand foot, big, big deals got done. It's pushed further and further South and then turned into Sumner deals got bigger. You know, two and three hundreds were getting done in Sumner and then it got bigger and bigger, pushed into Frederickson, Tacoma and South.

And that's where you start to see some of the, you know, 500, 000 square footers and above get done. But why don't you talk a little bit about, so, so locations change, sizes change on the big box market, like how functionality has changed for those buildings over the years?

Well, you know, obviously the functionality of Clear Heights gotten a lot bigger. So when we got in, The big boxes were being built, you know, call it one to 400 was kind of the range, but those four hundreds would be a multi tenant. Yeah. Divisible most. Yeah. Yeah. Uh, they were 30 foot clear. So the big boxes were, so I would say the dramatic changes is clear height, you know, 36. Forty now. And then truck courts and trailer parking have been the big change, right?

Yeah. They're not liking the shared two hundreds anymore. No. Right. And they're wanting trailers on site mostly for, you know, obviously you get into the larger deals and they're absolutely a must. So the buildings that you see suffer are from that past generation that were jam sites, 32 foot clear. No trailer storage, you know, and a truck court that was shared 200 or maybe it's 130 alone. They're hurting for sure. So the modern building I would say is cross loaded 36 to 40 foot clear.

The slabs are typically a lot more stout now than they used to be because of slab problems. Yeah. Historically, right? Yeah. And trailer, you know, storage probably. On the perfect design buildings straight across from the docks. Yeah. It's so funny. Cause when, you know, years ago, like no one used the extra yard, like sometimes they would be built and nobody, nobody used it. And it was like, well, that's just kind of a waste.

And now it's like you, you get into that 300 and above and you, and you have, you almost have to have it. Yeah, and I think the, the reason for that, there's been a lot of studies on why, uh, I read one. I think Hamid said it a few years ago that I was like that. I think that nails it. And it was something to the degree of the reason why those yard components changed is the ships got bigger. And there were a lot less drops.

So when you have that freight coming in, they're putting a lot more freight on the market at once in less frequent amount of times. Right. So if you're leaving you, I don't know what the price is today, but when I read the study, it was say 250 a day to leave your container in the port. You're not going to leave that container in the port. And so, the deals got bigger, the buildings got bigger because the ships got bigger.

And then the yard component got bigger because it's less frequency of the ships. So they were dumped all at once, so they wanted to drag it out of the port and go throw it in their own yard. Before they could process it into the warehouse. So the buildings got bigger. And the yards needed. Yep. That was the combination.

Yeah. Um, but yeah, you, and you had mentioned the, the migration of it is, is interesting because when you and I first started Sumner was just being really developed and then for 10 years it was the number one absorption market. And I remember. Telling tenants, you can get a great deal. And you, you might as well be talking about Portland. Yeah. Right. And now seeing it progress and obviously understanding all markets do that.

Now, Fredrickson being the number one absorption market and through COVID, we were seeing deals get done. You know, they're doing a spec all the way down to Kelso now, right? And so that, that's going to come back into play, but obviously demand has softened. So you're going to see the spigot turn off, say, south of Lakewood. Yeah, yeah. The secondary market development will hit pause. Whereas if you're in, in, you know, the kind of core market, you'll keep going.

So let's talk a little bit about the state, because we get asked all the time, like, What's going on in your market from a bigger box, large tenant standpoint. So let's talk about that. So we ran an analysis and kind of current state of buildings that are existing, that are available over 300, 000 square feet. And then what's under construction. I'm going to start with the market availabilities of existing product above 300, 000 feet.

There's 10 of them and they're not going to go through every one of them, but there's 10 of them ranging from South Seattle, kind of through DuPont and Frederickson. And you have, you know, you have the 700. Double, two story building, you know, in the Trammell Crowe deal in South Seattle, which is a very big building for that sub market. And then as you go south on the south end, you have DuPont that's got, you know, 500, 000 footer roughly.

And then the stuff in Frederickson and then Tacoma and Milton kind of in between. Got to throw Kelso in there. Yeah. Yeah. 1. 1 million. I mean, so from an existing standpoint, 10 options above 300, 000 square feet, two of those are subleases. Yeah. Uh, one's at 500, 000 footer and Sumner and one's at 3 50 in Kent. So of the existing buildings that are up, there's about, there's about 10 options above 300, 000 square feet.

And in those 10 options, I would say you've got three, potentially four tenants in the market. In that upper size range of those. Yeah. That doesn't sound terrible, but I would say that's a dramatic change from where we were at over the last several years where most of those buildings, it was more of a two to one ratio. You know, you had one existing and one under construction and one or two tenants in the market, right? Yeah. At that time.

And it was just always churning through those, those 10. So I would say the percentage of that demand is down a bit. And so some of these are going to be, you know, a little bit long on it. On lease up time. Yeah. So you have those 10 existing and let's talk about what's under construction. Yes. So Seven buildings are under construction that can accommodate tenants, you know, above 300, 000 square feet.

So 17 total when you look at availability today, what's available, and then another seven that are currently under construction. And most tenants in that size range, so you'd say 17 buildings total. Yeah. All of those will deliver this year. So if a tenant is in the market today, they're looking at all 17. Absolutely. Right. Yeah, absolutely. So that's a lot of options for three to four tenants in the market. No doubt about it. Collectively.

Yes. And you, you have, and all those, those seven buildings that are going to be built. Because of how new they're going to be, we talk about functionality, you know, some of the, the 10 that are existing or it's, it's older products. So there has definitely been a flight to quality. Yeah. There's a flight to quality with those bigger tenants, generally speaking. So the newer, more functional products going to get at least faster than the, than the existing.

And then location comes into play, right? Yes. Cause I think as much as, and we've talked probably on three or four podcasts about our, our like of the Seattle Trammell Crowe multi decker building, but that building, you could almost say. It stands on its own, right, as does Kelso for a different reason, right? So the core buildings are going to get typically a lot more looks that are in between those ports of Seattle and Tacoma.

Yeah. Uh, you know, in the Sumner market, I would even say Sumner, Frederickson market on up to Kent in that primary areas where the most tenants are looking. Okay. And then as you go south, you're going to get discounted. And as you go north up into Seattle, that's a, that's a different tenant. It is. I mean, you kind of hit it. Functionality combined with labor availability oftentimes drives that decision for a tenant. That's right.

And those markets you, you, you just alluded to Frederickson, Sumner, proven markets, good labor, great buildings. So those generally speaking, have done the best from a new product delivery standpoint. That's right. And, and I do think. I'm sorry. We're not taking all politics out of this. You know, we don't get political on this, but I do think some of the manufacturing things are going to be coming home.

And so you're going to start to see an uptick on some of those larger deals, especially in maybe light, too heavy manufacturing. Yeah, the manufacturing, I mean, yes, as we know over the years, it's heavily weighted to distribution from a tenant standpoint. 92 percent in Seattle. Yeah. So, but that manufacturing percentage, well, it's not going to jump, you know, significantly, it's going to jump.

I think out of those 17 buildings, you're going to see two to three manufacturer deals that we would not have seen prior. Yeah. Agreed. Yeah. So that is, that's, that'll be an interesting one to look for and watch on the big box marketplace. Um, so we've talked somewhat about. What the existing market looks like today, right? And where the demand is. So the tenant demand is okay. You know, it's not, it's not great, but it's, it's okay. It's okay to light.

Yeah. And so some of those buildings will, will get taken down. So we'll, we'll keep a close eye on it, obviously. But I would also say this time of year, not to, I'm not one of those guys that always, Oh, I see, you know, I'm going to warm up, you know, but I will say, yeah, yeah, exactly. I will say I feel like the market's picking up momentum and that three to four, because we don't know if one of them is real. We know three deals are real. One's questionable.

Yeah. So say three to four deals north of 300. I would say, you know, if we were talking in June. Yeah. We'd be talking about six or seven. Yeah.

Yeah. So we've seen the big box market develop from a functionality standpoint. And you know, it'll be interesting to keep an eye on like what that looks like and how that changes over the next 10 years. You think about like, you know, charging station for like 85 feet. Well, yeah, I mean, clear idle, you know, I mean. The clear height will continue to probably get higher.

Yes. Eventually, you know, and, and yard space, you know, along with that, but then like electric trucks, you know, you're going to see changes in, you know, the way those buildings are constructed because of robotics for sure. Yeah. Charging stations and, and, and everything that people are thinking about that right now. And so those are all things that, you know, in five, 10 years from now will become standard. That's right. That not everybody is doing right now. That's right.

So if you were building. A building in today's environment. Number one, you could pick your sub market to build it in. Pick your sub market, the size, and then what you're doing from a extras standpoint. Well, you know what I'm going to say, because it's been my whole career. It's insomnia. Okay. I truly feel this has nothing to do with the fact that we have a listing there. It honestly doesn't. I truly feel when you look at the port system.

And where the labor is, Sumner is still the number one market. Yes. Okay. It was absorbing 38 percent of the market's absorption for a decade until it ran out of space. So if I, if I could build the perfect building, it would definitely be in Sumner because of the two port system. And I would build, are you saying today? Yeah. Yeah. Well, I'd be building what we're building. Yeah, I would be. And so it's, it's got the right trailer storage. It's the two right sizes buildings, right?

It's in the right location. It's got the right clear height. They're built for EV, right? So that's going to be a challenge by the way, because as you know, we're running out of power and you can't just go to the municipality and say, Hey, likely in the future, a tenant's going to need a fleet. of trucks. So we need another, you know, 5, 000 amps or more just sitting there. They're going to say, no, we'll bring that power in when you show me the tenant, you have to show that you're going to use.

And that's an issue, right? Because that's not cheap. So do you build that infrastructure and. And not have the power there, right? And the answer is probably, yeah. Yeah. We're building two great buildings down there, 700 that's expandable. And, uh, I agree that those are fantastic sizes. You can demise them if, if you need to. Great job on design KG. Yeah. Yeah. That is great.

It's a great project. So we'll keep an eye on all of that, but we did want to do this to just talk about kind of the current state of the big, where the big box market has been. It's developed to, and then what the current state of the big box market is. And, uh, it'll be a really interesting 2025 to keep pace with it all and see how it all develops. My only prediction will be that you'll have a slowdown of announcements, uh, in 2026.

Cause I think even if you, even if you say, Hey, you're going to have double the amount of tenants in six months, you're going to have 17 options starting to deliver. standing and delivered, right? Yes. And not enough to tenants to fill all of them. So I think it's going to be a flight to location, right? A flight to quality and the right design.

And you're going to have some buildings without tenants for a while, which is going to probably slow down that, you know, you're not going to build into that competitive fray. You know, you're going to see a little slowdown. Absolutely. And, and, you know, Nationally, these developers are in multiple markets and some of them are just already just starting to, you know, hit pause in some of these markets because they have bigger buildings that are sitting right now.

So until the market in general like heats up, some of that stuff gets absorbed, absorbed, then, you know, some of this stuff could get paused. But we are, we are going to see that, that newer product and more functional product lease first, for sure. Absolutely. Thank you very much. Thank you. That's the big box market, current state of the big box market report.