Latest / Industrial Advisors / Q1 2026 Results

Transcript

Q1 2026 Results · Industrial Advisors

• 0:00
  We're at a 10.3% overall vacancy rate, which we don't love.
• 0:05
  Um, it's the first time we've, uh, passed 10% in our career.
• 0:08
  It's been a while.
• 0:09
  Yeah.
• 0:09
  I don't think it, I don't know.
• 0:10
  Back in, I know when, or the early days of like 2004, five, like it was up
• 0:17
  there a little bit, but it came, I don't know if it ever got to the old decades.
• 0:20
  I came in in late four, but I guess I didn't go back that far.
• 0:24
  And look at it, it was like in 2011, 12 at the height of it,
• 0:27
  seven or eight in our career.
• 0:29
  It was like nine and a half.
• 0:30
  Nine and a half.
• 0:30
  Okay.
• 0:31
  So we're 10.3 now.
• 0:32
  Yeah.
• 0:32
  We're no man's land, but we we we're definitely gonna
• 0:36
  start heading the other way.
• 0:52
  Welcome to our Industrial Advisors podcast.
• 0:55
  You have Bill Condon and Matt McGregor, and we are doing a Q1 2026 recap.
• 1:00
  Um, now that we're through the first quarter, so.
• 1:03
  Let's jump right in.
• 1:04
  A couple things to start with.
• 1:06
  We're at a 10.3% overall vacancy rate, which we don't love.
• 1:11
  Um, it's the first time we've, uh, passed 10% in our career.
• 1:14
  It's been a while.
• 1:15
  Yeah.
• 1:15
  I don't think it, I don't know.
• 1:17
  Back in, I know when, or the early days of like 2004, five, like it was
• 1:23
  up there a little bit, but it came, I don't know if it ever got to know.
• 1:26
  I came in in late four.
• 1:28
  But I guess I didn't go back that far and look at it, it was like in 2011, 12, at
• 1:33
  the height of it, in our seven or eight in our career, it was like nine and a half.
• 1:36
  Nine and a half.
• 1:37
  Okay.
• 1:37
  So we're 10.3 now.
• 1:38
  Yeah.
• 1:39
  We're no man's land, but we, we we're definitely gonna
• 1:42
  start heading the other way.
• 1:43
  Yeah.
• 1:43
  There was a negative million feed or so of a net absorption.
• 1:46
  Yep.
• 1:47
  In Q1.
• 1:48
  A part of that is that, you know, we had 3 million feet of deliveries.
• 1:51
  Yeah, right.
• 1:51
  Exactly.
• 1:52
  So that, so that brings, that, that down.
• 1:53
  But, and some subleasing still and some subleases.
• 1:55
  That's, uh.
• 1:57
  Stop subleasing.
• 1:58
  Well, and like good ones that are just sitting.
• 2:00
  Yeah.
• 2:00
  You know?
• 2:00
  Totally.
• 2:01
  Yeah.
• 2:01
  So, so yeah.
• 2:02
  Not a, not a, from a number standpoint, not a great story, but no, that
• 2:07
  doesn't tell everything that's going on in the market because certainly
• 2:10
  there's been increased activity.
• 2:11
  There's some bigger deals that we're gonna talk about that are getting done.
• 2:14
  Uh, that have been done.
• 2:15
  So that's right.
• 2:16
  We, you know, we are gonna flip this negative absorption into
• 2:18
  positive and we can start with that.
• 2:20
  Yeah.
• 2:20
  Before we move on, we've said this consistently, we said this at the end
• 2:25
  of Q4 and we're saying it now that there is, you know, call it about 6 million
• 2:30
  feet of large, a handful of large deals.
• 2:34
  They're absolutely going to in, so I'm not saying we're still not
• 2:38
  gonna have some give backs, and I'm not predicting that the total.
• 2:43
  Vacancy is gonna, or, or the total absorption's gonna be 6 million
• 2:46
  feet, but we're gonna have 6 million feet of just large deals.
• 2:50
  Ink, yep.
• 2:50
  In the next couple of quarters.
• 2:51
  Mm-hmm.
• 2:52
  And that's gonna change the dynamics quite a bit.
• 2:55
  Now we've gotta hold to dig out of, right.
• 2:58
  Yeah.
• 2:58
  And there's still some spaces coming back, so, uh, but I will
• 3:02
  guarantee we're talking about a very good positive absorption year.
• 3:06
  Yeah, we definitely are.
• 3:07
  Yeah.
• 3:07
  Which will be great for the numbers, for rents for all of it.
• 3:10
  Yes.
• 3:10
  Um, and we are seeing increased activity.
• 3:13
  Not just in big box, but some of the smaller stuff as well, which is good.
• 3:16
  For sure.
• 3:16
  So just diving into some of the submarkets.
• 3:19
  So, uh, Seattle, close in markets 10.3%, so no longer the highest though?
• 3:24
  Uh, no.
• 3:25
  Pierce County jumped to 12.8%.
• 3:28
  Up 190 bits.
• 3:30
  Yeah.
• 3:30
  In one quarter.
• 3:31
  Deliveries.
• 3:31
  Deliveries, obviously.
• 3:32
  That's why's, so that's gonna come down.
• 3:33
  Yeah.
• 3:34
  That's where a lot of that stuff's gonna get absorbed.
• 3:35
  Yeah.
• 3:36
  Um, Kent deliveries and some give backs.
• 3:38
  Yeah.
• 3:38
  And some give backs.
• 3:39
  Yeah.
• 3:39
  Kent Valley's 10.3.
• 3:41
  The North end's 8.7, east side 7.1.
• 3:44
  Thurston County is 6.9.
• 3:45
  So overall, you put everything together.
• 3:47
  It's 10.3.
• 3:48
  Yeah, uh percent.
• 3:49
  As we up 70 bips in the last quarter.
• 3:51
  Yep.
• 3:52
  Yeah.
• 3:52
  So up, yeah, from from Q4, some of the larger leases that got signed,
• 3:57
  there was seven deals over a hundred thousand feet that got done.
• 4:00
  I wanna point this out.
• 4:01
  Yeah.
• 4:02
  So I think somebody had done a study, I think it was McClennan or somebody about
• 4:07
  how long it had been since there was a.
• 4:09
  A hundred thousand foot deal.
• 4:10
  Done.
• 4:11
  Yeah.
• 4:11
  So we've got to your point, new deals.
• 4:14
  Now you call 'em mobi, an expansion.
• 4:16
  Right, right.
• 4:16
  That was an expansion, but, but you've, you've got some expansion there, so
• 4:19
  you'd almost call that in that category.
• 4:21
  But just straight new deals.
• 4:23
  You have four deals over a hundred thousand feet this quarter, that
• 4:28
  ink that were brand new deals.
• 4:30
  Yep.
• 4:31
  Which is huge.
• 4:32
  Yeah, it's been a long time.
• 4:33
  So you got, and they're, they're all over.
• 4:34
  They're in Tacoma, Seattle, Kent.
• 4:37
  Lakewood Sumner.
• 4:39
  Yeah.
• 4:39
  Yeah.
• 4:39
  So why all over the place?
• 4:41
  And, and so we've had, uh, a total of 1, 2, 3, 4, 5, 6, 7 deals, uh,
• 4:48
  in that one to 200 range that.
• 4:51
  Uh, did positive absorption this, this last quarter, which is huge.
• 4:55
  Yeah.
• 4:55
  For the market.
• 4:56
  Yeah.
• 4:56
  No, it's, it's, it's great.
• 4:57
  And you know, again, that one to two range, it still has a lot of options.
• 5:02
  So Nice to see some of these deals get done.
• 5:03
  Nice to see a chunk taken outta it.
• 5:04
  Yeah, yeah.
• 5:05
  With no new deliveries in it.
• 5:07
  Right, right.
• 5:07
  So that's all, that's all positive.
• 5:09
  And then on the construction side.
• 5:11
  We're finally seeing a slowdown in that, which is interesting
• 5:15
  because we're not gonna have any large buildings pretty quick here.
• 5:17
  But we have, uh, 3 million feet completed with about 1.5 and change
• 5:23
  still under construction, but a big, now we're getting to the end of that.
• 5:27
  And it's interesting 'cause all that large stuff is being absorbed, which is why
• 5:31
  we're seeing aggression on land, right?
• 5:32
  Yeah.
• 5:33
  I mean, and as you know, I mean, land takes a couple years to get going these
• 5:37
  days, so, uh, we're 11 and, and yeah.
• 5:39
  Yeah.
• 5:39
  Or 11, like the golf course.
• 5:41
  So, you know, by that time the market will be back and under
• 5:44
  5% Bacon, e Exactly, exactly.
• 5:46
  Um, some good investment sales Q1.
• 5:49
  So Gateway North, I believe.
• 5:51
  Largest deal.
• 5:52
  76 million.
• 5:53
  76 million.
• 5:54
  And that's.
• 5:55
  You know, that's an interesting one because that park has a fair
• 5:58
  amount of office build out in it.
• 5:59
  But $304 a square foot, that number seems high.
• 6:02
  But because of all that build out.
• 6:04
  That's a big number.
• 6:06
  Yeah.
• 6:06
  That, you know, I think that that's why it's so high.
• 6:08
  Right?
• 6:09
  That's right.
• 6:09
  I mean that, that park's probably 40% built out.
• 6:11
  If I were to guess.
• 6:11
  We have a really good client that's the biggest tenant down there in that park.
• 6:15
  So then Aries coming in second with a $40 million acquisition from Link.
• 6:19
  Yeah.
• 6:20
  Yeah.
• 6:20
  That's a nice building in Fife.
• 6:22
  And then a couple, couple deals up north.
• 6:23
  And then Infill bought a building from Clarion in Kent
• 6:27
  as well for $202 a square foot.
• 6:29
  So that was, uh.
• 6:30
  That was a nice transaction.
• 6:32
  And then, uh, going back to the construction pipeline delivery, sorry,
• 6:37
  that deal was $229 a square foot that infill purchased from, from Clareon.
• 6:42
  Yeah, that's, yeah.
• 6:43
  Going back to construction delivery's largest delivery, they're calling it
• 6:48
  Q1 because of the punch list, although I feel like it was Q4 is our golf
• 6:52
  course, Pacific Northwest Logistics.
• 6:55
  The large building, 705,000 feet, and then Bridge Point Tacoma, they're
• 7:00
  6 62, and then the long list of totaling 3,085,000 feet on that.
• 7:07
  And then under construction, we only have four buildings technically under
• 7:12
  construction, which usually at this point in the year that it's the opposite.
• 7:16
  Yeah, yeah.
• 7:17
  You're cranking.
• 7:17
  So that's interesting to see that change.
• 7:20
  Yeah.
• 7:21
  And then, you know, we'd looked at some of the vacancies that have sat
• 7:25
  the the longest, and what we noticed was the five listings that have
• 7:30
  been sitting the longest are all.
• 7:32
  Between that 102 hundred 20,000 square foot size range.
• 7:36
  And that's not surprising because that inventory in that size
• 7:39
  range continues to be a problem.
• 7:40
  But we are seeing increased activity, so, so hopefully that will help.
• 7:43
  But yeah, the five longest listed buildings, uh, that have been vacant the
• 7:47
  longest are in that, in that size range.
• 7:49
  Yeah.
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  The longest being in Kent.
• 7:51
  And it's older product, 228,000 feet.
• 7:54
  That's the old Costco logistics building.
• 7:56
  Yeah.
• 7:57
  And I think it was Sears before that, right?
• 7:58
  Yeah.
• 7:59
  But that, that's got some yard, I think within, it's got some yard.
• 8:01
  Yeah.
• 8:01
  Um, but you know, it's these older buildings that, you know, that
• 8:05
  seem to be dominating this list of, you know, call it the average
• 8:11
  of these five or three years old.
• 8:13
  Yeah.
• 8:13
  Right.
• 8:13
  Yeah.
• 8:13
  It's either.
• 8:15
  You know, there's a newer one that's way down south that link owns that.
• 8:19
  You know, it's so, so they're either older buildings that, that oldest
• 8:22
  one is probably the only one with trailer storage that you know,
• 8:26
  'cause that tends to go first.
• 8:27
  Yeah.
• 8:28
  But you're right, they're, they're older buildings in that one to
• 8:30
  200,000 foot range and all hovering around that three year mark.
• 8:34
  Right.
• 8:35
  Which is getting.
• 8:35
  Long.
• 8:36
  Yeah, for sure.
• 8:37
  Yeah.
• 8:37
  And I, I, you know, we'll start to see some of that stuff get, get absorbed
• 8:40
  as, as we continue to see more activity.
• 8:42
  Uh, and then on the investment side, I've been really, I mean, we've had
• 8:46
  some pretty good activity and obviously we have a couple buildings out on the
• 8:49
  market right now with a lot of interest.
• 8:50
  So it feels like investors are definitely back and taking
• 8:54
  advantage of being able to buy.
• 8:56
  Buildings here at a basis that they feel historically really good about.
• 9:00
  Right.
• 9:00
  When you look at being able to go buy a building at, you know, 200
• 9:03
  or 2 0 5 or two 10 square foot, you know, those that, you know, not
• 9:07
  that long ago were $300 buildings.
• 9:09
  That's right.
• 9:09
  And then investment sales, first quarter, 226 million.
• 9:12
  It sounds a little light.
• 9:13
  We ended, uh, fourth quarter, 750 million.
• 9:17
  But that's always the case.
• 9:18
  That end with a boom.
• 9:20
  Right.
• 9:20
  People trying to close.
• 9:21
  Yeah, of course.
• 9:21
  Always the, the, the.
• 9:23
  Highest volume quarter always.
• 9:24
  So I think actually the number's pretty solid for a Q1.
• 9:27
  Yeah, it's, it's decent.
• 9:28
  And like I said, we're seeing land, we're gonna see a bunch of transactions there.
• 9:33
  We need to get construction going.
• 9:34
  Yeah, it's bigger box construction, bigger box stuff in particular.
• 9:37
  Yeah.
• 9:38
  Yeah, because you're right, I mean, all of a sudden if some of these deals pop,
• 9:41
  you're not left with, you know, really any options above 500,000 square feet.
• 9:45
  No.
• 9:45
  And the longest two listings, we said the, you know, one to 200 range, the
• 9:49
  longest listings on the other one.
• 9:51
  Was the Ashley building.
• 9:53
  Yeah, but that's going to Amazon.
• 9:55
  Yeah, they're buying that.
• 9:55
  So they're buying it.
• 9:56
  Yeah.
• 9:56
  I believe they removed and it should be closing soon, so that one's
• 9:59
  gonna be gone and off that list.
• 10:01
  And it really honestly, probably should be now.
• 10:04
  Yeah, now that they've removed.
• 10:05
  And then the second one, building G, it.
• 10:07
  At, uh, uh, Fred three 10.
• 10:09
  Uh, so those are your oldest longest listings, right?
• 10:13
  And that one is still vacant, but great building and will likely lease soon.
• 10:17
  Yeah, I think it will be.
• 10:19
  So q as we look ahead into Q2, we'll have some really good numbers.
• 10:23
  So we'll be reporting a, a, you know, negative a million
• 10:25
  feet of, of absorption in Q1.
• 10:27
  That thing's gonna flip in Q2 and be on the positive side.
• 10:30
  That's right.
• 10:30
  So, yeah.
• 10:31
  Yeah, yeah.
• 10:32
  So we'll, uh.
• 10:33
  We'll see a lot of absorption, uh, through the next couple of quarters.
• 10:37
  Great to see the one to 200,000 square foot size range gobble up, you know,
• 10:41
  six buildings plus the expansion, so you'd almost call it seven.
• 10:45
  I hope to see more of that.
• 10:46
  Yeah.
• 10:47
  And get rid of these.
• 10:47
  I, I would really like to see that size range.
• 10:50
  Grab another 10 buildings this quarter and that would really change those dynamics.
• 10:53
  Yeah.
• 10:53
  And I think, you know, landlords are still in that size range in deal making mode.
• 10:57
  Yeah.
• 10:57
  And rightfully so.
• 10:58
  Yep.
• 10:58
  Because of the inventory.
• 10:59
  So tenants are, you know, able to take advantage of a softer
• 11:02
  market in that size range.
• 11:04
  And rather than renewing, some are actually saying, okay, well let's
• 11:06
  go move at these attractive rates.
• 11:08
  So we'll keep a, a close eye on things in Q2, uh, but we do expect
• 11:12
  a really active quarter from a leasing velocity standpoint.
• 11:16
  Another good, uh, quarter from an investment sales standpoint and uh,
• 11:19
  and good activity all the way around.
• 11:21
  So the market's definitely heading in the right direction.
• 11:23
  Thanks a lot.
• 11:24
  Thank you.