Latest / Industrial Advisors / Industrial Real Estate 2025 Recap: Why 2026 Is Shaping Up to Be a Rebound Year

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Industrial Real Estate 2025 Recap: Why 2026 Is Shaping Up to Be a Rebound Year · Industrial Advisors

• 0:00
  I wanna call like 2026.
• 0:01
  The rebounding year.
• 0:02
  Yes.
• 0:02
  Right.
• 0:03
  Like we are going to rebound.
• 0:04
  We had a negative absorption year in 2025.
• 0:08
  I don't remember that the last time that happened.
• 0:11
  It's been a while.
• 0:11
  Yeah.
• 0:12
  And I, I think that given your point about the tenant activity
• 0:16
  specifically on the larger deals.
• 0:18
  We're gonna have a really good first half of 2026.
• 0:21
  So, so that's a, a, a prediction of ours.
• 0:38
  Welcome to our Industrial Advisors podcast.
• 0:41
  You have Bill Condon, Matt McGregor.
• 0:43
  We're doing our 2025 review, and we'll jump into some of the
• 0:46
  numbers and, and recap the year.
• 0:48
  Don't love what the numbers say, but very excited about 2000, uh, and 26.
• 0:53
  But let's start where we always do.
• 0:55
  And that's that kind of three dynamic factors in a prediction.
• 0:58
  Yeah.
• 0:58
  Um, for what's going on.
• 1:00
  That's right.
• 1:00
  So three dynamic factors.
• 1:02
  Wrapping up 2025 first would be, unfortunately it's a negative, highest
• 1:07
  vacancy of our career, and we'll get into the numbers, but we surpassed the
• 1:11
  highest vacancy in our career was kind of that 2010, 11 timeframe before the
• 1:16
  market turned around and went on a, basically an 11 year run reducing that.
• 1:20
  But we, this last quarter, unfortunately, we, we surpassed that.
• 1:24
  And then the second most dynamic thing is a big uptick.
• 1:28
  In late Q4 and certainly rolling into this year, but certainly of big user activity.
• 1:34
  So there's about 5 million feet and a few, you know, handful, small handful
• 1:39
  of deals, six, seven deals out there that would potentially occupy about
• 1:43
  between purchases and leases, about 5 million feet, and that's much needed.
• 1:48
  Yeah, it'll help with absorption and, and, and the rebound of, of 2026.
• 1:52
  That's right.
• 1:53
  And then of course, the final thing, another positive is really, I would
• 1:58
  call it almost an epic interest in land.
• 2:00
  We're seeing unbelievable amount of offers given that we're the highest
• 2:05
  vacancy we've been in our career.
• 2:07
  You wouldn't think that's the case, but man, is there an interest in land
• 2:10
  and we're closing land transactions?
• 2:12
  Yeah, I think that that's a good point.
• 2:14
  We've closed a lot.
• 2:15
  We also happen to have the best, in my opinion right now, the
• 2:18
  best land site on the west coast available for sale for sure.
• 2:21
  It's big.
• 2:22
  It's in a fantastic location.
• 2:23
  Yeah.
• 2:24
  And the offers are reflecting that Yeah.
• 2:26
  From a number standpoint, but from a depth of offered standpoint as well.
• 2:31
  Yes.
• 2:31
  Um, so it, it, what that tells me is.
• 2:33
  Belief in this market.
• 2:35
  Right.
• 2:35
  For sure.
• 2:35
  And, and I don't, I don't, in, in a time that you would say, their numbers may say,
• 2:40
  don't believe that location's bulletproof.
• 2:43
  Oh, I agree.
• 2:44
  Yeah.
• 2:44
  I'm just saying you and I were both surprised and it's huge.
• 2:47
  Yeah.
• 2:47
  But how at the depth really, not only on that side being the best
• 2:50
  side in the west coast and maybe the best site available in the country.
• 2:52
  Yeah.
• 2:52
  From industrial perspective.
• 2:54
  But you and I we're both optimistically surprised about the volume of offers,
• 3:00
  volume and volume even on other stuff.
• 3:03
  We just sold the Art of site in South Seattle.
• 3:05
  Right?
• 3:06
  Yeah.
• 3:06
  Shocking how many offers.
• 3:07
  Yeah.
• 3:08
  Site in F Frederickson we had really good activity and so yeah,
• 3:10
  so I believe that, you know, again, in the core areas of the market.
• 3:16
  Land is back.
• 3:17
  That's right.
• 3:18
  Land is back, baby.
• 3:19
  And then from a prediction, prediction standpoint, uh, I I want to call like
• 3:23
  2026, the rebounding year, right?
• 3:25
  Yes.
• 3:25
  Like we are going to rebound, we had a negative absorption year in 2025.
• 3:30
  I don't remember that the last time that happened.
• 3:33
  It's been a while.
• 3:33
  Yeah.
• 3:34
  And I, I think that given your point about the tenant activity specifically
• 3:39
  on the larger deals, we're gonna have a really good first half of 2026.
• 3:43
  So, so that's a, a, a prediction of ours.
• 3:46
  Agreed.
• 3:46
  Yeah.
• 3:47
  Let's jump into the numbers.
• 3:48
  Uh, let's do it.
• 3:48
  Let's start talking about overall vacancy.
• 3:52
  So we always bifurcate this between the entire market and then
• 3:55
  removing the north and east market.
• 3:58
  Right?
• 3:58
  So the true valley, so the total market including the north is 9.3 unfortunately.
• 4:06
  And that's up percent vacant.
• 4:07
  Yeah.
• 4:07
  Yeah.
• 4:07
  Percent vacant.
• 4:08
  That's up from 8.9 at the end of Q3.
• 4:11
  And then if you remove the North and east market and just
• 4:13
  talk about the Valley South.
• 4:15
  Unfortunately, it's 9.9 up from 9.2, so a big jump in the last quarter.
• 4:21
  And then the net absorption numbers unfortunately were negative
• 4:25
  just under 1.6 million feet.
• 4:27
  Yeah, and if you take just a quick dive into the submarkets, you know
• 4:30
  the Seattle close end markets, 9.3% vacant, Kent Valley's 9.4.
• 4:34
  It's pretty close.
• 4:35
  Pierce County is actually 11.6.
• 4:37
  Part of that had to do with some new deliveries.
• 4:39
  Deliveries, yeah.
• 4:39
  Uh, that, you know, is where I think a lot of those bigger tenants will land, and so
• 4:43
  that, that should come down quite a bit.
• 4:45
  Mm-hmm.
• 4:45
  Thurston County's only 5.8, so yeah, that, that totals to
• 4:48
  about 9.9 Overall vacancy rate.
• 4:51
  Under 10.
• 4:52
  Under double digits.
• 4:53
  Under.
• 4:53
  Yeah.
• 4:54
  There you go.
• 4:54
  Positive lining of that.
• 4:55
  Yeah.
• 4:55
  Yeah.
• 4:56
  And then the lowest vacancy continues to be that both the 10 to 25, and
• 5:01
  then that would be your lowest, and then 26, call it to about 50,000 feet.
• 5:06
  Both of those.
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  In the mid four ranges, and then the highest continues to be both
• 5:11
  the 100 to 200 at about 12.2% and then greater than 200 at 12.2,
• 5:18
  which has jumped considerably.
• 5:20
  Yeah.
• 5:20
  The, the one to 12.9.
• 5:21
  Yeah.
• 5:21
  Yeah.
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  The, with the one to 200 is 12.9.
• 5:24
  The 200 plus is 12.2.
• 5:26
  That's right.
• 5:26
  Uh, so that, that is consistent with where the market's been.
• 5:29
  That one to 200 range has, you know, continued to, to struggle.
• 5:33
  It's gone up.
• 5:34
  Every quarter for probably the last six quarters.
• 5:37
  I don't have those numbers in front of me, but last, last
• 5:39
  quarter it was 12.7, it's now 12.9.
• 5:41
  So, and a lot of that space is that kind of Class B commodity type space.
• 5:45
  That's right.
• 5:46
  And I, I think it's easy to predict based on our earlier conversation, that
• 5:50
  that big box market greater than 200, jumped 120 basis points in one quarter.
• 5:56
  'cause of deliveries.
• 5:57
  Yeah.
• 5:57
  It's gonna collapse back down.
• 6:00
  When some of these transactions and leases go through on the larger side, 'cause
• 6:04
  you're gonna all of a sudden lose a few million feet of that in that size range
• 6:07
  so that you're gonna see a big drop off.
• 6:09
  Yeah.
• 6:09
  Those are the buildings that are gonna lease.
• 6:11
  That's right.
• 6:11
  So that market will come down.
• 6:13
  I, I think that.
• 6:14
  It's gonna take some time in that one to 200 range to get back down into
• 6:18
  single digits, just given, given the amount of product that's actually there.
• 6:21
  So we'll keep a close eye on that.
• 6:23
  Yeah.
• 6:23
  And then a couple of the newer deals to talk about, uh, really the, the one I
• 6:28
  would just highlight one of the larger ones was the red dot building in Tukwila.
• 6:33
  The old Yeah.
• 6:34
  To, to a soccer club, which continues this pickleball soccer, baseball.
• 6:39
  Like it's kind of insane with the amount of deals we're
• 6:42
  seeing in that, in that space.
• 6:44
  Yeah.
• 6:44
  I think a couple things on that.
• 6:46
  We are seeing more of that kind of recreational type use.
• 6:49
  Mm-hmm.
• 6:50
  For a couple reasons.
• 6:50
  One, the vacancies up, and so landlords are more open to doing
• 6:54
  those type of deals for sure.
• 6:55
  And lower credit.
• 6:56
  But I will also say that all of those sports have become increasingly
• 7:02
  popular, which has led to better credit for those entities, if you remember.
• 7:07
  10 years ago, 15 years ago, if you got a call on one of those things, it
• 7:10
  was like, we're not doing that deal.
• 7:11
  We're not doing that.
• 7:12
  Now you, you actually look at, you know, we did a tennis deal earlier
• 7:15
  in the year for 125,000 feet.
• 7:17
  The credit was good, right?
• 7:19
  And so we went into a building, freestanding building that, that was
• 7:21
  a good fit for that particular use.
• 7:24
  So why wouldn't you do that deal?
• 7:25
  But you're seeing the, the soccer.
• 7:27
  Deal the same thing.
• 7:27
  They went into a Brookfield building that had been sitting vacant for a while.
• 7:32
  I don't know what their credit is.
• 7:33
  We didn't see, but I'm assuming it's, you know, they're comfortable with it.
• 7:36
  I would think so they, so they do the deal.
• 7:38
  Yeah.
• 7:38
  And then, I mean, we're looking at doing a baseball deal right now
• 7:42
  and I, and we did a tennis deal.
• 7:43
  Yeah.
• 7:44
  And I know the baseball guys.
• 7:45
  Uh, really well because I'm in that world and that credit's get
• 7:50
  it's rock solid because Yeah.
• 7:51
  It's different than it used to be.
• 7:52
  To your point, select Sports has pushed a lot of these recreational type uses Yeah.
• 7:56
  Into good credit entities.
• 7:58
  Yeah.
• 7:58
  It used to be the, the single coach or some guy that had a little bit of money.
• 8:02
  Yeah.
• 8:02
  You know Right.
• 8:03
  Wanted to go and, and lease.
• 8:04
  And now you have actual organizations Correct.
• 8:06
  To your point.
• 8:07
  And you have financial partners behind it.
• 8:09
  That's right.
• 8:09
  Yeah.
• 8:10
  And the demand is.
• 8:11
  Considerably up to your point.
• 8:13
  I mean, we should run a study and just look at last year.
• 8:16
  Probably should have done it for this, but I'll bet there was an
• 8:19
  easy million feet of sports deals.
• 8:22
  Yeah.
• 8:23
  Oh, for, yeah, I would agree with that.
• 8:24
  When you look at this one, we pickleball tennis, the pickleball, soccer.
• 8:26
  Yeah.
• 8:27
  All that.
• 8:27
  I bet there was a million feet.
• 8:28
  Well, there was four or five pickleball deals done, so, yeah.
• 8:30
  Interesting.
• 8:31
  Can you talk a little bit about capital markets?
• 8:32
  Capital markets?
• 8:33
  Yeah.
• 8:33
  Yeah.
• 8:33
  Uh, good, good year.
• 8:34
  Overall, I think for capital markets, I think we've had, from a, from a volume
• 8:38
  standpoint, our best year since 2022, so.
• 8:42
  Alright.
• 8:42
  It's an above average year if you just look at the last 10 years too.
• 8:46
  Yeah, yeah, yeah.
• 8:46
  I mean, it's, it's, and we saw it, you know, we saw it in the first
• 8:50
  part of the year last year as just, you know, investors came back.
• 8:54
  Uh, they were selective about what they went after, but they were aggressive
• 8:57
  on the stuff that they wanted.
• 8:58
  So that was really good to see.
• 9:00
  So about 8.4 million feet of transactions.
• 9:04
  For just under 1.8 billion.
• 9:07
  Yeah.
• 9:07
  1.8 billion in in 2025 Sales volume.
• 9:10
  Yeah.
• 9:11
  And $213 a foot was your.
• 9:14
  Price per square foot down from last year.
• 9:17
  And so that continues to to drop as lease rates obviously drop.
• 9:21
  But yeah, to your point, let's see, 1, 2, 3, 4.
• 9:24
  In the last 10 years, this was the fifth best year, and it's our best year
• 9:28
  to your point, since 2022, it beats 2020, and it was just about on par with
• 9:34
  with 19, which was a very good year.
• 9:37
  So I would say overall capital markets are back.
• 9:40
  Probably just, you know, with, I would say with the exception of, you know, vacancy.
• 9:44
  Yeah.
• 9:45
  I think that there is starting to be more of a, a risk for vacancy if
• 9:49
  there's a story around it, right?
• 9:51
  Yep.
• 9:52
  We sold a building to an investor.
• 9:54
  It's 130,000 square foot building in Kent, and it's been a single
• 9:58
  tenant building its whole life.
• 10:00
  That building's gonna get chopped up to five or six different tenants.
• 10:03
  Really good approach for that particular market.
• 10:05
  So I think it depends.
• 10:06
  I think there is more of an appetite for vacancy today
• 10:09
  than there was even a year ago.
• 10:11
  If the building's well located and there's a story there that's right.
• 10:14
  And then the port is down about three point half percent and it's, it's
• 10:17
  interesting for as high as the vacancy is.
• 10:21
  I feel like it's busy, but it's just because it doesn't feel like
• 10:25
  2008, nine, and 10 that was just, felt like nothing was going on.
• 10:29
  Yeah.
• 10:29
  I mean it, I, I think that the market feels, feels better.
• 10:33
  A lot better than it did back then.
• 10:34
  Yeah.
• 10:35
  And you know, it's so funny because Momentum is, is in this business
• 10:39
  is just a really powerful thing.
• 10:41
  You start seeing a couple big deals get done and then it's like
• 10:45
  all of a sudden those are getting done, but then that leads to the
• 10:48
  deals right below them, right?
• 10:50
  The a hundred to 200 start to transact and, and so I think it's gonna set
• 10:54
  the pace for the market, getting a couple of these bigger deal deals
• 10:57
  done, and that'll also impact.
• 11:00
  Investor demand.
• 11:01
  Right.
• 11:02
  Even more.
• 11:03
  Right.
• 11:03
  So I like where we're heading and into kind of a recovery
• 11:07
  year in 2026, prediction.
• 11:09
  Uh, the last and most important prediction is Super Bowl.
• 11:12
  I know what you're gonna say.
• 11:14
  Yeah.
• 11:14
  Um, well, I was fortunate enough to bet the Seahawk.
• 11:19
  Both of us.
• 11:20
  Yes.
• 11:21
  Plus I don't think you could have better odds.
• 11:23
  Plus 6,600 your Yeah, yours was better than mine.
• 11:26
  Yeah.
• 11:26
  So a hundred pays you 6,600 I believe in the Hawks.
• 11:29
  The hawks are gonna go to the Super Bowl.
• 11:30
  Hawks are gonna win the Super Bowl.
• 11:32
  I dunno who they're gonna play.
• 11:33
  Maybe Buffalo.
• 11:35
  If Josh Allen mean he is best football player in the world.
• 11:37
  Wow.
• 11:37
  That's a big prediction.
• 11:38
  Their defense isn't very good.
• 11:39
  But man, that guy is so good.
• 11:41
  I, I don't know, man.
• 11:42
  I think I put my money on him outta the afc or surprised him.
• 11:45
  Could be the Chargers.
• 11:46
  Yeah.
• 11:47
  Outta the A FC.
• 11:48
  Yeah, that would be interesting.
• 11:49
  We'll see.
• 11:50
  Yeah, for sure.
• 11:50
  Uh, yeah, my prediction is we win the Super Bowl.
• 11:53
  Unless we have to play the Rams, we're probably gonna see them again.
• 11:56
  That would, that would suck.
• 11:57
  Nah, we're a better team.
• 11:58
  We're just better Yeah.
• 11:59
  Than everybody.
• 12:00
  So there you go.
• 12:02
  25 is wrapped up.
• 12:04
  Really excited about where we're heading in 2026.
• 12:07
  I think it's gonna be a really good year across the board and, uh, the momentum
• 12:11
  will just carry forward each quarter.
• 12:12
  Last prediction, vacancy goes from 9.9.
• 12:16
  Two by the end of the year, 7.6.
• 12:20
  I would, yeah.
• 12:21
  That, that sounds like a good prediction.
• 12:22
  I would agree.
• 12:22
  Somewhere in the mid seventies.
• 12:24
  Yeah.
• 12:24
  On the way back in, in, in the 3% range in like two years, so That's right.
• 12:27
  We'll see what happens.
• 12:28
  All right.
• 12:28
  Thank you.
• 12:29
  Happy New Year.