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Transcript

Puget Sound Big Box Market · Industrial Advisors

• 0:00
  You know, you're going to see changes in, you know, the way those buildings are
• 0:03
  constructed because of robotics for sure.
• 0:05
  Charging stations and, and, and everything that people are thinking
• 0:08
  about that right now and doing it.
• 0:10
  Well, they're constructing it.
• 0:10
  Yeah.
• 0:11
  Correct.
• 0:11
  Yeah.
• 0:11
  Absolutely.
• 0:12
  And so those are all things that, you know, in five, 10 years
• 0:16
  from now will become standard.
• 0:17
  That's right.
• 0:17
  That not everybody is doing right now.
• 0:19
  That's right.
• 0:35
  Welcome to our industrial advisors podcast.
• 0:38
  You have Bill Condon and Matt McGregor here again today.
• 0:41
  Today's topic is going to be, uh, the Puget sound big box market.
• 0:47
  Um, and which means we'll define that as a starting point.
• 0:51
  So I, I consider big box to in today's environment to be 300, 000
• 0:56
  square feet and, and above, uh, times of change, times of change.
• 1:00
  So let's talk about that.
• 1:01
  So when we got into the business, you know, 20 years ago, You know, a big deal
• 1:06
  at that time was 100, 000 square feet.
• 1:08
  Right.
• 1:08
  And so 300 was off the chart.
• 1:11
  Like, um, yeah, like we, we rarely heard of, I remember hearing about
• 1:14
  like a 400 in my second year in the business and I was like blown away.
• 1:18
  So I think like when we start, you know, 20 years ago.
• 1:20
  A hundred thousand square foot deal was a big, it was a big deal, right?
• 1:24
  And so now I would say today, like our big box market, I would
• 1:27
  define as kind of 300 and above.
• 1:29
  And then, you know, from a location standpoint, you know,
• 1:32
  it's changed over the years, right?
• 1:33
  I mean, Kent used to be where, when we started most of those hundred
• 1:37
  thousand foot, big, big deals got done.
• 1:40
  It's pushed further and further South and then turned into Sumner deals got bigger.
• 1:44
  You know, two and three hundreds were getting done in Sumner and then
• 1:47
  it got bigger and bigger, pushed into Frederickson, Tacoma and South.
• 1:51
  And that's where you start to see some of the, you know, 500, 000
• 1:54
  square footers and above get done.
• 1:55
  But why don't you talk a little bit about, so, so locations change,
• 1:59
  sizes change on the big box market, like how functionality has changed
• 2:04
  for those buildings over the years?
• 2:05
  Well, you know, obviously the functionality of Clear
• 2:08
  Heights gotten a lot bigger.
• 2:09
  So when we got in, The big boxes were being built, you know, call it one to
• 2:14
  400 was kind of the range, but those four hundreds would be a multi tenant.
• 2:18
  Yeah.
• 2:18
  Divisible most.
• 2:19
  Yeah.
• 2:20
  Yeah.
• 2:20
  Uh, they were 30 foot clear.
• 2:22
  So the big boxes were, so I would say the dramatic changes
• 2:25
  is clear height, you know, 36.
• 2:27
  Forty now.
• 2:28
  And then truck courts and trailer parking have been the big change, right?
• 2:33
  Yeah.
• 2:33
  They're not liking the shared two hundreds anymore.
• 2:36
  No.
• 2:36
  Right.
• 2:37
  And they're wanting trailers on site mostly for, you know, obviously
• 2:41
  you get into the larger deals and they're absolutely a must.
• 2:43
  So the buildings that you see suffer are from that past generation that
• 2:48
  were jam sites, 32 foot clear.
• 2:51
  No trailer storage, you know, and a truck court that was shared
• 2:55
  200 or maybe it's 130 alone.
• 2:58
  They're hurting for sure.
• 3:00
  So the modern building I would say is cross loaded 36 to 40 foot clear.
• 3:07
  The slabs are typically a lot more stout now than they used
• 3:11
  to be because of slab problems.
• 3:13
  Yeah.
• 3:13
  Historically, right?
• 3:14
  Yeah.
• 3:15
  And trailer, you know, storage probably.
• 3:18
  On the perfect design buildings straight across from the docks.
• 3:21
  Yeah.
• 3:21
  It's so funny.
• 3:22
  Cause when, you know, years ago, like no one used the extra yard,
• 3:25
  like sometimes they would be built and nobody, nobody used it.
• 3:28
  And it was like, well, that's just kind of a waste.
• 3:30
  And now it's like you, you get into that 300 and above and you, and you
• 3:33
  have, you almost have to have it.
• 3:35
  Yeah, and I think the, the reason for that, there's been a lot of
• 3:38
  studies on why, uh, I read one.
• 3:41
  I think Hamid said it a few years ago that I was like that.
• 3:44
  I think that nails it.
• 3:46
  And it was something to the degree of the reason why those yard components
• 3:50
  changed is the ships got bigger.
• 3:54
  And there were a lot less drops.
• 3:56
  So when you have that freight coming in, they're putting a lot
• 4:00
  more freight on the market at once in less frequent amount of times.
• 4:04
  Right.
• 4:04
  So if you're leaving you, I don't know what the price is today, but when I
• 4:08
  read the study, it was say 250 a day to leave your container in the port.
• 4:12
  You're not going to leave that container in the port.
• 4:14
  And so, the deals got bigger, the buildings got bigger
• 4:18
  because the ships got bigger.
• 4:20
  And then the yard component got bigger because it's less frequency of the ships.
• 4:24
  So they were dumped all at once, so they wanted to drag it out of the port
• 4:27
  and go throw it in their own yard.
• 4:28
  Before they could process it into the warehouse.
• 4:30
  So the buildings got bigger.
• 4:32
  And the yards needed.
• 4:33
  Yep.
• 4:34
  That was the combination.
• 4:35
  Yeah.
• 4:36
  Um, but yeah, you, and you had mentioned the, the migration of it is,
• 4:40
  is interesting because when you and I first started Sumner was just being
• 4:44
  really developed and then for 10 years it was the number one absorption market.
• 4:48
  And I remember.
• 4:49
  Telling tenants, you can get a great deal.
• 4:51
  And you, you might as well be talking about Portland.
• 4:54
  Yeah.
• 4:54
  Right.
• 4:55
  And now seeing it progress and obviously understanding all markets do that.
• 4:59
  Now, Fredrickson being the number one absorption market and through
• 5:02
  COVID, we were seeing deals get done.
• 5:05
  You know, they're doing a spec all the way down to Kelso now, right?
• 5:08
  And so that, that's going to come back into play, but
• 5:11
  obviously demand has softened.
• 5:13
  So you're going to see the spigot turn off, say, south of Lakewood.
• 5:17
  Yeah, yeah.
• 5:18
  The secondary market development will hit pause.
• 5:22
  Whereas if you're in, in, you know, the kind of core market, you'll keep going.
• 5:26
  So let's talk a little bit about the state, because we get asked all the time,
• 5:29
  like, What's going on in your market from a bigger box, large tenant standpoint.
• 5:33
  So let's talk about that.
• 5:35
  So we ran an analysis and kind of current state of buildings that are existing, that
• 5:41
  are available over 300, 000 square feet.
• 5:43
  And then what's under construction.
• 5:44
  I'm going to start with the market availabilities of existing
• 5:48
  product above 300, 000 feet.
• 5:50
  There's 10 of them and they're not going to go through every one
• 5:52
  of them, but there's 10 of them ranging from South Seattle, kind
• 5:55
  of through DuPont and Frederickson.
• 5:57
  And you have, you know, you have the 700.
• 5:59
  Double, two story building, you know, in the Trammell Crowe deal
• 6:03
  in South Seattle, which is a very big building for that sub market.
• 6:06
  And then as you go south on the south end, you have DuPont that's got,
• 6:09
  you know, 500, 000 footer roughly.
• 6:11
  And then the stuff in Frederickson and then Tacoma and Milton kind of in between.
• 6:16
  Got to throw Kelso in there.
• 6:17
  Yeah.
• 6:17
  Yeah.
• 6:17
  1. 1 million.
• 6:18
  I mean, so from an existing standpoint, 10 options above 300, 000 square
• 6:23
  feet, two of those are subleases.
• 6:25
  Yeah.
• 6:25
  Uh, one's at 500, 000 footer and Sumner and one's at 3 50 in Kent.
• 6:29
  So of the existing buildings that are up, there's about, there's about 10
• 6:32
  options above 300, 000 square feet.
• 6:34
  And in those 10 options, I would say you've got three, potentially
• 6:40
  four tenants in the market.
• 6:43
  In that upper size range of those.
• 6:45
  Yeah.
• 6:45
  That doesn't sound terrible, but I would say that's a dramatic change from
• 6:50
  where we were at over the last several years where most of those buildings,
• 6:54
  it was more of a two to one ratio.
• 6:57
  You know, you had one existing and one under construction and one or
• 7:00
  two tenants in the market, right?
• 7:02
  Yeah.
• 7:02
  At that time.
• 7:03
  And it was just always churning through those, those 10.
• 7:05
  So I would say the percentage of that demand is down a bit.
• 7:09
  And so some of these are going to be, you know, a little bit long on it.
• 7:13
  On lease up time.
• 7:14
  Yeah.
• 7:14
  So you have those 10 existing and let's talk about what's under construction.
• 7:18
  Yes.
• 7:18
  So Seven buildings are under construction that can accommodate tenants, you
• 7:24
  know, above 300, 000 square feet.
• 7:26
  So 17 total when you look at availability today, what's available,
• 7:30
  and then another seven that are currently under construction.
• 7:33
  And most tenants in that size range, so you'd say 17 buildings total.
• 7:36
  Yeah.
• 7:38
  All of those will deliver this year.
• 7:40
  So if a tenant is in the market today, they're looking at all 17.
• 7:43
  Absolutely.
• 7:44
  Right.
• 7:44
  Yeah, absolutely.
• 7:46
  So that's a lot of options for three to four tenants in the market.
• 7:49
  No doubt about it.
• 7:50
  Collectively.
• 7:50
  Yes.
• 7:51
  And you, you have, and all those, those seven buildings
• 7:54
  that are going to be built.
• 7:56
  Because of how new they're going to be, we talk about functionality, you
• 7:59
  know, some of the, the 10 that are existing or it's, it's older products.
• 8:02
  So there has definitely been a flight to quality.
• 8:05
  Yeah.
• 8:06
  There's a flight to quality with those bigger tenants, generally speaking.
• 8:09
  So the newer, more functional products going to get at least
• 8:11
  faster than the, than the existing.
• 8:14
  And then location comes into play, right?
• 8:15
  Yes.
• 8:16
  Cause I think as much as, and we've talked probably on three or four podcasts
• 8:19
  about our, our like of the Seattle Trammell Crowe multi decker building,
• 8:23
  but that building, you could almost say.
• 8:26
  It stands on its own, right, as does Kelso for a different reason, right?
• 8:30
  So the core buildings are going to get typically a lot more looks that are in
• 8:35
  between those ports of Seattle and Tacoma.
• 8:38
  Yeah.
• 8:38
  Uh, you know, in the Sumner market, I would even say Sumner, Frederickson
• 8:42
  market on up to Kent in that primary areas where the most tenants are looking.
• 8:48
  Okay.
• 8:48
  And then as you go south, you're going to get discounted.
• 8:50
  And as you go north up into Seattle, that's a, that's a different tenant.
• 8:54
  It is.
• 8:55
  I mean, you kind of hit it.
• 8:56
  Functionality combined with labor availability oftentimes drives
• 9:01
  that decision for a tenant.
• 9:03
  That's right.
• 9:03
  And those markets you, you, you just alluded to Frederickson, Sumner, proven
• 9:08
  markets, good labor, great buildings.
• 9:11
  So those generally speaking, have done the best from a new
• 9:14
  product delivery standpoint.
• 9:16
  That's right.
• 9:16
  And, and I do think.
• 9:18
  I'm sorry.
• 9:18
  We're not taking all politics out of this.
• 9:20
  You know, we don't get political on this, but I do think some of the manufacturing
• 9:25
  things are going to be coming home.
• 9:27
  And so you're going to start to see an uptick on some of those
• 9:29
  larger deals, especially in maybe light, too heavy manufacturing.
• 9:33
  Yeah, the manufacturing, I mean, yes, as we know over the years, it's
• 9:37
  heavily weighted to distribution from a tenant standpoint.
• 9:40
  92 percent in Seattle.
• 9:42
  Yeah.
• 9:42
  So, but that manufacturing percentage, well, it's not going to jump, you know,
• 9:47
  significantly, it's going to jump.
• 9:48
  I think out of those 17 buildings, you're going to see two to three manufacturer
• 9:53
  deals that we would not have seen prior.
• 9:55
  Yeah.
• 9:55
  Agreed.
• 9:56
  Yeah.
• 9:56
  So that is, that's, that'll be an interesting one to look for and
• 10:00
  watch on the big box marketplace.
• 10:02
  Um, so we've talked somewhat about.
• 10:06
  What the existing market looks like today, right?
• 10:08
  And where the demand is.
• 10:10
  So the tenant demand is okay.
• 10:11
  You know, it's not, it's not great, but it's, it's okay.
• 10:14
  It's okay to light.
• 10:14
  Yeah.
• 10:15
  And so some of those buildings will, will get taken down.
• 10:18
  So we'll, we'll keep a close eye on it, obviously.
• 10:20
  But I would also say this time of year, not to, I'm not one of those
• 10:23
  guys that always, Oh, I see, you know, I'm going to warm up, you know,
• 10:26
  but I will say, yeah, yeah, exactly.
• 10:28
  I will say I feel like the market's picking up momentum and that
• 10:33
  three to four, because we don't know if one of them is real.
• 10:35
  We know three deals are real.
• 10:37
  One's questionable.
• 10:38
  Yeah.
• 10:38
  So say three to four deals north of 300.
• 10:42
  I would say, you know, if we were talking in June.
• 10:46
  Yeah.
• 10:47
  We'd be talking about six or seven.
• 10:48
  Yeah.
• 10:49
  Yeah.
• 10:49
  So we've seen the big box market develop from a functionality standpoint.
• 10:55
  And you know, it'll be interesting to keep an eye on like what that looks like and
• 10:59
  how that changes over the next 10 years.
• 11:01
  You think about like, you know, charging station for like 85 feet.
• 11:05
  Well, yeah, I mean, clear idle, you know, I mean.
• 11:08
  The clear height will continue to probably get higher.
• 11:11
  Yes.
• 11:11
  Eventually, you know, and, and yard space, you know, along with that, but
• 11:14
  then like electric trucks, you know, you're going to see changes in, you
• 11:18
  know, the way those buildings are constructed because of robotics for sure.
• 11:21
  Yeah.
• 11:21
  Charging stations and, and, and everything that people are
• 11:25
  thinking about that right now.
• 11:27
  And so those are all things that, you know, in five, 10 years
• 11:32
  from now will become standard.
• 11:34
  That's right.
• 11:34
  That not everybody is doing right now.
• 11:36
  That's right.
• 11:36
  So if you were building.
• 11:38
  A building in today's environment.
• 11:40
  Number one, you could pick your sub market to build it in.
• 11:42
  Pick your sub market, the size, and then what you're
• 11:46
  doing from a extras standpoint.
• 11:48
  Well, you know what I'm going to say, because it's been my whole career.
• 11:50
  It's insomnia.
• 11:51
  Okay.
• 11:52
  I truly feel this has nothing to do with the fact that we have a listing there.
• 11:56
  It honestly doesn't.
• 11:57
  I truly feel when you look at the port system.
• 12:00
  And where the labor is, Sumner is still the number one market.
• 12:03
  Yes.
• 12:04
  Okay.
• 12:04
  It was absorbing 38 percent of the market's absorption for a
• 12:08
  decade until it ran out of space.
• 12:10
  So if I, if I could build the perfect building, it would definitely be in
• 12:13
  Sumner because of the two port system.
• 12:16
  And I would build, are you saying today?
• 12:19
  Yeah.
• 12:19
  Yeah.
• 12:20
  Well, I'd be building what we're building.
• 12:22
  Yeah, I would be.
• 12:23
  And so it's, it's got the right trailer storage.
• 12:26
  It's the two right sizes buildings, right?
• 12:29
  It's in the right location.
• 12:30
  It's got the right clear height.
• 12:32
  They're built for EV, right?
• 12:33
  So that's going to be a challenge by the way, because as you know, we're running
• 12:38
  out of power and you can't just go to the municipality and say, Hey, likely in the
• 12:46
  future, a tenant's going to need a fleet.
• 12:49
  of trucks.
• 12:50
  So we need another, you know, 5, 000 amps or more just sitting there.
• 12:56
  They're going to say, no, we'll bring that power in when you show me the tenant, you
• 13:00
  have to show that you're going to use.
• 13:01
  And that's an issue, right?
• 13:03
  Because that's not cheap.
• 13:04
  So do you build that infrastructure and.
• 13:06
  And not have the power there, right?
• 13:08
  And the answer is probably, yeah.
• 13:09
  Yeah.
• 13:10
  We're building two great buildings down there, 700 that's expandable.
• 13:14
  And, uh, I agree that those are fantastic sizes.
• 13:19
  You can demise them if, if you need to.
• 13:21
  Great job on design KG. Yeah.
• 13:23
  Yeah.
• 13:23
  That is great.
• 13:24
  It's a great project.
• 13:24
  So we'll keep an eye on all of that, but we did want to do this to just talk
• 13:27
  about kind of the current state of the big, where the big box market has been.
• 13:31
  It's developed to, and then what the current state of the big box market is.
• 13:35
  And, uh, it'll be a really interesting 2025 to keep pace with
• 13:40
  it all and see how it all develops.
• 13:41
  My only prediction will be that you'll have a slowdown
• 13:45
  of announcements, uh, in 2026.
• 13:48
  Cause I think even if you, even if you say, Hey, you're going to have
• 13:50
  double the amount of tenants in six months, you're going to have
• 13:53
  17 options starting to deliver.
• 13:57
  standing and delivered, right?
• 13:58
  Yes.
• 13:59
  And not enough to tenants to fill all of them.
• 14:02
  So I think it's going to be a flight to location, right?
• 14:05
  A flight to quality and the right design.
• 14:07
  And you're going to have some buildings without tenants for a while, which
• 14:10
  is going to probably slow down that, you know, you're not going to
• 14:13
  build into that competitive fray.
• 14:16
  You know, you're going to see a little slowdown.
• 14:18
  Absolutely.
• 14:18
  And, and, you know, Nationally, these developers are in multiple markets
• 14:22
  and some of them are just already just starting to, you know, hit pause in some
• 14:26
  of these markets because they have bigger buildings that are sitting right now.
• 14:29
  So until the market in general like heats up, some of that stuff gets
• 14:33
  absorbed, absorbed, then, you know, some of this stuff could get paused.
• 14:37
  But we are, we are going to see that, that newer product and more functional
• 14:42
  product lease first, for sure.
• 14:43
  Absolutely.
• 14:44
  Thank you very much.
• 14:45
  Thank you.
• 14:45
  That's the big box market, current state of the big box market report.