Tuesday, June 14, 2011
|Seattle Times||Daily Journal of Commerce Headline|
|State economic index suggests growth ahead||Northend real estate picking up thanks to Boeing, build to suits|
|Mount Vernon, Burlington talking about merger||Northend real estate experts, including one developer who is preparing to start a build-to-suit project, say the market is poised to rebound, though opinions vary on how quickly and strongly.
Boeing is still the main driver thanks to the 787 and the $35 billion Air Force fueling tanker contract. Boeing suppliers are “all jockeying for space,” says broker Matt Henn of Kidder Mathews, and pushing up industrial demand in and around Everett.
But non-aerospace companies are also hunting for space.
In the next 30 days, 178,000 square feet of commercial space will be absorbed by a mix of companies, according to Henn, who called this “an incredible statistic” given the sorry state of the market over the last three years when few deals were done. He forecasts the vacancy rate will drop from 13 to 8 percent rate.
“We are going to be a landlord market overnight,” Henn said.
Developer Bart Brynestad of Panattoni agrees the market is improving, but says it’s not a free for all. He predicts slow, steady growth, with vacancy rate dropping below 10 percent over the next year.
Recovery is starting with build-to-suits because the current inventory is limited. Broker Tom Wilson of Cushman & Wakefield Commerce said the large spaces that are available are not very functional so users are turning to builders to get projects designed and constructed.
Panattoni will begin a build-to-suit project for a non-aerospace client this fall in the Seaway area on about 6.5 acres the company has tied up but not yet bought. Brynestad declined to name the user, but said the 106,000-square-foot project is being designed by Lance Mueller & Associates. Panattoni does its own contracting.
The kitchenware manufacturer Norpro is expanding, and more office space is in the works for the clothier Zumiez, which is planning a two-phase project in Lynnwood. The first phase will be 60,000 square feet, and the team is doing permitting for another 40,000 square feet, according to the fee developer, Jeff Davis of Davis Property & Investment. Rushforth Construction is the contractor for the Zumiez space, and Ronhovde Architects is designing it with input from SKB Architects, which is handling the interiors.
“This is a large project for any market [and] definitely for Lynnwood,” Davis said.
Zumiez will vacate its Everett property in about a year, said Henn, who put the Lynnwood deal together with colleague Matt Hagen.
Norpro plans a 35,000-square-foot office and warehouse expansion next to its Seaway headquarters. Company CEO Gunnar Lie said, “We just need more space.”
General contractor Donovan Brothers will break ground soon on the Norpro building, which was designed by Lance Mueller. PacLand is doing civil engineering and entitlement work.
Steve Pesce, a principal with PacLand, said the market started picking up in January. Pesce said he is seeing more site-planning work today.
All this activity normally would have developers and investors in a lather, but the Great Recession turned the commercial real estate industry upside down. Some Northend developers and investors didn’t survive, and many who remain are a lot more cautious. They’re concerned about lining up a new project only to be undercut if a distressed property comes to the market, according to Wilson of Cushman & Wakefield Commerce.
Consider what happened last month in nearby Redmond. Aerospace supply manufacturer Astronics paid about $5.2 million for a pair of buildings called Sammamish Ridge Tech Center that a bank had taken back from the developer. The price was a little less than half what that project would cost to build today.
“You do the math on that and say, ‘Man, what’s to say the manufacturing deal I want to make in Sound Everett doesn’t find another Sammamish Ridge?’” said Wilson. “Given the whole specter of debt write off, it’s hard to convince wouldbe developers to get too far out over their skis on acquiring dirt today.”
Brokers see increasing demand for space, but investors and developers mostly remain on the sidelines. Wilson says confidence will improve when some non-distressed transactions get done.
One such deal happened several weeks ago. A group led by LBA Realty paid $23.2 million for a fully leased, 217,700-square-foot warehouse in Everett. That price is at or above replacement cost, Brynestad said, but it was just one deal. “We’ll see if that trend continues.”
If it does, the build-to-suits will likely morph into speculative projects for the first time in about three years.
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