In the middle of an exceptionally warm summer in Seattle, we are also enjoying a stellar commercial real estate market. The City of Seattle alone anticipates completion of 50 major multi-family and office space projects this year. By the middle of July, 24 projects have already hit the market place with the issuance of their Certificates of Occupancy by the city. A recent industrial property sale set a new benchmark. The sale was for $63,250,000. The 13.5 acre site has 400,270 square feet of building on it so the new industrial benchmark is now $158 per square foot. But is it? Actually this sale is for the addition of new land areas to develop even more space. The market is moving, but we need to look beyond the headlines to understand what is really happening.
Seattle Commercial Real Estate LLC and its clients are being swept along in the rush, but we also understand and counsel our clients to be cautious. Janet Yellen, the head of the FDIC, has suggested interest rates will probably start to rise towards the end of this year with an improving economy. The latest multi-family rental reports show a slowing in the rate of the increase in rents in the cities of Seattle and Bellevue. The next historical step in the rental cycle is that rents will stabilize with the influx of new units and incentives to new tenants will be offered, followed by a drop in rents until the new inventory is absorbed. Rent control is on the City of Seattle Council’s agenda and a “tax” to create “affordable housing”… warning flags are being raised.
Banks are raising their equity requirements and lending criteria. A major bank in Seattle is no longer lending on older brick buildings unless they are completely earthquake upgraded. Industrial property is at a premium, investment properties have multiple offers; sooner or later the reality of the real estate cycle will hit and we do not want our clients to be the last ones in line holding a losing ticket.