Note: Excludes portfolio sales. Source: Real Capital Analytics, CBRE Research 2021.

The Puget Sound industrial real estate market continues to sizzle.

Per a new CBRE report, warehouse and distribution property sales topped $400 million through May, including first-quarter sales of $271.6 million that were the second highest in the last decade. This amount is only slightly lower than the $274.9 million recorded in first quarter 2018.

The strong start to 2021 follows record fourth-quarter sales volume in the Puget Sound industrial market topping $765 million, CBRE said. Many of the sales are from Seattle south, with a few on the Eastside.

Numerous factors are driving the activity, including e-commerce and third-party fulfillment companies seeking attractive locations to deliver goods quickly to customers; the region’s proximity to the Ports of Seattle and Tacoma, which are a day closer to Asian markets than Southern California; the relative investment safety of a Seattle-area market that fared better than others during the Great Recession and remains strong; and land-supply constraints limiting the number of competing buildings, according to Brett Hartzell, a Seattle-based executive vice president with CBRE.

As demand for warehouse and distribution facilities soars amid a limited supply of properties, so do sales and rent prices, especially for properties closer to major population centers like Seattle, Hartzell said.

The average sales price per square foot of nonportfolio industrial properties (individual transactions that may include multiple buildings at a site but are not part of broader multicity or multistate portfolios) through May hit nearly $215, according to CBRE’s report.

“I would say that’s just getting warmed up,” Hartzell said. “These prices are going to be up dramatically going forward here this year, too.”

As investors pay more for property and rents follow, that also drives more activity farther south into Pierce County and beyond, where there’s generally better supply and some new development. Hartzell expects to see continued interest south along the Interstate 5 corridor in areas offering proximity to both Seattle and Portland.

“That’s where I think we’re going to see continued very strong demand, heading south from the Port of Tacoma; and Frederickson is seeing very high demand right now because there’s available land,” he said, adding that availability of zoned industrial land open to development “is getting tremendous attention right now.”

That interest has reached to DuPont, Lacey, Centralia, even Winlock, Hartzell said.

He also sees more activity north of Seattle, in areas like Marysville and Arlington area that are far from the port but have population centers companies are trying to serve.

In its report, CBRE noted that South Seattle accounted for nearly half of all individual industrial property sales through May. Demand for smaller properties with last-mile proximity to the region’s densest urban core continues to drive transaction volume in the region, it noted, just as regional distribution opportunities in Pierce County have attracted developers and investors.

There’s demand for buildings not only from tenants, but investors, Hartzell said, noting that buyer interest exploded last fall.

“People want to invest in our space,” he said. “The investors from other sectors who may have been spending their money on office buildings or on retail started focusing on logistics because they could see that demand, that price increase, the rental rent growth, and so they flocked to industrial, which then is why there’s been so many sales, and there’s continued demand for acquisition of buildings. There’s not enough supply, not even close. People want to buy industrial buildings in our market and they can’t get them,” he added, noting multiple offers per building.

Some building owners or businesses are taking advantage of the demand and selling, especially if they need to raise capital, he said, then sometimes leasing back from buyers.