$968,000,000, or just under $1 billion. Quite a sum of money, but that is only the projected cost of the new International Arrivals Facility at SeaTac Airport. Forget the garage, new North Terminal (dominated by Alaska Airlines) and other collateral development. What is the meaning of this expenditure for commercial real estate? The answer, not surprisingly, is great news. Seattle’s proximity as the jumping off point for Asia and polar routes to Europe and the strong entry of Delta Airlines into the market bode well for growth.
The unfulfilled demand for office space in the market (not committed or under construction) is estimated to be six million square feet. Rents are in the $40-50 per square foot range, condos (link article) are coming to town, and commercial rents are still climbing. The drivers of this economic boom are clearly tourism (think cruises to Alaska, mountains, water, and lakes) and Internet-related companies (think Amazon, Microsoft and dozens more).
The growth of these industries has absorbed industrial spaces into higher and better uses and driven industrial rents towards the mid-teens in terms of dollars. Land prices for development to “highest and best” uses are still skyrocketing.
Seattle Commercial Real Estate loves to sing the praises, but philosophically, we also raise a reasonable note of caution. We are into the 11th year of a boom cycle, which is almost 50% longer than our norm. Irrational exuberance is not a reasonable approach. Rising interest rates, international uncertainty and common sense is the appropriate approach to investment in today’s commercial real estate market. Equity is the cushion to ride any change that may come to be.
