Abstract
Vacancy continues to rise as the market battles oversupply, low demand and record low import volume. The reduction of projects under construction should alleviate some of the pressure on the oversupplied market as market asking rent growth remains low and strike rate growth are slipping into negative territory.
Puget Sound
ECONOMY
National warehouse and storage employment declined by 2.6%, or 48,700 employees between March 2025 and March 2026, but the sector still stands 510,900 jobs above its pre-pandemic peak in February 2020.
The US economy entered 2026 with meaningful tailwinds to growth including expanded business investment tax incentives, larger personal tax refunds, significant ongoing AI related business investment, and hope for reshoring related increases in domestic investment. January and February saw a meaningful increase in retail sales growth rates after a slowing in retail sales growth rates during the Holiday Season. Future economic growth depends on multiple factors including sustained job growth, sustained AI investment, increased domestic investment beyond AI, both trade and fiscal policy, favorable market conditions, and the Strait of Hormuz disruption with its varied potential impacts including on consumer spending power.
Locally, the Northwest Seaport Alliance (NWSA) import volumes started out the year on a negative note with January monthly volume closing out at 91,017 twenty-foot equivalent units (TEUs), down 16% from January 2025. To make matters worse, February saw an even further decline, posting a mere 73,762 TEUs, down 29.5% year-over-year (YOY). This is the lowest monthly full import volume ever reported for the NWSA, down 24.3% from the February long-term average (LTA) of 97,439 TEUs dating back to 2010. The heavy YOY decline can be attributed to companies front loading supply in early 2025 as they expected the new administration to enact a more aggressive tariff policy. February’s low import volume is a product of that policy, with the majority of full import TEUs coming from Asian countries, 92.5% of the total in 2024. The NWSA has not released their 2025 Annual Trade Report, but we will get a clearer picture of market share when that becomes available.
VACANCY
Puget Sound industrial vacancy continued its upward trajectory to start 2026, reaching 9.5% in Q1—up 170 basis points (bps) YOY and 40 bps quarter-over-quarter (QOQ). Vacancy now sits 100 bps above the Great Financial Crisis peak of 8.5% recorded in Q4 2010, marking a new record high for the fourth consecutive quarter. Since bottoming at 3.8% in Q1 2022 in the post pandemic cycle, vacancy has increased or held flat in 15 of the past 16 quarters, averaging a 40-bp quarterly rise. Compared to the LTA* of 6% since 2005, current vacancy levels are elevated by 350 bps.
All six submarkets posted an increase in YOY vacancy, ranging from a slim 20-bp increase in the Seattle Close-In submarket to a massive 330- bp increase in Pierce County. We have also seen every submarket post an increase in QOQ vacancy, a rare occurrence that signals the market as a whole is feeling the impacts of declining import volumes. The reduction of projects under construction in the market should alleviate some pressure on rising vacancy, however, the slim leasing activity posted, barely 3 million square feet (M SF) for Q1, is signaling reduced demand overall.
Kent Valley, the largest submarket, ended the quarter at 9.7% vacancy, another record high and the fourth consecutive quarter with vacancy above 9%. When compared to Q1 2025, vacancy is up 200 bps as well as up 20 bps from last quarter. When compared to the Great Financial Crisis induced peak in Q4 2011, vacancy is up 100 bps. The submarket’s total vacant SF has reached 11.8M SF, up 79.5% from the LTA* of 6.2M SF.
The Pierce County submarket finished Q1 2026 at 12.2% vacancy, another record high for the submarket. This is a 330-bp increase YOY, the largest jump of all submarkets as well as a 50-bp increase just over the last quarter. With 2.9M SF of new product delivered in Q4 2025, the increase in vacancy was anticipated as 0% was preleased and still remains vacant. When compared to the LTA* of 6.4%, vacancy sits nearly twice as high as well as 120 bps above the previous cycle peak in Q2 2009. Vacant SF reached 12.6M SF, up 40.8% just over the last year and 179.7% above the submarket’s quarterly LTA* of 4.5M vacant SF. The Seattle Close-In submarket saw the smallest YOY increase, up 20 bps to 9.7%. This submarket has experienced elevated vacancy throughout 2024 and 2025, above 8% during that period. For perspective, the submarket's LTA* is 4.6% with the previous cycle peak hitting 7.1% in Q4 2009.
RENT
Puget Sound 12-month market asking rent growth ended Q1 2026 at 1.5%, a 110-bp decline from the same period last year, however up 20 bps QOQ. Market asking rent growth has fallen 710 bps from the pandemic induced peak of 8.6% in Q1 2022 which was a record high for the market. However, we are still 380 bps above the low in Q3 2010 that finished at -2.3%. The market’s LTA* dating back to 2005 sits at 4.4%.
Tenant demand has been weak to start the year, with only 3M SF of leasing activity posted to end Q1 2026, down 43.6% from the same period last year.
NET ABSORPTION
Puget Sound finished Q1 2026 with -1.1M SF in net absorption, down 1.4M SF from the 344,101 SF posted one year ago. This is also down 754,511 SF from the last quarter. We have now seen the fourth consecutive quarter with negative quarterly absorption, putting the 12- month net absorption at -2.9M SF, the lowest 12-month absorption posted since Q3 2010. However, this is still 3.3M SF above the record low of -6.2M SF in Q4 2009.
Kent Valley finished Q4 2025 at -140,585 SF, an increase of 36,204 SF from last year and up 149,517 SF QOQ. Notable move outs in the market include USPS vacating 102,400 SF at Van Doren’s West, Wido Logistics leaving 116,700 SF at Kent North Corporate Park as well as The Green Room leaving 145,373 SF at 1302 29th St NW in Auburn. Positive swings in absorption include Empire Today moving into 51,102 SF at Northward Business Park, Hensel Phelps Construction taking 42,715 SF at Bridge Point SeaTac 300 and Questar Solutions absorbing 31,045 SF at Auburn Park 277.
Pierce County finished Q1 2026 with -395,916 SF in net absorption, the fourth quarter in a row posting negative absorption, putting 12-month net absorption at -1.1M SF for the submarket. When compared to last year, absorption is down 866,096 SF as well as down 289,771 SF just over the last quarter. The submarket was plagued with move outs in Q1, including Sany America giving back 225,000 SF at Northwest Logistics Center, MacMillan Piper leaving 102,372 SF at Portside 55 and Corporate Moving Systems moving out of Sumner North, vacating 85,876 SF. We also saw Coleman Worldwide Moving vacate and put for lease 50,218 SF at 8605 34th Avenue South.
The Seattle Close In submarket finished the quarter at -296,534 SF in net absorption as SeaPac gave back 159,552 SF at Terminal 17 and MacMillan Piper left 110,613 SF at Frye Industrial Park on 6th Avenue. The Northend submarket had -262,888 SF in net absorption to end the quarter, with Mass Electric moving out of 59,095 SF at The Reserve in Woodinville and J&W Marketing leaving 27,488 SF at 13102 North 131st Street in North Seattle.
CONSTRUCTION
The Puget Sound had four buildings deliver in Q1 2026 totaling 757,040 SF, down 44.5% from the same period last year. This is down 2.2M SF just over the last quarter. We hope the reduction in deliveries could alleviate some of the pressure on the oversupplied market which has seen vacancy continue to climb and rent growth stall.
Currently, there is 2.7M SF of projects under construction in the Puget Sound market, all of which is scheduled to be completed by the end of 2026. Of the 2.7M SF, 6.8% is pre-leased. This is the lowest amount of under construction SF since Q2 2016, roughly 10 years ago. To no surprise, Pierce County has the most SF under construction, totaling 1.1M SF. Of the projects that are under construction, six will deliver greater than 100,000.
