Office Market Trends Skagit County Q3 2019

Office Market Trends Skagit County Q3 2019

  • 02 Oct Off

LEASE TRENDS

From 2015 to 2018, total leasing volume ranged from approximately 39,000 to 52,000 sq. ft. annually in three of the four years, with 2016’s leasing volume well above the average for the last five years. 2019 appears to be headed for total annual leasing in line with 2015, 2017 and 2018. Average NNN asking rents fluctuated between $14.13 and $14.95 per sq. ft. over the last five years, suggesting demand relative to supply has generally been stable in the market over this period.[1]

[1] Includes listings for preleases for new tenants and vacant space

OVERVIEW OF ACTIVE LISTINGS

The table below summarizes existing asking rates for Skagit County office space.

OVERVIEW OF ACTIVE FOR-LEASE LISTINGS
Skagit County Office Space

Item Value
Minimum $8.50/sf
Maximum $30.00/sf
Median $16.50/sf
Average $16.70/sf
Average Months on Market 6.4 mos.
Median Months on Market 12.0 mos.
Area Available ≈80,000 sq. ft.[1]

Asking rates for office space range from $8.50 to $30.00 per sq. ft., with an average of $16.70 per sq. ft. Marketing periods for active listings average 6.4 months with approximately 80,000 sq. ft. of office space available for rent throughout the county. 


CAPITALIZATION RATES

PwC’s 2Q 2019 investor survey reported an average OAR of 5.52% for the Pacific Region, down 0.34% from the previous year. Kidder Mathews Seattle office market report for 2Q 2019 reported an average OAR of 6.13%, 61 bps greater than PwC’s reported average for the Pacific Region.

Regional surveys provide little insight into specific market dynamics. Comparable OAR sales of larger Skagit County medical office the properties presented in the table below range from 5.44% to 7.20%, with an average of 6.49%.

COMPARABLE CAP RATE SALES

No. Designation/Location Year Built/Ren. Sale Date RSF Sale Price OAR
1 Vopnford Building, 506 Main Street, Mount Vernon 1961 February 9, 2017 3,072 $382,500 5.44%
2 Polson Building, 419 S. 1st Street, Mount Vernon 1900 October 12, 2016 7,780 $485,000 7.20%
3 Island Internal Medicine Building, 912 32nd St., Anacortes 2010 May 7, 2018 4,750 $2,600,000 5.63%
4 The Cannery- West Building, 715 Seafarers Way, Anacortes 2005 January 31, 2018 10,556 $2,600,000 7.11%
5 Rodda Paint Building, 1043 S. Goldenrod Road, Burlington 1997 August 27, 2019 12,599 $2,160,000 7.18%
6 Leonard Boudinot Building, 603 S. 1st Street, Mount Vernon 1929 May 4, 2018 5,600 $450,000 6.38%


SALES TREND OVERVIEW

As the chart shows, both sales volume and average sales price have been erratic over the last five years. After average sales prices increased from $134 to $174 per sq. ft. from 2015 to 2016, average sales prices decreased to $79 per sq. ft. in 2017, largely the result of most of the listed sales consisting of older office buildings in below-average condition that year, and increasing to $268 per sq. ft. in 2018, wherein a trend opposite to 2017 occurred and most listed sales consisted of newer office properties in average to above-average condition. From 2015 through 2018, sales volume generally increased, but volume appears to have dropped off significantly in 2019, coupled with a decrease average sales price, suggesting demand from investors and owner-users is decreasing.[3]

Marketing and exposure periods for Skagit County office properties decreased from 9.7 to 8.3 months from 2015 to 2019, although, as with the average price per sq. ft. trend, the historic trend has been erratic. 

OVERALL MARKET CONCLUSION

Skagit County office lease trends have been erratic in recent years. CJM’s survey indicates medical office space in older buildings generally lease from $15.00 to $19.00 per sq. ft., NNN. Historic leasing trends indicate minor rental appreciation over the last five years.

Sales trends have been erratic in recent years, with no consistent multiyear trends in annual sales volume or average annual sales price.

Overall, considering market trends, location, and proximity to other health services, the neighborhood medical office appeal is average to above-average.

COMPARABLE OFFICE BUILDING SALES

  No. 1 No. 2 No. 3 No. 4 No. 5
Name 1809 Commercial Avenue Kulshan Dental Center Parker Way Vet 120 N. 17th Street Northwest Asthma & Allergy Center
Address 1809 Commercial Avenue 2200 Kulshan View Drive 1310 N. LaVenture Road 120 N. 17th Street 1801 E. Division Street
City Anacortes Mount Vernon Mount Vernon Mount Vernon Mount Vernon
Interest Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
Site Size (acres) 9,583 67,353 35,549 20,038 13,095
Gross Building Area 5,334 11,000 3,383 2,880 3,970
FAR 0.56 0.16 0.10 0.14 0.30
Year Built 1983 1980 1993 1979 1989
Parking Ratio 3.00 9.82 3.55 4.17 4.79
Sales Price $925,000 $2,500,000 $565,000 $575,000 $772,500
Price/SF $173 $227 $167 $200 $195
Lease Date March 28, 2019 July 26, 2018 June 20, 2019 March 20, 2019 August 7, 2018

[1] Source: CBA; CJM

[2] Includes listings for preleases for new tenants and vacant space

[3] Source: CBA; CJM

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CJM Advisors is a full-service commercial real estate appraisal and advisory firm. CJM appraisers come from a variety of backgrounds in real estate, finance, planning, and education. CJM has as owners, partners or employees three individuals who hold the MAI designation of the Appraisal Institute (appraisalinstitute.org). Designated members have met rigorous requirements relating to education, testing, experience and demonstration of knowledge, understanding and ability. The MAI membership designation is pertinent to our work here at CJM. Appraisers who hold this designation are experienced in valuation and evaluation of commercial, industrial, residential, and other types of properties. These appraisers are qualified to advise their clients on a broad range of real estate decisions.

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