Teutsch starts construction of industrial project in Lacey

Today Teutsch Partners will start building a 200,000-square-foot warehouse/industrial project in Lacey.

In 2007, when more than 5 million square feet was being built in the South Puget Sound region, such an announcement would not have been big news. But now, with the industrial market still treading water, only about 750,000 square feet is being built, including Teutsch’s project.

The approximately $15 million build-to-suit project will be Harbor Wholesale Grocery’s headquarters. The cost includes the price of the land.

AHBL is the engineer and Sierra Construction is the general contractor. It will have about 30,000 square feet of office space.

Harbor, now in Tumwater, distributes to grocery, convenience and drug stores. It bought the 12.5-acre site from Seattle-based Teutsch Partners for nearly $2.7 million.

The project is the first of its kind in Lacey since at least 2005, when the city capped the size of distribution centers at 200,000 square feet. That moratorium on big buildings drove developers south of Lacey and farther from the region’s ports, which drive the industrial market.

In June, the city lifted the moratorium, and that could lead to development there when the economy rebounds.

“(Harbor was) a really important impetus to getting the cap lifted,” John Teutsch said.

He said the 200-person company has been steadily growing and wants assurances that it will be able to expand in Lacey in the future.

“The (industrial) market in general is, I would say, soft,” said Scott Carter, a partner with Pacific Real Estate Partners brokerage. Depending on location, rents are down 10 percent to 20 percent from the peak, and landlords are offering free rent and other concessions to lure tenants. Owners also are dangling incentives before brokers to get long-vacant spaces leased.

Vacancy rates range from about 7.5 percent in South King County to nearly 10 percent in Pierce County, according to Carter. That’s considerably higher than a couple of years ago.

For such a down market, there is a relatively good amount of activity. Tenants are soliciting proposals “but a lot of it is a tool for renegotiating” current leases, Carter said.

One new company, Uline, did enter the Puget Sound market and took about 260,000 square feet in Auburn. But for every new user, there’s someone else who’s giving back space or going out of business. It’s a one-step-forward, one-step-back market.

“I feel like, though, that we’re kind of bottoming out,” Carter said. But recovery will be “very gradual,” and take two to four years.

With the moratorium lifted, all eyes are on Lacey, where projects of up to 500,000 square feet are now allowed.

“We’re talking to people,” said Teutsch, who owns the 160-acre Hawks Prairie 111 Corporate Park that ultimately could have as much as 1.9 million square feet of commercial space. “We can respond now where as we couldn’t before.”

Wilma Warshak of Colliers International is marketing Hawks Prairie 111.

Another parcel — 40 acres that bankrupt developer Mastro Properties owned — also is generating interest in Lacey. Carter is marketing the land on behalf of First Citizens Bank and Trust Co. He said he has received an offer but is waiting to hear back from the bank.

Carter declined to say who made the offer. Several months ago, Carter thought the deal might close in 2011, but “given this has dragged on so long it might be 2012.”