Seattle Office Space News – January 2015

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of January 2015.

PROPOSED DEVELOPMENTS

Aggressive office development plans should continue in 2015 in Seattle. To start things off right, Amazon led the charge revealing plans for the development of a fourth block in the Denny Triangle area. The plans show two buildings, one 23 stories and the other 8 stories for a combined 835,200 feet of office space and 35,000 square feet of retail. The lot is bounded by Seventh and Eighth Avenue and Blanchard and Bell streets and would be built where a Budget car rental lot and Cornish college currently reside.

Trammell Crow’s 365,000 square foot office development that is currently under construction at 1007 Stewart Street will be called Midtow21, which is a reference to the 21 floors of the project.

Near many of his other developments, Martin Selig announced plans to begin building a six-story office building at 220 W. Harrison Street.  The building will be 183,779 square feet and construction will begin following permitting with or without a tenant in place.

City records indicate that First Western Development is planning a five story 105,432 square feet building across from fast growing Tableau’s headquarters in Fremont. The building will be located at 774 N 34th St and will be designed by Weber Thompson.

Near Amazon’s South Lake Union campus, the old Antique liquidators building located at 503 Westlake will be getting a facelift.  Bellevue based S.E. Grainger Group plans to add three floors to the 96 year old building and update the existing floors.

BUILDING SALES

Kilroy Realty Corp. is under contract to purchase the KING 5 property located at 333 Dexter Ave North in Seattle’s booming South Lake Union neighborhood.  Kilroy will likely tear the existing building down to develop a much larger project.  KING 5 is planning to move to the new Home Plate Center is SODO. The price for the transaction was not immediately available.

Seattle insurance company Pemco announced that they will be purchasing the former Casey Family Programs building located at 1300 Dexter Ave N from Vancouver based Holland Partner Group for an undisclosed price.  Pemco plans to move their 350 employees to the building in late 2015 after an extensive renovation.

After several months of speculation, Unico closed on the purchase of the iconic Smith Tower at 506 2nd Avenue.   Public records indicate Unico paid $73.7 million for the 264,350 square foot building located in Pioneer Square. The price per square foot of the sale equates to $279, which is over twice what it sold for in 2012.

Finally, a small retail building located next to Amazon’s headquarters sold for 172% more than it did eight years ago.  The 6,480 square feet of land was sold by Blue Water LLC and purchased by another unnamed LLC. This sale is directly across from Vulcans 12 story office development.

OFFICE LEASES

The largest office lease reported in January was the renewal of HomeStreet Bank at Two Union Square in the central business district. The anchor tenant of the building renewed for 142,000 square feet of space at 601 Union Street for an additional ten years.

Denver-based Galvanize leased 71,000 square feet at 111 S Jackson in Pioneer Square in January.  Galvanize is a hybrid of a tech co-working space and programming school with access to investors and mentorship.

After speculation of a big move, it was reported that Facebook has added space at their existing location in the Metropolitan Park Building.  The Menlo Park based company now has room to double their headcount from 400 to 800 employees.

TUNNEL/VIADUCT

There was a lot of news in January about the tunnel project to replace the viaduct along Seattle’s waterfront.  After reports in December that there would be more delays and complications with the tunnel boring machine known as Bertha, an expert review panel was assembled by Governor Gregoire to investigate the problems.  Different viewpoints are polarizing with one side pushing to finish the project and the other side wanting the project to be killed immediately.

ECONOMY:

January was full of news of economic indicators for the Seattle area.  According to Forbes, Seattle is the nation’s fifth fastest growing city when measuring population and economic growth.

In 2014 Venture Capital firms invested a total of $1.2 billion into Seattle area companies, up 36% from the previous year. 44% of those deals were related to software companies and 16.3% related to biotechnology. In more tech news, a recent poll by WalletHub concluded that Seattle was ranked sixth best metro area for STEM jobs (science, tech, engineering, or math). However, Seattle dropped down to 40th when the annual wages were adjusted for costs of living. Another study by Dice.com noted that Seattle is #2 in the U.S. for tech salaries.

As always, the residential real estate market provides indication of the health of the Seattle area economy.  Last month the number of pending home sales in Seattle was at its highest level in nine years and nearly two thousand of these homes were priced at one million or greater.  In Seattle, there was also 40 percent less foreclosures in 2014 than in 2013, with the expectation that this trend will continue in 2015.   Towards the end of January it was reported by Redfin that the supply of homes for sale is dwindling with 19% fewer listings than the previous month.

The organization Visit Seattle estimated that the influx of fans going to the Seahawks  playoff games will create $6 million in additional revenue for local restaurants, hotels and more. Despite the Superbowl loss, we should be proud and thankful of the Hawks organization for a great run and their positive impact on the city!

OTHER NEWS

A recent office report showed that 45% of all office leasing in Seattle was done by Tech companies.  Seattle ended the year with the 5th lowest vacant rate in the country at 10.7 percent.

The Puget Sound business journal also took a look at the offices of Avvo, which feature staged employees mugshots lining the walls.

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2014 Year End Seattle Office Market Report – Tenant Perspective

Analyzing the Data

General Conclusion: The vacancy rate in Seattle’s office market dipped to 9.5% at the end of Q4 2014 and positive absorption for the year concluded at 1,392,917 square feet.  Looking ahead to 2015, strong demand for Seattle commercial real estate investment product is anticipated with rental rates rising and a decrease in concessions. Barring any unforeseeable geopolitical or economic crises, market forces will be trending in the favor of landlords for all of 2015.

Economy: According to the Washington State Economic and Revenue Forecast Counsel, the moderate pace of economic recovery should continue in Washington.   The Washington State Employment Security Department reported that the State’s preliminary seasonally adjusted unemployment rate for November 2014 was 6.2% down from 6.8% in November of 2013.  The unemployment rate reported by the Bureau of Labor Statistics dropped from 6% at the start of 2014 to 5.1% as of November in the Seattle/Tacoma/Bellevue area.

Office Construction: Office development activity took a big jump at the end of 2014 with several significant projects breaking ground.  Notable office buildings currently under construction include:

  • Amazon II and Amazon Phases VII & VIII totaling ~1,734,000 square feet
  • Madison Centre = ~746,000 square feet
  • Fifth + Columbia = ~528,000 square feet of office
  • 400 Fairview = 367,898 square feet
  • 1007 Stewart = ~365,000sf of office
  • Troy Block South Tower = 362,108 square feet
  • Dexter Station = 345,992 square feet
  • Hill7 = 295,936 square feet
  • Urban Union = ~285,000 square feet
  • NorthEdge = ~208,000 square feet
  • 1101 Westlake Ave N = 150,621 square feet

Many of these projects have started construction without any pre-lease, which is a significant sign that developers and capital markets are increasingly confident about Seattle’s office market.  Also, it should be noted that office buildings under construction are no longer limited to the South Lake Union and Denny Triangle submarkets as 1,274,000 square feet of office is under construction in the CBD.  We should expect more news of office projects breaking ground throughout Seattle into 2015.

Office Sales:  Sales activity remained strong at the end of 2014 with the continued trend of institutional developers and investors from outside of the area buying Seattle assets.  The following notable transactions were completed in Q4 2014:

  • Ivanhoe Cambridge bought 1111 Third Avenue and 1100 Second Avenue from Walton Street Capital.  The Canadian pension fund paid $280 million or $395 per square foot blended for the 709,000 square foot project.
  • Unico and Laird Norton bought Stone 34 at 3400 Stone Way from Skanska USA for $70.1 million or $539 per square foot.
  • Unico purchased Pemco’s headquarters building at 325 Eastlake for $51.75 million or $277 per square foot.
  • Rockpoint Group of Boston sold the 130,500 square foot Pacific Building at 720 Third Avenue to Brickman for $50.4 Million or $386 per square foot.
  • Trinity Real Estate purchased 500 Yale from LBA Realty for close to $36 Million.  The price for the 71,400 square foot office building equates to $504 per square foot.
  • Finally, Hines sold the 437,900 square foot Seattle Design Center to Greenbridge Investment partners out of Beverly Hills for $24.9 million or $56.86 per square foot.

Additionally, the following buildings are pending a sale:

  • Unico is rumored to be the buyer for the Smith Tower at 506 Avenue which is 256,481 square feet in 42 stories.
  • Brookfield Office Properties is selling the twin towers known as Metropolitan Park East & West.
  • Shorenstein Properties put the 237,200 square foot Blanchard Plaza on the market in Q4.

Office Leases:  Office leasing activity closed the year in strong form.  Below are lease transactions that were concluded in Q4 2014:

  • Disney closed a 170,000 square foot lease at the 4th & Madison tower
  • Zillow closed on a lease for another ~110,000 square feet at the 1301 2nd Avenue
  • Galvanize leased 70,599 square feet at 111 S Jackson
  • Impinj leased 52,000 square feet at 400 Fairview
  • Tableau Software leased another 38,000 square feet at 701 N 34th Street
  • Avalara leased 24,428 square feet at Second & Spring
  • Cambia health Solutions leased 9,000 square feet at 9th & Olive
  • Chinese e-commerce company Alibaba leased 8,000 square feet at the Decatur building
  • Apple leased a small amount of space at 1455 NW Leary Way in Ballard

Below is a table providing information for the major submarkets of Seattle:

4Q2014 Market Data

The total vacancy rate for Seattle at the end of 2014 is 9.5%.

Recommendations:

If your company:

  1. Doesn’t need to move
  2. Has an upcoming space/lease requirement in the next 2 years
  3. Can reasonably forecast headcount needs for years into the future
  4. Has a rental rate in line with or above market

– Start educating yourself on available alternatives and negotiating with your current building to get an understanding of your landlord’s position in the market.  Given the increasing pressure on rents and decreasing concessions, companies are incentivized to be educated on proposed developments that will be delivering in 18-24 months.  It is also helpful to be educated on the market so you can prepare to react quickly to increasingly volatile conditions.

Alternatively, if your company:

  1. Might need to move
  2. Needs size flexibility
  3. Wants to pursue a sublease or plug-n-play opportunity
  4. Prefers not to commit to a lease term beyond the next six months

– Wait until six months prior to your lease expiration and be prepared to act quickly.  The three to six month window prior to lease expiration is when you are most attractive to potential landlords and when they will offer you the best economics.   However, have a lease/sublease signed three months before your lease expires.  You don’t want to be in a holdover situation or without space and you need to give your company time to complete tenant improvements and plan a move.

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Seattle Office Space News – December 2014

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of December 2014.

PROPOSED DEVELOPMENTS

The Seattle real estate market continued its boom into the end of the year with news of several new office developments.  Touchstone plans to start construction in late 2015 on a mixed office and residential project in the Denny Triangle area of downtown Seattle. Tilt 49 will be comprised of a 40 story apartment tower and an 11 story office building. The project will be located between Boren Avenue and Stewart Street, where a Goodyear store and surface parking lot currently reside.

Los Angeles based Hudson Pacific continues to invest heavily in the region. In December, Hudson applied to the City for a master use permit in order to build an eight story office project located at 76 S. King Street along the waterfront. Hudson is bullish on this property and has not set any pre-leasing requirements before construction begins. A company spokesman stated construction is scheduled to begin in 2017.

To the north, Martin Selig continues to invest in Seattle’s Ballard neighborhood. A company related to Martin Selig paid just over $16.25 million for half a block at 1448 N.W. market St where they plan to construct a five story 204,000- square-foot office building.

BUILDING SALES

The biggest office sale in November was the purchase of Brooks’ new HQ in Fremont by Unico and Laird Norton from Skanska USA. The Unico/Laird Norton joint venture paid $70.1 million for Stone34 located at 3400 Stone way or $539 per square foot.

Unico also purchased Pemco’s headquarters building in December.  The building located between Harrison and Thomas streets and Eastlake Avenue East and Yale Avenue North, sold for $51.75 million or $277 per square foot. The property consists of a five story 186,260 square foot building, above ground parking garage, and a surface parking lot.

The Seattle Design Center sold for half of its original purchase price seven years ago.  Hines was the seller of the 437,900 square foot property that is dived into two-buildings located at 5701 Sixth Ave S.  Greenbridge Investment partners out of Beverly Hills paid $24.9 million for the property, or $56.86 per square foot.

UK based St. Brides’s Managers paid $10.1 million for a four story office in Belltown located at corner of 4th and Blanchard. The seller, Nicola Crosby of Vancouver B.C. was able to obtain 53% more than they originally paid for the building.

Finally, the building that houses Seattle’s oldest bar the J&M Café sold for $3.24 million.  The limited liability company J&M Capital Group sold the building located at 201 First Ave S to Seneca Ventures.

OFFICE LEASES

Not surprisingly, Amazon made more headlines in late 2014 as the internet giant continues to occupy space in South Lake Union. This article summarizes the massive amount of office leasing Amazon closed on in 2014 including: two 38 story buildings currently owned and under construction by Amazon, Vulcan’s Phases VII and VII, 1915 Terry Ave, 2201 Sixth Ave, 635 Elliott and Fifth & Bell. The online retail group plans to have more than 10 million square feet of office space in Seattle within the next five years, which is enough space for 71,000 employees.

Disney once again proved that in Seattle, Tech companies have a home in downtown skyscrapers. The multimedia company not only renewed its lease at the 40 story Fourth & Madison tower but, they expanded their footprint. Disney now occupies a total of 170,000 square feet on seven floors.

Impinj announced that it will be leaving Fremont and taking 52,000 square feet at Skanska’s new 400 Fairview project in South Lake Union.

Fast growing Tableau continues to gobble up space in Fremont, signing a lease for 38,000 square feet at 701 N 34th. The data visualization company has increased its headcount by more than 56% in the last year.

Seattle’s Biotech industry also made headlines late this year with heavily funded Juno Therapeutics going public and Nanostring expanding its presence.  Nanostring extended their current lease at 500 Fairview until 2026 and also added an additional 21,541 square feet next door at the new 530 Fairview Ave N.  In addition, the company also expanded its footprint at 617 Eastlake by just over 14,000 square feet.

TUNNEL/VIADUCT

In more bad news for Seattle’s tunnel project, city officials estimate the project will be delayed another 11 months and is not expected to open until August 2017. This most recent delay comes after the Viaduct was reported to have sunk more than one inch. City officials commented that they would consider shutting down the viaduct if the sinking reached two inches. The movement of the viaduct was linked to ground water being removed in an attempt to repair the broken Bertha tunnel boring machine.  City officials stopped digging and pumping water in order to investigate the effects of the sinking on several buildings in and around Pioneer square.  After confirming that the damage to surrounding buildings was superficial and that the ground had stopped sinking, the City gave the green light for digging operations to resume.  Secretary of transportation Lynn Peterson told the City Council that the project is now 70 percent complete.

ECONOMY

A new report indicates that Seattle’s construction boom is not anywhere near its peak. Dodge Data & Analytics reported that there were more than $1.1 billion contracts awarded in October for future work in the Puget Sound Metro region.  This is more than five times the amount signed in October of 2013.

The sale price of Seattle area homes continued to rise in 2014 increasing 11%  year to date. With this increase, also comes an 8.6 % jump in the average rent paid in Seattle, which is not expected to slow down any time soon.

OTHER NEWS

Seattle based Urban Renaissance Group has acquired Touchstone group which now leaves Urban Renaissance Group involved in almost one billion dollars worth of  real estate projects in the Seattle area.

Finally, there were several articles in November providing a look into the office space of Seattle based companies  including: Publicis, Chef, and Graphlab.

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Seattle Office Space News – November 2014

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of November 2014.

PROPOSED DEVELOPMENTS

Not surprisingly, Amazon was in the news related to office development in November.  Architects for the e-commerce company filed plans with the city of Seattle to build 3 more buildings near their headquarters in South Lake Union totaling 835,000 square feet. Amazon is the critical factor supporting the current construction boom in Seattle as they will occupy up to 10 million square feet of space within 5 years.

Urban Visions is dusting off plans for Stadium East, which would include 860,000 square feet of office space spread across seven buildings. The seven acre site is located at the south end of Seattle at the intersection of I-90 and Airport Way to the east of CenturyLink and Safeco fields.  The development company, led by Greg and Broderick Smith, is also revising plans for the full block site between Second and Third Avenues and Columbia and Marion Streets in the central business district.  Rather than a 77 story building, Urban Visions is now seeking city approval to build a 60-story high-rise at 888 2nd Avenue that will include up to 1.2 million square feet of office.  It remains to be seen whether Urban Visions will break ground on either project prior to having any pre-leasing.

Skanska USA Commercial Development is planning a 725,000 square foot office tower called 2&U at Second & University in the central business district of Seattle.  Skanska signed a long term land lease with the Samis Foundation for the site and the building is scheduled for completion in 2019.

Finally, the proposed office development at 9th & Thomas in Seattle’s South Lake Union is in design review.  Scott Redman of Sellen Construction is the owner of the site and is planning 153,000 square feet of office and 12,000 square feet of retail.

BUILDING SALES

The biggest office sale in November goes to Ivanhoe Cambridge, who is buying the two building office project at 1111 Third Avenue and 1100 Second Avenue from Walton Street Capital.  The Canadian pension fund is purchasing the 709,000 square foot project for $280 million or $395 per square foot blended.

Rockpoint Group of Boston sold the Pacific Building at 720 Third Avenue for $50.4 Million or $386 per square foot.  Brickman, a private equity firm based in New York, is the buyer for the mostly leased 130,500 square foot building.

Also, Shorenstein Properties put Blanchard Plaza on the market for sale in November.  The 15 story, 255,820 square foot office building at 2201 Sixth Avenue is 100% leased to Amazon.

Finally, Unico Properties is the reported buyer of the Smith Tower, a 257,000 square foot building at 506 2nd Ave in Pioneer Square.  The 100 year old building has 42 stories.

OFFICE LEASES

The biggest office lease reported in November belongs to online real estate company Zillow, who inked a deal for an additional five floors at 1301 2nd Avenue.  Zillow is now the largest tenant in the building as they occupy roughly 260,000 square feet on floors 29-40.

Like many other tech companies from the Bay Area, Apple is setting up shop in Seattle.  The tech giant is rumored to be leasing space at 1455 N.W. Leary Way in the Ballard submarket.

ECONOMY

Technology companies in Seattle are leading the surging economy.  This article provides some interesting data from E&Y on mergers and acquisitions of Seattle based companies.   Global technology M&A deal value was $73.7 billion in Q3 2014, which is a height not seen since the dotcom bubble.

The residential real estate market in Seattle remains strong as home sales are up 2.6% when compared to a year earlier.

OTHER NEWS

Finally, there were several articles in November providing a look into the office space of Seattle based companies including:  Redfin, Stoke StrategiesCompendium, and Howard S. Wright Construction.

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Seattle Office Space News – October 2014

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of October 2014.

PROPOSED DEVELOPMENTS

Commercial real estate development in Seattle and the Puget Sound area has been expanding for several quarters.  This article provides an interesting profile of 16 huge construction projects in the area that include office, residential, hotel & life science projects.

Martin Selig made lots of news in October.  First he dusted off plans for his proposed 75,000 square foot office building at Third and Battery that he tabled during the recession.  New proposed projects for Selig include a 31 story tower at Third and Lenora in Belltown that will feature 291,000 square feet of office space and 158 residential units.  Also, Selig is planning a 5 story project in Ballard at 15th Avenue NW and NW Market that will include 200,000 square feet of office.

Schnitzer’s Urban Union project in South Lake Union broke ground in October despite having no anchor tenant.  The 12 story 285,000 square foot office project at 501 Fairview Ave N in South Lake Union will be delivered in the first quarter of 2016.

Seattle developer Touchstone and their partner AIG got a construction loan to kick off NorthEdge, the 208,000 square foot office project at 1601 N 34th Street in Fremont.  The Bank of the Ozarks provided the three year loan and NorthEdge is scheduled to open in March of 2016.  NorthEdge is also yet to find an anchor tenant.

Wright Runstad received some more press in October about the Spring District in Bellevue and the 1.2 million square foot tour at Fourth Avenue and Union Street in Seattle.  The 54 story Seattle project will have 750,000 square feet of office space, 220 apartments and 30,000 square feet of retail space.

Also, Clise Properties and Graphite Design Group are hoping build an 11 story data center building at 2229 6th Ave, right in the midst of the new Amazon campus development.

OFFICE LEASES

Early October brought interesting news to the Seattle office leasing market as it was revealed that Facebook is shopping for at least 100,000 square feet of office space and is considering a conversion of the historic Macy’s building at Fourth & Pine in downtown Seattle.

Another tech company setting up shop in Seattle is Alibaba, the Chinese e-commerce company that recently went IPO on the NYSE, who opened an 8,000 square foot Seattle office at the Decatur building on 6th Avenue.  This is interesting given the proximity to Seattle ecommerce giant Amazon.com.

Cambia Health Solutions leased 9,000 square feet at 9th & Olive in Seattle and plans to open The Cambia Grove to connect startups and entrepreneurs with leaders in healthcare, business and government.

Further, local Seattle publication the Stranger is looking to relocate into about 10,000 square feet by March 2015.  Despite the fact that they have operated on Capitol Hill for 22 years, they are considering other areas throughout the city.

BUILDING SALES

Brookfield Office Properties put the twin towers known as Metropolitan Park East & West on the market for sale in October.  The complex is 95% occupied and could sell for up to $283 Million.

Following almost a full building lease by Amazon, Shorenstein Properties put Blanchard Plaza on the market for sale.  The 237,200 square foot building located at 2201 Sixth Ave could fetch up to $125 Million or around $527 per square foot.

Finally, Trinity Real Estate paid close to $36 Million to LBA Realty for 500 Yale Ave North in South Lake Union.  The price for the 71,400 square foot office building equates to $504 per square foot.

TUNNEL/VIADUCT

Seattle Tunnel Partners began digging the pit that will be used to fix Bertha, the stalled tunneling machine needed to bore the tunnel that will replace the Alaskan Way Viaduct.  This news of progress was quickly squashed as it was then reported that the digging was stopped due to a deposit of shells that was found near the repair pit.  The shells could indicate the presence of cultural materials from indigenous tribes or early settlers, so the department of transportation needs to coordinate with the Federal Highway Administration, tribal governments, and the Washington State Department of Archeology and Historic Preservation to determine next steps.

ECONOMY

Job growth is always a leading economic indicator.  This article based on a study by the W.P. Carey School of Business at ASU , reports that Seattle added 2.6% more jobs since the beginning of the year and is the 8th fastest growing city in the country.  The study also indicates that Washington State is number 9 in the country for job growth.

The Seattle area residential market remains robust as supply in King County is low although it seems that buyers are becoming more discriminating according to brokerage sources.   This trend is supported by Zillow who indicated in October that residential appreciation slowed to 6.9% in Q3 of 2014 when compared to Q3 2013 when homes were appreciating at 12%.  However, the regional housing market should continue to be healthy as investment from China heats up.

OTHER NEWS

This article provides an interesting fact that of the 10 largest office buildings in the region, none of them were built in the last 8 years.  It is anticipated that there will be a few buildings built in this cycle that will crack the top 25.

The Pike Place Market Foundation is raising money for MarketFront, the $66 Million complex bridging the gap between the market and the waterfront that will be built on the surface parking lot on Western Ave adjacent to the Joe Desimone Bridge.  MarketFront is expected to open in 2016.

Finally, some cool office spaces were profiled in October with photos for Tableau in Fremont, Mithun on the waterfront, Porch in South Lake Union and Flowplay in Pioneer Square.

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Q3 2014 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: Seattle’s office market in Q3 2014 remained relatively flat when compared to Q2 as the vacancy rate increased slightly to 10.2% and year to date positive absorption remained at 492,310 square feet.  However, due to strong demand for Seattle commercial real estate investment product, rental rates across all submarkets and building classes are still on the rise while concessions continue to decrease.  Market fundamentals have been in the favor of landlords for all of 2014.

Economy: In general, local and regional economic data inspires cautious optimism about a slow and steady recovery.  David Schumacher, director of The Office of Financial Management, said “It is encouraging to see this economic and revenue growth, but we are still climbing out of a deep hole.”  Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.9% in September according to The Washington State Employment Security DepartmentThe Bureau of Labor Statistics is reporting an unemployment rate of 5.3% as of August for the Seattle/Tacoma/Bellevue area.

Office Construction: Office development activity is steadily ramping up.  Notable projects currently under construction include:

  • Amazon II, and Amazon Phases VI, VII & VIII totaling 2,094,000 square feet
  • Troy Block South Tower: ~400,000 square feet
  • 400 Fairview: 367,898 square feet with Tommy Bahama as the anchor tenant
  • Dexter Station: 345,992 square feet
  • Hill7: ~285,000

Two projects broke ground in Q3 2014:

  • Schnitzer West’s Urban Union ~291,000 sf at 501 Fairview
  • Holland Partner Group’s mixed use project at 1101 Westlake – 150,000sf of office

Also in Q3, Touchstone and Trammell Crow announced plans to break ground soon on Tilt 49 (~307,000 square feet at 1812 Boren) and 1007 Stewart (365,000sf of office) respectively. It should be noted that all of the existing office construction is in South Lake Union or the Denny Triangle, which doesn’t pose much of a supply relief in Seattle’s Central Business District.  All of the proposed office developments in the CBD are on hold until they achieve significant pre-lease at top of the market rental rates.  Activity for the CBD projects is limited.

Office Sales:  Sales action in Q3 2014 was steady as institutional developers and investors from all over the world are eager to grab a stake in the Seattle market. The following transactions were completed in Q3 2014:

  • Hines & Morgan Stanley purchased the land lease of 800 5th Ave from James Campbell Company for $165 Million.  This purchase solidifies Hines’ control of the 934,000 square foot office building on the site.
  • Prudential Real Estate purchased 8th & Olive from Hines for $101 Million or $362 per square foot. The 19 story 279,000 square foot building was previously known as 720 Olive.
  • Goodman Real Estate sold 1415 Western to Stream Real Estate for $12.4 Million or $281 per square foot
  • Lake Union Partners purchased 1012 First Avenue for $130 per square foot or $4.3 Million (33,000 square feet).  This number is somewhat misleading as the historic building will require substantial renovation and seismic retrofitting.

The above closings only scratch the surface of the story because the following properties came to market in Q3:

  • 1111 3rd (322,826 square feet) & 1100 2nd Ave (134,545 square feet) came to market as a part of a 9 building portfolio sale by Walton Street Capital
  • CBRE investors put the Smith Tower at 506 Avenue on the market.  The iconic Seattle building was the first high-rise in the city when it was completed in 1914 with 256,481 square feet in 42 stories.
  • The 168,250 square foot headquarters for Pemco at 325 Eastlake came to market.  This site is interesting because the adjoining lots can be developed creating roughly 343,000 square feet of office on the site.
  • Finally, Skanska USA put the 120,000 square foot Brooks Sports HQ building at 3400 stone Way on the market.

Office Leases:  Office leasing activity was on fire again this quarter.  Below are lease transactions that were concluded in Q3 2014:

  • Amazon leased 251,000 square feet at 1915 Terry Avenue
  • Weyerhaeuser announced that they will relocate their HQ from Federal Way to a  200,000 square foot building at 200 Occidental Ave S in Seattle’s Pioneer Square
  • The Seattle City Attorney’s office leased 63,563 square feet on floors 18-20 of Columbia Center
  • Acucela leased 38,725 square feet on floors 41 & 42 at Russell Investments Center (1301 2nd Ave)
  • Groupon added another floor at 505 5th Ave
  • UW Medicine leased 30,000 square feet at 1455 NW Leary
  • McGraw-Hill Education leased 24,000 square feet at 83 S King
  • Crown Castle USA leased 25,874 square feet at West Lake Union Center
  • A Place For Mom leased 24,039 square feet at Coluimbia Center

Below is a table providing information for the major submarkets of Seattle:

3Q2014 Market Data

The total vacancy rate for Seattle is 10.2%.

Recommendations:

If your company:

  1. Doesn’t need to move
  2. Has an upcoming space/lease requirement in the next 2 years
  3. Can reasonably forecast headcount needs for years into the future
  4. Has a rental rate in line with or above market

– Start educating yourself on available alternatives and negotiating with your current building to get an understanding of your landlord’s position in the market.  Given the increasing pressure on rents and decreasing concessions, companies are incentivized to be educated on proposed developments that will be delivering in 18-24 months.  It is also helpful to be educated on the market so you can prepare to react quickly to increasingly volatile conditions.

Alternatively, if your company:

  1. Might need to move
  2. Needs size flexibility
  3. Wants to pursue a sublease or plug-n-play opportunity
  4. Prefers not to commit to a lease term beyond the next six months

– Wait until six months prior to your lease expiration and be prepared to act quickly.  The three to six month window prior to lease expiration is when you are most attractive to potential landlords and when they will offer you the best economics.   However, have a lease/sublease signed three months before your lease expires.  You don’t want to be in a holdover situation or without space and you need to give your company time to complete tenant improvements and plan a move.

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Seattle Office Space News – September 2014

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of September 2014.

PROPOSED DEVELOPMENTS

Seattle office space news in September was dominated by proposed developments.  Most intriguing is the news that Amazon is already planning to add to their 3.3 Million square foot campus addition that is currently under construction in South Lake Union.  Amazon’s development entity submitted site plans to the city for two new office buildings at 2201 8th Ave (24 stories – 551,600sf) and 2204 7th Ave (6 stories 226,000sf) for a total of 777,600 square feet.  The site is currently home to a Cornish College dorm, the Hurricane Café and Budget rental car.  This article indicates that Amazon currently occupies 3.7 Million square feet and by 2021 it will occupy 8.2 Million square feet.  With all of this construction in the pipeline for Amazon it is comforting that they are looking for innovative ways to be environmentally conscious, including using energy from nearby data centers to heat some of their buildings.  The heat will be captured by a 400,000 gallon reservoir and heat-reclaiming chiller plant.

Vulcan Real Estate was extremely active in September working on plans for more office development in South Lake Union.  First, Vulcan is proposing a new 12 story office building that calls for 322,127 square feet of office space at 500-534 Westlake Avenue north.  The site is currently home to Guitar Center and Uptown Espresso.  Next, Vulcan applied for a master use permit for a mixed use development at Westlake Avenue North and Denny way that will include a 41 story apartment building and an 18 story office building with 398,900 square feet.  Vulcan’s other proposed office projects in South Lake Union include two six story office buildings at 300 & 333 Eighth Avenue North that will have a total of 388,400 square feet and a seven story 156,000 square foot building on one of the blocks between Westlake & Terry.  Aside from office space, Vulcan is also planning to build a lot of apartments closer to Lake Union.

Vulcan and Amazon aren’t the only ones planning on swinging hammers in South Lake Union.  Schnitzer West is close to beginning construction on Urban Union, which will be a 12 story office building comprised of 285,000 square feet.

Also, Trammell Crow closed on the 1007 Stewart site in September and is planning a 21 story office tower with 332,000 square feet of office space.  Trammell paid $21.8 Million for the half acre site and the development rights equating to $1,050 per square foot! The building will replace the 102 year old-49 unit-Williamsburg Court Apartments.

Finally, Sugar Mountain, the company behind Beecher’s Cheese, is renovating and adding two floors of office space at 2121 Westlake Ave in South Lake Union.  Once complete, the building will have a total of ~27,200 square feet and will be the headquarters location for Sugar Mountain.

Outside of South Lake Union, Martin Selig has enough land under contract to build a 185,000 square foot office project at 220 W Harrison in Lower Queen Anne.  Selig released renderings prepared by architecture firm Perkins + Will for the proposed six story building.

OFFICE LEASES

Although the deal isn’t done yet, the lone exciting lease transaction reported in September was that of King 5 TV moving to Home Plate Center at 1501 First Avenue South.  King 5 is said to be close to leasing 70,000 square feet in the 158,000 square foot building near Safeco Field and owned by American Life.  King 5 would relocate from their owned headquarters in the South Lake Union submarket.

BUILDING SALES

Skanska USA put the 120,000 square foot office building at 3400 Stone Way on the market for sale in September.  Located in the Fremont submarket, the super-green building called Stone34 is the headquarters for Brooks Sports.

Hines and Morgan Stanley reached an agreement in September to partner on the purchase of the 934,000 square foot building at 800 5th Ave from James Campbell Co.  The complete ownership structure is unclear as Morgan Stanley is apparently lending Hines $176.1 Million and subsequently Hines has purchased the land for $165 Million.  Hines previously leased the block.

TUNNEL/VIADUCT

Even though Bertha (the machine boring the tunnel that will replace the Alaskan Way Viaduct) is stalled, there are still more than 230 workers on the job.  Seattle Tunnel Partners, the team tasked with the entire project, is trying to maintain productivity in a few ways to make up for the fact that Bertha is stuck after travelling only 1,028 feet of the 9,720 route.  Bertha is currently scheduled to resume digging in March of 2015 and the expected opening date of the tunnel is November 2016.

ECONOMY

Seattle’s housing market always provides an interesting economic indicator.  In September it was reported that while the rate of price increases cooled when compared to the same time in 2013 there is still a lack of inventory in the region.  With the number of homes for sale dropping, some suspect that prices will drop as buyers are more willing to be patient after a period of frenzied activity in the last few quarters.  Still, demand remains strong and part of it comes from Chinese buyers who supposedly represent 40% of the purchases of homes over $1 Million on the Eastside

TRANSIT

With the local economy booming, lots of cranes in the ground and transit projects under way, one negative effect is that traffic is seemingly getting worse.  This article provides some interesting case studies for traffic in different areas of Seattle at different times of the day.

OTHER NEWS

To wrap up this September post, check out this slide deck showing pictures of a unique office space in the historic Exchange Building.

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