Q2 2015 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: Seattle’s office market continued to strengthen in Q2 of 2015 with vacancy decreasing to 9.6% down from 10.2% one year prior. Year to date there has been  339,629 square feet of positive absorption.  Demand for Seattle commercial real estate investment product has seen no sign of a slowdown and increasing demand for space should continue to put upward pressure on rental rates across all submarkets and building classes.

Economy:  The northwest has continued to add jobs in the second quarter of 2015.  Some of the more visible job growth is coming from technology companies headquartered outside of Washington who continue to set up operations in the Northwest. Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.4% in May 2015 according to The Washington State Employment Security Department, which represents a .1% decrease from Q1. The Bureau of Labor Statistics is reporting a 4.4% unemployment rate for the Seattle/Tacoma/Bellevue area.

Office Construction: The office construction boom continues in Seattle with the following developments under construction:

  • Amazon II, and Amazon Phases VI, VII & VIII totaling:~ 2,094,000 square feet (100% leased)
  • Troy Block :~817,000 square feet (100% leased)
  • Madison Centre:~750,00 square feet
  • Fifth & Columbia tower:~528,000 square feet
  • Former Pemco HQ:~370,00 square feet
  • 200 Occidental:~370,00 square feet (100% leased)
  • 400 Fairview:~367,898 square feet
  • Midtown 21:~365,00 square feet
  • Dexter Station:~ 345,992 square feet (100% leased)
  • Tilt 49:~300,000*
  • Urban Union:~291,00 square feet
  • Hill 7:~285,000 square feet
  • Allen Institute for Brain Science:~272,408 (100% leased)
  • North edge:~202,620 square feet (100% leased)
  • 1101 Westlake:~ 150,000 square feet
  • The Commons at Ballard:~22,000 square feet*

* = broke ground in Q2 2015

Proposed Development

Given the health of Seattle’s market, office developers are eager to break ground.  The following proposed developments made news in the first quarter of 2015:

  • Project: Stadium East, Size: 1,200,000 square feet, Location: Intersection of I-90 and Airport Way South, Developer: Urban Visions
  • Project: Rainier Square, Size: 750,000 square feet of office, Location: Corner of 4th & union, Developer: Wright Runstad
  • Project: 2&U, Size: 700,000 square feet, Location: Corner of 2nd & union, Developer: Skanska
  • Project: Former King 5 Site, Size: 582,000 square feet, Location: 333 Dexter Ave N, Developer: Kilroy Realty Corp
  • Project: Building Cure, Size:000 square feet, Location:1920 Terry Ave, Developer: Seattle Children’s Research Institute
  • Project: 2301 Seventh Ave, Size: 181,000 square feet, Location: 2301 Seventh Ave, Developer: Clise
  • Project: Third and Virginia, Size: 150,000 square feet, Location: Corner of Third Ave and Virginia, Developer: Martin Selig

Office Sales:  Q2 2015 continued to provide proof of the robust demand for office investment in Seattle.  The following transactions were completed in Q2 2015:

  • Project/Location: Columbia Center at 701 5th Ave, Price $725 Million, Size: 1,500,000 SF Price/SF $483, Buyer: Gaw capital, Seller: Beacon Capital
  • Project/Location: Former Amgen Campus located at 1201 Amgen Ct W, Price $229 Million, Size: 750,000 SF Price/SF $305, Buyer: Expedia, Seller: Amgen
  • Project/Location: Maritime Building located at 911 Western, Price $38 Million, Size: 196,000 SF Price/SF $194, Buyer: Beacon Capital, Seller: Maritime Corporation
  • Project/Location: 111 South Jackson Street, Price $34 Million, Size: 70,000 SF Price/SF $485, Buyer: Deutsche Asset & Wealth Management, Seller: Brickman Real Estate.
  • Project/Location: Former Federal Reserve building at 1015 Second Ave, Price $16 Million, Size: 99,148 SF Price/SF $161, Buyer: Martin Selig, Seller: GSA

Office Leases:  Office leasing activity was on fire again this quarter.  Below are lease transactions that were concluded in Q2 2015:

  • Tenant: Holland America, Size: 185,000, Project/Location: 450 Third Ave West, Landlord: Martin Selig
  • Tenant: Big Fish Games, Size: 137,500, Project/Location:333 Elliott, Landlord: Martin Selig
  • Tenant: Community Health Plan, Size: 91,800, Project/Location: 1111 Third Ave Landlord: Callaghan Partners
  • Tenant: Wireless Advocates, Size: ~56,000, Project/Location: 400 Fairview, Landlord: Skanska
  • Tenant: University of Washington, Size: 53,400, Project/Location:4501 Roosevelt Way NE, Landlord: Blume Company
  • Tenant: Oculus, Size: 51,000, Project/Location: Stadium Innovation Center located at 1531 Utah Ave S, Landlord: American Life
  • Tenant: Sonos, Size: 50,000 Project/Location: Bullitt Center at 1501 E Madison, Landlord: The Bullitt Foundation
  • Tenant: Twitter, Size: 44,000, Project/Location: Century Square at 1501 4th Ave, Landlord: Pike Street Investors
  • Tenant: IMS Health, Size: 32,250, Project/Location: P-I Globe Building at 101 Elliott, Landlord: Legacy Partners
  • Tenant: Ankrom Mosian, Size: 24,000, Project/Location: 1505 Firth Ave, Landlord: Unico
  • Tenant: Sound Community Bank, Size: 17,200, Project/Location: Third and Battery at 2005 Fifth Ave, Landlord: Martin Selig
  • Tenant: Spaceflight Industries, Size: 17,000, Project/Location: West Lake Union Center at 1505 Westlake Ave, Landlord: Deutsche Bank
  • Tenant: Zonar, Size: 16,081, Project/Location: Exchange Building at 821 2nd Ave, Landlord: Beacon Capital
  • Tenant: Dropbox, Size: 13,000, Project/Location: Columbia Center located at 701 5th Ave, Landlord: Gaw Capital
  • Tenant: Sears, Size: 8,500 Project/Location: Columbia Center at 701 Fifth Ave, Landlord: Gaw Capital
  • Tenant: Kineta, Size: 6,000 Project/Location: 401 Terry Ave N, Landlord: Kilroy
  • Tenant: Azuqua, Size: 6,000 Project/Location: 619 Western, Landlord: L&B Property Investments

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

2Q2015 Market Data

The total vacancy rate for Seattle is 9.6%.

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 – June 2015

News

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

OFFICE DEVELOPMENTS

One of the bigger proposed office developments in the CBD received further approval from city review in June.  The mixed use Rainier Square development at 5th & Union will have 1.2 Million square feet that includes retail, residential and 756,000 square feet of office.   The project, being developed by Wright Runstad, is expected to break ground late next year and once completed will be Seattle’s second tallest tower.

Also, Touchstone has finalized a financing deal with Principal Real Estate Investors and the Bank of the Ozarks for Tilt 49.  Construction of the 37 story apartment tower and 11 story office building in the Denny Triangle started in June.

BUILDING SALES

Seattle’s tallest building traded hands in June with Beacon Capital selling the skyscraper to Hong Kong based Gaw Capital. Gaw paid nearly $725 million or $483/sf for the 1.5 million square foot property at 701 5th Ave. It was reported that with the sale Beacon was barely able to repay the loan it had originally defaulted on in the economic crash of 2008.

In further proof of the frothy office investment market, an early 20th century building in Pioneer Square sold for nearly 51 percent more than it was purchased for in 2007. Following a lease with co-working space provider Galvanize, the 70,000 square foot building located at 111 S Jackson Street was purchased by Deutsche Asset & Wealth Management for $34 million or $485/sf from Brickman Real Estate.

OFFICE LEASES

June brought more news of tech companies from Silicon Valley opening and expanding engineering offices in Seattle.  First, it was announced that Twitter is expanding its presence by taking another floor at 1501 4th Avenue in Seattle’s CBD. The company now occupies over 44,000 square feet and employs as many as one hundred in Seattle.

Additionally, Dropbox inked a lease for an engineering center for as many as 50 employees at 701 5th Avenue in the CBD.

Also in June, Facebook owned Oculus VR leased 51,000 square feet across the street from Safeco Field at 1501 1st Ave S in Seattle’s SODO neighborhood.

In further proof that tech companies need to be located in areas with quality amenities in order to attract and retain employees, it was reported that Tukwila based Zonar Systems leased space at the Exchange Building at 821 2nd Ave with room for 100 employees.

Another Tukwila based company, Spaceflight Industries, will be moving to South Lake Union. Spaceflight is taking 17,000 square feet at the West Lake Union Center.

Finally, the largest lease reported in June was that of Community Health Plan finalizing a deal for 91,800 square feet at 1111 Third Ave in the CBD. The once mostly vacant building is now 80 percent occupied.

TUNNEL/VIADUCT

Repairs have finally begun on the tunnel boring machine Bertha. Crews have started replacing the seal system that broke down. The 3.1 billion project is now more than two years behind schedule.

ECONOMY

Seattle area home prices and apartment rents continue to climb. Much of this growth is related to the tech boom in Seattle. For every 1 percent increase in technology worker salary, Seattle’s home prices rise about a half a percent.  As a result, home prices have increased by more than 9% so far in 2015.

With a steep increase in home prices, more people are renting, causing apartment vacancy rates in King and Snohomish Counties to drop to 4.5 %. Although home prices continue to climb, new data shows that Millennials, who comprise of the bulk majority of tech workers, are not willing to purchase homes at these inflated prices. The rate of people ages 25-34 who own homes in the Puget Sound region are at the lowest levels seen since the Gold Rush era.

OTHER NEWS

On June 24th the groundbreaking event was held for the $72 million addition to Pikes Place market.  The new space will have 30,000 square feet of open space, 12,000 square feet of retail and 40 low income apartments.

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Seattle Office Space News – May 2015

News

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

OFFICE DEVELOPMENTS

Once again, developers were eager to announce new office buildings in May. Plans were finally revealed for the former King 5 site.  Kilroy Realty Corp plans to build two 12 story office buildings at 333 Dexter Ave N which combined will total 582,000 square feet of office space.

The PSBJ also took a look at the new designs of the $600 million Rainier Square redevelopment. The Wright Runstad project has a unique curving design and will consist of 780,000 square feet of office, 180 high end housing units, 155 hotel rooms, and 71,000 square feet of retail space. It is not clear when construction will start but the latest plans call for mid next year.

In the first development for Seattle real estate company Henbart, the Commons at Ballard will bring much needed office space to the area. The project will consist of 20,000 square feet of retail, 22,000 square feet of office and 84 apartments. The mixed use building is located at 56th street and 22nd Ave and is expected to deliver in summer of 2016.

More news here about the former Bucca di Beppo restaurant site at 701 Ninth Ave N. Talon and Lake Union Partners are pursuing green building standards that would allow them to build 200,000 square feet, 23,000 of which would be retail. If they are not able to meet the strict green building requirements the project would lose one story.

Finally, Skanska invited the public to voice their opinion on what amenities may be present at the appropriately named 2&U project on the corner of 2nd and Union. Plans call for 700,000 square feet of office, some retail and a “village” at the base. Skanska is considering some of the ideas presented by the public for the village area such as a concert area, cantina, and waterfront outlook.

BUILDING SALES

In the biggest building sale of the year, Expedia finally closed on the $229 M purchase of the former Amgen campus. Expedia plans to expand this office to house 4,500 employees.  You can see Expedia’s official announcement here.

Also, Beacon Capital bought the Maritime Building at 911 Western Ave.  The 196,000 square foot building will likely be significantly renovated.

OFFICE LEASES

May was a tremendous month for news of office leasing activity.  First, Holland America will move its nearly 1,000 employees in to 185,000 square feet at Martin Selig’s new building near Seattle Center. The move will leave only 9,000 square feet vacant at the nearly completed building located at 450 Third Ave W.

Seattle based PitchBook data will be doubling its headquarters footprint after leasing 35,000 square feet of office space at 901 5th Avenue.

Two companies signed leases at 400 Fairview in May.  Both Car Toys and Wireless Advocates are each leasing a floor in the new South Lake Union development by Skanska.

In a rather large expansion, fast growing architecture firm Ankrom Mosian leased 24,000 square feet of space at 1505 Fifth Ave.

Sound Community Bank leased 17,200 square feet of space at Martin Selig’s new development at 3rd & Battery.

The south lake union neighborhood continues to boom as Biotech Company Kineta expanded into another 6,000 square feet at 401 Terry Ave N. The company now occupies more than 16,000 square feet in the area.

California based Sonos is setting up shop for an engineering office in the Seattle. Sonos will be located at the Bullitt Center, a 50,000 square foot building on Capitol Hill known as the “greenest Building” on the planet.

Sears, another out of state company, will be opening an engineering office in the Columbia Center. The 8,500 square foot space will be able to house nearly 60 employees.

Fast growing cloud services provider Azuqua has inked a lease for 6,000 square feet of office space at 619 Western in Pioneer Square. Azuqua will join several other tech companies in the building such as Qualtrics, Artefact and Chef.

One of the very few new developments on Capitol Hill, Chophouse Row, will be home to two tech companies Mazlo and Glympse. The project at 1424 11th Ave is one of the more unique developments in recent memory.

TUNNEL/VIADUCT

In more bad news regarding the tunnel project, this month inspectors found more damage to the tunnel boring machine Bertha than originally anticipated. The project will be more delayed than originally anticipated. WSDOT has not provided any time estimates for the project that was originally scheduled to be completed at the end of this year.

ECONOMY

In further proof to the “great tech migration” from Silicon Valley to Seattle, a new report by Juniper Research indicates that half of the world’s most influential tech execs’ have an office in Seattle.

With all of these tech offices in Seattle it seems that more and more people are considering a move to the region. The number of residents in the bay area searching for homes in Seattle has quadrupled in the past four years.

As a result, rental and home prices continued to soar in the region. Reports indicated that home prices in Seattle increased faster than almost any other city, growing by 7.5% in the last year. This increase in home prices in Seattle has also led to increase in Snohomish and Pierce counties. The median price was up more than 13% year to date in Snohomish County and 8.6% in Kitsap.

Further, new studies show that while Seattle rent is expensive, the number of residents spending half of their income on rent has decreased to 20%. A similar survey showed that residents in the most expensive cities had no gripe in shelling out the extra cash for the strong economy, amenities and other perks that come with living in a vibrant community.

OTHER NEWS

The first images of what will be the new Washington State Convention Center were released in May. Pine street group is helping oversee the $1.4 billion expansion.

Also, here is a look at the office spaces for Picmonkey and MG2.

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Seattle Office Space News – April 2015

News

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

PROPOSED DEVELOPMENTS

April brought on a handful of new proposed developments as developers are eager to cash in on the hot office space market.  Urban Vision announced this month that construction could begin as early as 2016 on Stadium East, a 1.2 million square foot mixed use campus in So-Do. The campus is designed by NBBJ and there has currently been no pre-leases signed.

Seattle based developer Martin Selig, continued his buying spree in April purchasing a parking garage and building across from Bed Bath and Beyond on Third avenue. Selig thinks the project will have 150,000 square feet of office space with an undetermined amount of apartments above the office space.

It was revealed in April that Seattle Children’s is planning a thirteen story downtown research facility at 1920 Terry Ave. The project named Building Cure will contain 440,000 square feet of research space; it is unclear of the timeline for the start of construction.

Clise is looking at three possible design options for its large mixed use complex at 2301 Seventh Ave. The proposed development calls for 181,000 square feet of office, 21,000 square feet of retail and 750 housing units. The possible design options are the Cubist, The Angle, and The Grid; you can see more details on these options here.

BUILDING SALES

In a HUGE deal, Expedia purchased the 750,000 SF former Amgen Campus along Seattle’s waterfront for $228.9 Million or $304/SF.  The online travel company will renovate the buildings and relocate their headquarters from downtown Bellevue to the 40 acre campus in 2018.  This news came with anguish from many employees who believe commute times will increase exponentiallyHere is more info on the site.

It was confirmed in April that Martin Selig was the winning bidder of the former Federal Reserve Building located at 1015 Second Ave. Selig paid $16 Million for the 99,148sf building or $161/SF.  Selig has plans to upgrade the interior of the building and rent the premises as office space. Selig’s plans aren’t formalized, but the redevelopment will likely include adding floors and expanding the existing footprint to the building that is protected under the National Register of Historic Places.

Antioch University has put its current 65,000 square foot headquarters at 2326 Sixth Ave on the market. The building, which is directly next to Amazon’s huge four building campus was purchased twenty years ago for $3.8 million.  The property is currently appraised at $19.4 million.

OFFICE LEASES

The University of Washington inked a new lease for 53,400 square feet of office space that Seattle Based Blume Company is developing in the University District.

Big Fish games has continued to expand in its current building taking over an additional 28,000 square feet and will soon occupy the entire 137,500 square foot building at 333 Elliott.

Just down the street, global technology company IMS Health is moving into the P-I Globe building located at 101 Elliott. IMS has signed a ten year 32,250 square foot lease and the 101,725 square foot building is now full.

TUNNEL/VIADUCT

The giant tunnel boring machine Bertha spent all of April out of the ground and under repair.  The project, which was originally scheduled to be completed in December, is now more than two years delayed.  In 2009, the Legislature passed a bill that the state would not pay more than $2.4 billion for the project, if there are substantial cost overruns it is unclear who will foot the bill.

In connection with the Viaduct project crews have been inspecting the Viaduct and have found two new cracks since the last inspection in October. There have been several visible cracks and sinking reported as the tunnel project proceeds.  WSDOT continues to assure the public that the viaduct is safe.

ECONOMY

April was another month of indicators for explosive growth and rising expenses in the Seattle area. In technology news, local execs posted this article about Seattle’s booming startup scene referencing that 32% of people cited the regions quality of life and natural beauty as a driving force behind growth.

Here is an depth look at all of the engineering centers that companies based in other areas have set up in Seattle. It is interesting to note that only 42% of the 1,403 venture capital deals in the last five years have come from in state investors.

In residential real estate news, the Seattle area has the lowest supply of homes ever recorded, 2.2 months, which ties San Francisco as the most competitive market.  With the decrease in supply of homes for sale, rent are on the rise. Seattle is #10 on the most expensive cities to rent list. Forbes also ranked the most expensive cities on total cost of living and Seattle came in at #16.

In another indication of a booming economy, construction costs are also on the rise.

Finally, Seattle’s cruise industry is expecting a record year with more than 192 ships bringing 900,000 passengers through Seattle’s waterways this year.

OTHER NEWS

Here is a profile of office space occupied by cloud company Blue Box and this article has pictures of different tech company spaces for Bungie, Edifecs, Limeade, Moz and Synapse.

Finally, future real estate mogul William Gregory Hayden was born on April 13, 2015 at 10 lbs 8 oz and is happy and healthy!

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Q1 2015 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: Seattle’s office market continued rapid growth with vacancy decreasing to 9.0% in Q1 2015 down from 10.2% one year prior. This decrease was in part due to 278,452 square feet of positive absorption in Q1.  Due to strong demand for Seattle commercial real estate investment product and increasing demand for space, we expect rental rates across all submarkets and building classes to continue to increase.  We expect market fundamentals to be in the favor of landlords for all of 2015.

Economy:  The northwest has continued to add jobs in 2015.  Some of the more visible job growth is coming from companies outside of Washington who are setting up shop in Seattle to   tap into our rich talent pool. Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.5% in February 2015 according to The Washington State Employment Security Department.  The Bureau of Labor Statistics is reporting the same unemployment rate for the Seattle/Tacoma/Bellevue area.

Office Construction: The office construction boom continues in Seattle with the following developments under construction:

  • Amazon II, and Amazon Phases VI, VII & VIII totaling:~ 2,094,000 square feet
  • Troy Block :~817,000 square feet
  • Madison Centre:~750,00 square feet
  • Fifth & Columbia tower:~528,000 square feet
  • 200 Occidental:~370,00 square feet *
  • 400 Fairview:~367,898 square feet
  • Midtown 21:~365,00 square feet *
  • Dexter Station:~ 345,992 square feet
  • Urban Union:~291,00 square feet
  • Hill 7:~285,000 square feet
  • Allen Institute for Brain Science:~272,408
  • North edge:~202,620 square feet
  • 1101 Westlake:~ 150,000 square feet

* = broke ground in Q1 2015

Proposed Development

Given the health of Seattle’s market, office developers are eager to break ground.  The following proposed developments made news in the first quarter of 2015:

  • Project: Yesler Terrace, Size: 5,000 residences and 900,000 square feet of tech or medical office space, Location: Southern portion of First Hill, Developer: Vulcan.
  • Project: Second and University, Size: Between 12,000-30,000 square feet of retail and 510,000-690,000 square feet of office space, Location: Between First and Second avenues and Seneca and University, Developer: Skanska.
  • Project: Third and Harrison, Size: 183,779 square feet of office space, Location:229 West Harrison Street, Developer: Martin Selig.
  • Project: Former CarQuest Site, Size: 105,432 square feet, Location: 744 N. 34th Street, Developer: First Western Development and Stephen Grey & Associates.
  • Project: Former King 5 Site, Size: Unknown, up to twelve stories, Location: 333 Dexter Ave N, Developer: Kilroy Realty Corp.
  • Project: Former Buca Di Beppo Site, Size: Unknown, Location: 721 Ninth Ave N, Developer: Walton Street Capital, Talon, and Lake Union Partners.

Office Sales:  Q1 2015 continued to provide proof of the robust demand for office investment in Seattle.  The following transactions were completed in Q1 2015:

  • Project/Location: Metropolitan Park East & West located at 1100 Olive Way, Price $272.8 Million, Size: 729,750 SF Price/SF $374, Buyer: CBRE Global, Seller: Brookfield
  • Project/Location: Seattle Trade and Technology Center located at 2601 Elliott, Price $170 Million, Size: 335,500 SF Price/SF $507, Buyer: JP Morgan Chase, Seller: Wright Runstad & Shorenstein Properties.
  • Project/Location: Smith Tower located at 506 2nd Ave, Price $73.7 Million, Size: 264,350 SF Price/SF $279, Buyer: Unico, Seller:
  • Project/Location: Blanchard Plaza located at 2601 6th Ave, Price $122.6 Million, Size: 255,818 SF Price/SF $479.48, Buyer: AFL-CIO Building Investment Trust, Seller: Shorenstein Realty Services.
  • Project/Location: 401 Terry, Price $106.125 Million, Size: 140,605 SF Price/SF $754.77, Buyer: Kilroy Realty Corp, Seller: Vulcan Inc.
  • Project/Location: 1213 Valley Street and surrounding land, Price $20.5 Million, Size: 35,500 SF Price/SF $580, Buyer: Seattle Cancer Care Alliance, Seller: I-5 Limited Liability Co.
  • Project/Location: Former Federal Reserve Building located at 1015 Second Ave, Price: $16 Million, Size: 99,148 SF Price/SF $161, Buyer: Martin Selig Real Estate, Seller: GSA Real Property.
  • Project/Location: Rosen Building located at 960 Republican, Price $170 Million, Size: 60,375 SF Price/SF $507, Buyer: JP Morgan Chase, Seller:

There were two office sales in the first quarter that already have new proposed developments and were mentioned earlier under the proposed development sections: the former Pemco and KING 5 sites.

Finally, Vulcan has begun to list some of assets in south lake union for sale: The first is PATH’s headquarters building at 2201 Westlake. The 317,200 square foot building is completely full and is home to other tenants such as Amazon and West Elm home furnishings.

Office Leases:  Office leasing activity was on fire again this quarter.  Below are lease transactions that were concluded in Q1 2015:

  • Tenant: Amazon, Size: 817,000, Project/Location: Troy Block located at 307 Fairview Ave N, Landlord: Touchstone Corp.
  • Tenant: Facebook, Size: 280,000, Project/Location: Dexter Station located at 1101 Dexter Ave. N, Landlord: Capstone Partners.
  • Tenant: Homestreet Bank, Size: 142,000, Project/Location: Two Union Square located at 601 Union Street, Landlord: Washington Holdings.
  • Tenant: Galvanize, Size: 71,000, Project/Location: 111 S Jackson, Landlord: Brickman Real Estate.
  • Tenant: Nokia, Size: 41,750, Project/Location: One Convention located at 701 Pike Street, Landlord: Deutsche Asset Management.
  • Tenant: Indeed, Size: 16,194, Project/Location: National Building located at 1020 Western Ave, Landlord: Washington State Department of Transportation.
  • Tenant: X5, Size: 8,487, Project/Location: National Building located at 1020 Western Ave, Landlord: Washington State Department of Transportation.
  • Tenant: Best Buy, Size: 32,000, Project/Location: Seattle Times Building located at 1000 Denny Way, Landlord: Century Pacific.
  • Tenant: HBO, Size: Unknown, Project/Location: Hill 7 located at 1730 Minor Ave, Landlord: Touchstone Corp.
  • Tenant: Porch, Size: 50,000, Project/Location: Former Zulily Headquarters located at 2200 First Ave South, Landlord: Urban Renaissance Group.
  • Tenant: King 5, Size: Unknown, up to three floors, Project/Location: Home plate center located at 1501 1st Ave S, Landlord: American life.

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

1Q2015 Market Data

The total vacancy rate for Seattle is 9%.

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 – March 2015

News

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

PROPOSED DEVELOPMENTS

The market for new office construction continues to blossom in Seattle.  Schnitzer West announced that they are exploring the capital markets for their 750,000 square foot office development Madison Centre. The project located at Fifth and Madison in the central business district does not currently have any pre-leases signed, but the developer has started construction on the parking garage.

Work has finally begun on Weyerhaeuser’s new office building in Pioneer Square. The 214,000 square foot project located at 200 Occidental is set to open in the third quarter of 2016.

BUILDING SALES

The biggest office sale of the month goes to CBRE Global who bought the Metropolitan Park East & West buildings for $272.8 million.  Brookfield sold the 729,750 square foot buildings that are 95% leased for $374 per square foot, which is 30% more than they paid for it 3 years ago.

The joint venture between Wright Runstad & Shorenstein Properties sold the Seattle Trade & Technology Center at 2601 Elliott Ave for $170 Million or $507 per square foot.  The 335,500 square foot building is home to the headquarters of online retailer Zulily.

Providing further validation of Seattle’s frothy commercial real estate market, it has been confirmed that Columbia Center is officially on the market. Beacon Capital has been upgrading Seattle’s tallest building (76 stories) and filling it with tenants since its purchase in 2007 for $621 million.

Vulcan Real Estate has been taking advantage of high office prices by selling off some of its holdings in South Lake Union.  In March, Paul Allen’s development company announced plans to sell the Rosen Building at 960 Republican, which totals 60,375 square feet and is home to the UW Medical Center. Additionally, Vulcan listed PATH’s headquarters building at 2201 Westlake for sale. The 317,200 square foot building is completely full and is home to other tenants such as Amazon and West Elm home furnishings.

OFFICE LEASES

March was a big month in office leasing news in Seattle.  Once again Amazon crushed all other headlines with the announcement of their 817,000 square feet lease of Touchstone’s Troy Block development. The two buildings are just east of Amazon’s headquarters campus and are scheduled to open in 2016 and 2017.  The presence of Amazon and other tech companies have had a tremendous effect on Seattle’s office market and the transformation of the South Lake Union neighborhood.

Hill7, another Touchstone development at the intersection of Boren and Stewart Street, announced that HBO has inked a deal to lease four of the eleven floors there. The 285,000 square foot office building is currently under construction and is set to open in May of this year.

Fast growing startup Porch signed a new lease for 50,000 square feet at Zulily’s former headquarters building at 2200 First Ave South. The company said it has rights to expand into the entire 106,000 square foot envelope which can accommodate up to six hundred employees.

KING 5 finally closed their deal to move to the first three floors of Home Plate Center. The office complex developed with EB5 money by American Life is kitty corner to the main entrance for Safeco field.

Finally, Uber is the latest to join the list of San-Francisco based companies who are expanding in Seattle. The ride sharing company announced on the UW computer science website that they will open a new engineering office and hire fifty employees.

TUNNEL/VIADUCT

March was one of busiest months in recent memory for news about the tunnel project to replace the Alaskan Way viaduct along Seattle’s waterfront. Finally, the rescue of Bertha!  The tunnel boring machine is at last in position to be lifted and repaired.  Crews will continue to replace broken parts and reinforce the machine with over 1,000 tons of steel. In related news the general contractor on the project, Seattle Tunnel Partners, asked the State for an additional $12 million for expenses related to delays for the slogging project.  Although Bertha has been delayed for over a year, officials close to the project hope that the machine will begin to tunnel again by August.

ECONOMY

The Seattle area residential real estate market is on fire.  Supply of inventory for sale is nearly at a 10 year low and median sales prices continue to increase.  Bolstered by strong job growth, 2015 could be the biggest year for residential sales in Seattle’s residential market since 2008, which is bad news for buyers.

Another interesting indicator of growth in the area is the number of new drivers licenses issued in the state.  In 2014 64,376 new licenses were issued in Washington, up by more than 8,000 from 2013.

OTHER NEWS

The renovation of 2200 Western brings a historic change to the 66,000 square foot building in the Belltown neighborhood of Seattle. Occupants will include contractor Lease Crutcher Lewis, Weinstein Architects, and fast growing tech company TUNE.

Finally, here is a look inside the offices of Howard S. Wright Construction and healthcare hub Cambia Grove.

 

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Seattle Office Space News – February 2015

News

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

PROPOSED DEVELOPMENTS

As expected, February 2015 brought plenty of news about new office development plans in Seattle. It was reported that Skanska USA will present two options to redevelop the property between First and Second avenues and Seneca and University streets to the City. The more aggressive proposal calls for 690,000 square feet of office and 30,000 square feet of retail. The smaller of the two, is designed with 510,000 square feet of office and 12,000 square feet of retail.

In some promising news for Yesler Terrace, the massive proposed mixed use development on the southern slope of First Hill, Vulcan announced this month that they will break ground on their first phase of multifamily development in about a year. Overall, Vulcan plans to invest $200 Million in Yesler Terrace as a part of an effort to create up to 5,000 residences and 900,000 square feet of tech or medical office space in the neighborhood.

Stephen C. Gray Associates and First Western Development are planning a 124,320 square foot building in at 744 N. 34th St in Fremont. Grey said that they have not signed a tenant but that two or three companies in Fremont are “bursting at the seam” and the group hopes to land one of them. If construction starts in 2016 the building should open by spring 2017.

Seattle permit records indicate that Kilroy Realty Corp is planning on building two twelve story office towers at 333 Dexter Ave N where King 5’s current headquarters resides. Kilroy paid nearly $42.6 million for the property earlier this month.

Finally, an entity related to Walton Street Capital of Chicago paid $10.5 million for two parcels of land at 721 Ninth Ave N in South Lake Union. The former site of Buca di Beppo italian restaurant will be developed into an office building by Walton in conjunction with Talon and Lake Union Partners.

BUILDING SALES

It is no secret that the investment appetite for Seattle office product has been insatiable over the past couple of years.  This article notes that in 2014 the region recorded over $2 billion in sales, and industry experts believe that 2015 will surpass $2.5 billion.

The largest building sale in February occurred when Holland Partner Group and Pemco Insurance traded several parcels of land In South Lake Union. Most notably, Pemco paid $31.55 million or $394 per square foot for the 80,000 square foot building at 1300 Dexter Ave and will relocate their headquarters there following renovation of the building.

The Seattle Cancer Care Alliance purchased an empty office building and surrounding land at 1213 Valley Street for $20.5 million or $580 per square foot. The building measures 35,350 square feet and SCCA plans to use the building for its administrative staff, freeing the current clinic at 825 Eastlake to treat more patients.

The old Federal Reserve building at 1015 Second Ave sold for a winning bid of $16 million. The new owner of the 90,000 square foot building was not immediately revealed, but should be available at the transfer of title in sixty days.

OFFICE LEASES

The largest lease so far this year was inked by tech giant Facebook in February, significantly increasing their footprint in Seattle making room for up to 2,000 employees.   Facebook has leased 280,000 square feet in all but two of ten floors at Dexter Station in South Lake Union.

A Denver based provider of co-working spaces known as Galvanize has agreed to lease 70,000 square feet at 111 S Jackson Street in Pioneer Square.

Finally, Best Buy has become the latest company to open and engineering outpost in Seattle.  The company has leased 32,000 square feet at the top of the Seattle Times building at 1000 Denny way.  The company will initially hire 50 engineers with room to double.

TUNNEL/VIADUCT

February brought promising news for the tunnel project as Seattle Tunnel Partners began making notable progress reviving Bertha, the broken machine tasked with boring the tunnel that will replace the Alaskan Way Viaduct. Bertha made the 20 foot trip to the rescue pit where repairs to bearings and steel reinforcement will take place to prevent Bertha from overheating again. Seattle Tunnel Partners has not set a timeline for when the repairs will be complete, but it is expected that it will take more than two months until Bertha can begin work to dig the remaining 8,000 feet of the 9,000 foot journey.

ECONOMY

According to the most recent report from OfficeSpace.com, the average asking rental rate for office space in Seattle is $27.63 per square foot, up from $27.29 per square foot in the fourth quarter of last year.

Given the massive amount of development in the Seattle area, Key Bank market president Carol Nelson encourages caution.  Her feeling is that despite the region’s economy moving at a slightly faster pace that the rest of the country, the current rate of growth in the multifamily development sector could potentially exceed the speed of demand.

The hot construction market in Seattle has led to an increase in the average construction costs.  Mortenson’s quarterly cost index predicts construction costs in Seattle will rise five to six percent in 2015 compared to an average increase of 3.5% over the past two decades.

2015 is on track to be the biggest year for residential real estate since 2008 according to Redfin.com. There have been more customers requesting home tours this year than there has been since 2013, indicating a huge year to come. At the same time, the median home price in Seattle has jumped 9.1 percent year to date up to $360,000.  As demand rises it is interesting to note that inventory of homes for sale is decreasing.

The downtown Seattle Association revealed that more than 65,000 people live in downtown Seattle, and that number is just expected to increase. Residential growth downtown is growing twice as fast as the region as a whole.

Finally, the University of Washington was named one of the top ten best public colleges in the U.S. by the American City Business Journals.

OTHER NEWS

Here is took a look at the offices of Schuchart and Pitchbook in Seattle.

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