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!

Posted in News | Leave a comment

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.

 

Posted in Market Reports | Leave a comment

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.

 

Posted in News | Leave a comment

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.

Posted in News | Leave a comment

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.

Posted in News | Leave a comment

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.

Posted in Market Reports | Leave a comment

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.

Posted in News | Leave a comment