It is the time in the cycle again for Seattle when office developers are almost ready to build ‘on spec’ (without pre-lease). The overall Seattle office vacancy rate is 11% and dropping, and very little new office building construction is under way. Below are some buildings that are delivering or breaking ground soon on a speculative basis:
Building/Location SF Office Developer Delivery
400 Fairview 316,000 Skanska Q4 2014
HomePlate Center North 151,842 American Life Q3 2012
Hill 7 300,000 Touchstone Q4 2015
200 Occidental 175,000 Urban Visions Q1 2015
5th & Columbia 528,000 Daniels Real Estate TBD
These buildings total 942,842 square feet of new office space delivery over the next couple of years. Seattle’s office market totals 73,371,567 square feet (according to commercial real estate resource CoStar) which means the new development will soften the market by only 1.3%. Why aren’t more cranes in the ground for office?
The main challenge for office developers in this cycle has been financing. Money partners willing to take risk on office product are scarce. Most developers will need a triple-A credit tenant to pre-lease at least 1/3 of their building at a rental rate of $32.00-$40.00/SF/ NNN for the ‘bank’ to fund swinging hammers. Then, after that pre-lease, it will take 18-36 months before space is ready for occupancy.
Regardless, many office developers in Seattle have already assembled their land and they are finished with the preliminary design stage. The next step is to begin the entitlements and permitting processes. Below is a list of proposed Seattle office projects and developers who are waiting for a significant prelease:
Building/Location SF Office Possible Developer
Stadium East 1,460,000 Urban Visions
601 Fourth Avenue 593,452 Triad Development
Madison Centre 750,000 Schnitzer West
Troy Block 800,000 Touchstone
Vulcan S. Lake Union Several Million Vulcan
Yale Campus & 624 Yale 746,000 The Blume Company
Westlake Steps 1,500,000 Equity Office Properties
NorthEdge 228,000 Touchstone
HomePlate Center S. 189,602 American Life
What does this mean for office tenants in Seattle?
With no significant, available, new office space construction in the foreseeable future, the market will likely continue to tighten. I know too well that office tenants don’t like higher rent. However, the optimist in me believes that as the economy continues to improve, businesses will grow and space will be naturally absorbed. If this happens, the vacancy rates will decrease and rents will increase.