Q2 2013 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: For the fourth consecutive quarter Seattle’s office market vacancy rate remained relatively flat at 10.8%.  Despite the lack of positive absorption, office building owners and investors continue to be bullish about the Seattle market and the region as a whole.

Economy: The Washington State Employment Security Department posted a 6.8% unemployment rate for the state marking the time since 2008 it has been below 7%.  The state has regained about 79% (or about 162,100) of the estimated 205,000 jobs it lost during the recession.  Unemployment in Seattle is down to 4.7% mostly due to growth in the technology industry.  According to the Bureau of Labor Statistics, the Seattle/Tacoma/Bellevue unemployment rate dropped to 5.2% in May.  All indicators encourage optimism for continued growth throughout 2013.

Office Construction: Several projects in Seattle have broken ground or have announced plans to start construction soon.  The introduction of EB-5 financing has allowed buildings such as Homeplate Center (~346,000 square feet) and Dexter Station (~341,000 square feet) to go.  In general, office developers are eager to get ahead of the next construction cycle.  However, without a significant pre-lease, developers of large buildings that will have a significant impact on the overall availability in the market are unable to attain adequate financing.

Office Sales:  Money chasing office product continues to find a home in Seattle. The following transactions were completed in Q2 2013:

  • Beacon Capital Partners sold the Wells Fargo Center for $390 Million to Callaghan Capital Partners out of Chicago.  This sale marks the biggest office investment deal of the year in the region for the 43 story 983,600 square foot building.  The price per square foot for the sale equates to $396.60.
  • Cole Real Estate Investments purchased the buildings located at 351,401 and 501 Elliott from CLPF Elliott West.  The buildings, which total 300,000 square feet, sold for $142.5 million or $475 per square foot.
  • Unico purchased the 51 University building from Equity Residential for $32.5 Million.  The sale price for the 96,600 square foot historic building along Seattle’s waterfront equates to $336.43/SF.  Equity bought the building in 2010 for $11.75 Million.
  • General contractor Lease Crutcher Lewis purchased a 50 percent interest in the 57,000 square foot building located at 2200 Western Ave as an owner user.  The partnership is with the Muscatel Family’s Allegra Properties and the price was undisclosed.

Office Leases:  Leasing activity in Q2 2013 included the following transactions:

  • Zulily leased 230,000 square feet at 2601 Elliott
  • Amazon leased 140,000 square feet at Metropolitan Park North (1220 Howell Street)
  • Real Networks leased 90,000 square feet at Home Plate Center located at 1501 1st Ave South
  • Zillow leased another 44,000 square feet at Russell Investments Center (1301 2nd Ave)
  • NBCnews.com signed a lease for 23,000 square feet at Columbia Center at 701 5th Ave

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

2Q2013

The total vacancy rate for Seattle is 10.8%. Despite the fact that vacancy rates have remained relatively flat since Q2 2012 office landlords across the board remain confident.

Recommendations: 

If your company:

  1. Doesn’t need to move
  2. Has an upcoming space/lease requirement in the next 2 years
  3. Can 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 as soon as possible.  Given the foreseeable upward pressure on rents, look for buildings/spaces that your organization can use to leverage renewal discussions today.  The educational process is quick/free and should only take a couple of hours.

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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