Q3 2013 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: In Q3 2013 Seattle’s office market vacancy rate dipped slightly to 10.4% and positive absorption so far for the year totals 998,608 square feet.  Rents remain historically high across all submarkets and building classes as office building owners, developers 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 seasonally adjusted unemployment rate for August of 7% for the state.  This is down from 8.2% for the same month in 2012.  According to the Bureau of Labor Statistics, the Seattle/Tacoma/Bellevue unemployment rate remained historically low at 5.8% in July.  Several indicators continue to inspire optimism about the future of the economy in the city and region.

Office Construction: A few projects in Seattle have broken ground recently.  As reported previously, EB-5 money has supplanted more conventional financing and allowed buildings such as Homeplate Center (~346,000 square feet) and Dexter Station (~341,000 square feet) to go.  Touchstone also broke ground in Q3 on Hill7, which will have 11 stories (300,000sf) of office and a 14 story hotel at Stewart & Boren.  Vulcan plans to begin construction on a 260,000 headquarters building for the Allen Institute for Brain Science in South Lake Union.  There has been news of many other developers planning office towers in Seattle, but most will require a significant pre-lease at top of the market rental rates in order to attain adequate financing.

Office Sales:  Seattle remains one of the top few office markets in the country attracting institutional investors. The following transactions were completed in Q3 2013:

  • Hudson Pacific Real Estate purchased 505 1st, 83 King (472,881 SF combined), Met Park North (189,762 SF) and a 173,776 building in Edmonds for $367.5 million.  The previous owner was Spear Street.
  • GLL Real Estate out of Munich purchased 202 Westlake from Spear Street for $97.4 Million breaking the regional price per square foot record at $749/SF.
  • Unico purchased 705 Union Station from Lasalle Investment Management for $98 million or $386/SF.  The 254,000 square foot building was purchased by Lasalle in 2011 for $59.6 Million.
  • Ingersoll Realty from Atlanta purchased the Marketplace office complex at 2001 Western for $71.2 million or $569.6/SF (125,000 SF).
  • KBS Strategic purchased the 191,800 square foot Central building at 810 3rd from Lasalle Investment Management.  The purchase price was$34.5 million or $179.87/SF for the historic building.
  • The Columbia building at 1516 2nd Ave was sold by Jim Potter and Joe Yencich Jr. to Urban Visions for $11.75 million or $210 per square foot.

Office Leases:  Below are significant lease transactions that were concluded in Q3 2013:

  • Amazon announced they agreed to lease two new 12 story buildings totaling 614,000 square feet from Vulcan in South Lake Union
  • The department of Health and Human Services leased 55,600 square feet at Columbia Center (701 5th) on floors 15, 16 & 17.
  • Moz leased 50,000 square feet at 1100 2nd Ave.
  • Twitter leased 16,000 square feet at Century Square (1501 4th Ave).

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

3Q2013

The total vacancy rate for Seattle is 10.4%.

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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