Q3 2015 Seattle Office Market – Tenant Perspective

Analyzing the Data

General Conclusion: Seattle’s office market continued the hot streak in Q3 of 2015 with vacancy decreasing to 8.8% down from 8.9% in Q2. Total positive absorption for the year is 2,139,397 square feet in the Seattle market.  It will remain a landlord’s market for the foreseeable future as demand for office space and Seattle commercial real estate investment product should continue to put upward pressure on rental rates across all submarkets and building classes.

Economy:  The northwest continued to add jobs in the third quarter of 2015.  Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.2% in September 2015 according to The Washington State Employment Security Department, which represents a .2% decrease from Q2. The Bureau of Labor Statistics is reporting a 4.1% 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 to Amazon)
  • Madison Centre:~750,00 square feet
  • The Mark:~528,000 square feet
  • 200 Occidental:~180,00 square feet (100% leased to Weyerhaeuser)
  • Midtown 21:~365,00 square feet
  • Dexter Station:~ 345,992 square feet (100% leased to Facebook)
  • Tilt 49:~300,000
  • Urban Union:~291,00 square feet (rumored to be 100% leased by Amazon)
  • Allen Institute for Brain Science:~272,408 (100% leased)
  • NorthEdge:~210,000 square feet (100% leased to Tableau)
  • 1101 Westlake:~ 150,000 square feet
  • Third and Battery:~68,429 square feet*
  • The Commons at Ballard:~22,000 square feet

* = broke ground in Q3 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 third quarter of 2015:

  • Project: 888 Second Ave, Size: 1,000,000 square feet of office, Location:888 Second Ave, Developer: Urban Visions
  • Project: Former Federal Reserve Building, Size: 533,000 square feet of office, Location: 1015 Second Ave, Developer: Martin Selig
  • Project: 1150 Eastlake Size: 280,000 square feet of lab and office space, Location: 1150 Eastlake Ave, Developer: Alexandria Real Estate Equities
  • Project: University of Washington light rail office building, Size: TBD up to 240 feet tall Location: Brooklyn Ave NE and 43rd Developer: University of Washington
  • Project: Fourth and Columbia, Size: 151,650 square feet of office, Location: 701 4th Ave, Developer: Crescent Heights

 Office Sales:  Q3 2015 continued to provide proof of the robust demand for office investment in Seattle.  The following transactions were completed in Q3 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: 2201 Westlake, Price: $251 Million, Size: 317,000 SF Price/SF: $792, Buyer: American Realty Advisors, Seller: Vulcan
  • Project/Location: Rosen Building located at 960 Republican Street, Price $41 Million, Size: 60,375 SF Price/SF $769, Buyer: Urban Renaissance Group, Seller:
  • Project/Location: 1101 Westlake, Price: $67.4 Million, Size: 150,000 SF Price/SF: $449, Buyer: Holland Partner Group , Seller: Invesco

Office Leases:  Office leasing activity was on fire again this quarter, dominated by the technology sector.  Below are lease transactions that were concluded in Q3 2015:

  • Tenant: Amazon, Size: 285,000, Project/Location: Urban Union located at 501 Fairview Ave, Landlord: Schnitzer West
  • Tenant: Tableau, Size: 210,000, Project/Location: NorthEdge located at N 34th & N Northlake Ave, Landlord: Touchstone
  • Tenant: Avvo, Size: 105,000 Project/Location: 8th & Olive located at 720 Olive Way, Landlord: Talon
  • Tenant: Trupanion, Size: 100,000, Project/Location:6100 4th Ave South, Landlord: Benaroya
  • Tenant: Docusign, Size: 60,000, Project/Location: Wells Fargo located at 999 Third Ave Landlord: Callaghan Partners
  • Tenant: Antioch University, Size: 38,000, Project/Location: 2403 Third Ave, Landlord: Martin Selig
  • Tenant: Avalara, Size: 36,000, Project/Location: Second and Seneca located at 1191 2nd Ave, Landlord: Rockwood Capital
  • Tenant: Apple, Size: 30,000, Project/Location: Two Union located at 601 Union Street, Landlord: Washington Holdings

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

3Q2015 Market Data

The total vacancy rate for Seattle is 8.8%.

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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