2015 Year End Seattle Office Market Report – Tenant Perspective

Analyzing the Data

General Conclusion: Seattle’s office market finished 2015 strong with vacancy decreasing to 8.3% in Q4 2015 down from 8.8% in Q3. The year closed with 3,535,636 square feet of positive absorption, a staggering increase from the 1,392,917 square feet of positive absorption in 2014. Due to strong demand for Seattle commercial real estate investment product and decreasing vacancies, rental rates across all submarkets and building classes are on the rise while concessions continue to decrease.  Market fundamentals were in the favor of landlords for all of 2015.  Looking ahead, there are no indications of a slowdown – bring on the supply!

Economy:  The northwest continued to add jobs in 2015 as many companies are moving operations to the area in order to tap into Seattle’s talent pool. Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.0% in December 2015 according to The Washington State Employment Security Department.  The Bureau of Labor Statistics is reporting a slightly lower rate of 4.5% for the Seattle/Tacoma/Bellevue area.

Office Construction: The Seattle construction boom continues with the following developments all currently 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
  • The Mark (5th & Columbia): ~528,000 square feet
  • Former Pemco HQ: ~370,00 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
  • North edge: ~202,620 square feet
  • 1101 Westlake: ~ 150,000 square feet

In addition, several proposed developments were announced in the fourth quarter of 2015 including:

  • Miami based Crescent Heights is planning a 101 story mixed use project at the west side of Fourth Avenue between Columbia and Cherry Streets.
  • Vulcan has finally revealed plans for the Lakefront Blocks on Valley Street in the South Lake Union submarket. The three block area will contain 787,000 square feet of office space and approximately 370 apartments.
  • Martin Selig released plans to add twelve floors of apartments atop the 36 floors of office space at the former Federal Reserve site in the central business district
  • Selig also closed on the Firestone tire center site at 400 Westlake Ave N in South Lake Union and has plans to construct a 190,000 square foot office and biotech building.
  • Finally, Beacon Capital filed plans for an eight story addition to the Maritime Building at 911 Western Ave.

Office Sales:  In general, Seattle office product is in high demand for investors worldwide.  Something to note is that one fifth of Seattle’s office sales in 2015 went to Asian firms.  The following building sales were completed in Q4 2015:

  • Macy’s sold the top four floors of its building in downtown Seattle as an office condominium. Starwood Capital Group paid Macy’s $216 per foot or $65 million for the 300,000 square foot space.
  • Hong Kong based Great Eagle holdingspurchased the historical Dexter Horton Building at 821 2nd Ave for $124.4 million or $369.69 per square foot.
  • New York based Brickman Real Estate purchased the Olympic Block at 101 Yesler for $22.4 Million or $317.73 per square foot.
  • Unico properties purchased701 Dexter for $17.7 million or $285.48 per square foot.
  • 400 Fairview sold for $234.8 million or $763 per square foot.
  • A Chicago based co-working company acquiredthe Pioneer Building in Pioneer Square for $20.5 million or $285 per square foot.
  • Finally, a new collaboration by Greg Smith, ACT Theatre, Cherry Street Coffee and artist Jane Richlovsky purchased the 1st& Cherry building for $4.5 million.

Office Leases:  Several large office lease transactions were completed in Q4 2015 including:

  • Safeco Insurance signed a lease to expand their presence at Safeco Plaza at 1001 4th  The company will occupy twenty-six floors or ~500,000 square feet in the building by the end of 2016.
  • Docusign leased six floors, or 119,000 square feet, at 999 3rdAve
  • Moss Adams LLP completed a renewal for 77,274 square feet also at 999 3rd
  • AECOM leased 55,242 square feet at 1111 3rd Ave
  • Uber leased ~50,000 square feet at Second & Seneca
  • Oracle leased 45,050 square feet at Century Square at 1501 4th Ave
  • Seattle Metropolitan Credit Union leased 43,500 square feet at the Home Plate Center at 1521 1st Ave S
  • Antioch University leased 38,000 square feet from Martin Selig at 2403 3rd Ave
  • WeWork leased 32,000 square feet at Westlake Tower at 1601 5th Ave
  • Hillis Clark Martin & Peterson P.S. signed a lease for 31,000 square feet at 999 3rd Ave
  • Leisure Care leased 25,200 square feet at 999 3rd Ave

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

4Q2015 Market Data

The total vacancy rate for Seattle at the end of 2015 is 8.3%

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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