General Conclusion: Seattle’s office market continued rapid growth at the start of the year with vacancy decreasing to 7.9% in Q1 2016 down from 8.3% in Q4 2015. Positive absorption for Seattle was 554,060 square feet in the first quarter. Due to strong demand for Seattle commercial real estate investment product and decreasing vacancies, rental rates across all submarkets and building classes continue to increase, sometimes on a weekly basis. For the foreseeable future, market fundamentals will be in the favor of landlords.
Economy: The northwest has continued to add jobs in Q1 2016. Washington’s preliminary seasonally adjusted unemployment increased slightly to 5.8% in February 2016 according to The Washington State Employment Security Department. The Bureau of Labor Statistics is reporting a slightly lower rate of 5.3% for the Seattle/Tacoma/Bellevue area.
Office Construction: The record amount of construction in Seattle can partly be attributed to office development with the following projects currently under construction:
- Amazon II, and Amazon Phases VI, VII & VIII totaling: ~ 2,094,000 square feet (100% leased to Amazon)
- Troy Block: ~817,000 square feet (100% leased to Amazon)
- Madison Centre: ~764,00 square feet
- The Mark: ~528,000 square feet
- Yale & Thomas: ~370,00 square feet
- 200 Occidental : ~370,00 square feet (100% leased to Weyerhauser)
- Midtown 21: ~365,00 square feet
- Dexter Station: ~345,992 square feet (100% leased to Facebook)
- Tilt 49: ~307,296 square feet
- Urban Union: ~291,00 square feet (100% leased to Amazon)
- 15th & Market: ~204,000 square feet
- NorthEdge: ~202,620 square feet (100% leased to Tableau)
- 1101 Westlake: ~150,000 square feet
Despite all of this development, the available supply is not enough to outpace current demand.
Office Sales: The following building sales were completed in Q1 2016:
- 101 Elliott (former home of the Seattle Post Intelligencer) sold to Credit Suisse Group for $40.4 million from Legacy Partners. That price is just over $397 per square foot for the 101,750 square foot property. The Landmark Seattle P.I. Globe is not part of the sale and is planned to be brought to MOHAI.
- Vulcan has sold the commercial portion of Alley 24 on Yale and John Street to Met Life. Met Life paid $129.4 million or $600 per square foot for the 215,000 square foot office space. Vulcan’s total sales in the past few years equates to nearly $2.93 billion.
- 2001 8thAve sold for $370 Million or $740 per square foot to Rreef property Trust. Rreef is part of Deutsche Asset & Wealth Management.
Office Leases: Office leasing in the first quarter of 2016 heated up significantly from the end of 2015, due to several large transactions in the technology sector:
- Google leased over 600,000 square feet in South Lake Union on the Lake Front Blocks that will be developed by Vulcan.
- In the same neighborhood, Amazon has announced that they leased an additional 286,000 square feet in the Urban Union building.
- Tableau will be taking over a 110,000 square foot building next to their headquarters in Fremont. The company now has 16 locations in 10 countries worldwide.
- Oracle continued to grow their presence in Seattle by expanding to 90,000 square feet at Century Square in the central business district.
- Also at Century Square, Qumulo revealed that they have also expanded into nearly 70,000 square feet.
- In one of the few non technology related leases, Saltchuck will be moving into 91,000 square feet at Hudson Pacific’s new 450 Alaskan Way project.
- Daily deal site Groupon is moving into the central business district after leasing 42,000 square feet at 1201 Third.
- In anticipation of their move to the Seattle waterfront, Expedia leased 38,000 square feet at 645 Elliott.
- Local coding school Code Fellows announced they will be moving from crowded South Lake Union to 20,000 square feet at Third and Broad in Belltown.
- Snapchat found a home in Seattle with a lease of 8,000 square feet at 101 Stewart near Pike Place Market.
Below is a table providing information for the major sub-markets of Seattle:
The total vacancy rate for Seattle is 7.9%.
If your company:
- Doesn’t need to move
- Has an upcoming space/lease requirement in the next 2 years
- Can reasonably forecast headcount needs for years into the future
- 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:
- Might need to move
- Needs size flexibility
- Wants to pursue a sublease or plug-n-play opportunity
- 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.