General Conclusion: Seattle’s office market continued rapid growth into the middle of the year with vacancy decreasing to 7.3% in Q2 2016 down from 7.9% in Q1. Year to date positive absorption for the Downtown Seattle office market is 1,351,735 square feet. Rental rates across all submarkets and building classes are on the rise and concessions continue to decrease for two reasons. First, tenant demand is outpacing the supply coming to market. Second, investment money from all over the globe is competing to purchase office product in Seattle. Given these forces, market fundamentals are expected to be in favor of landlords for the remainder of 2016 and into 2017.
Economy: The northwest has seen significant Job growth in 2016. Washington’s preliminary seasonally adjusted unemployment decreased to 4.7% in May of 2016 according to The Washington State Employment Security Department, down from 5.8% in Q1 . The Bureau of Labor Statistics is reporting a slightly higher rate of 4.8% for the Seattle/Tacoma/Bellevue area.
Office Construction: Seattle builders continue to enjoy the construction boom with the following developments all currently under way:
- Troy Block :~817,000 square feet (100% leased to Amazon)
- Madison Centre:~750,00 square feet
- 333 Dexter:~650,000 square feet
- The Mark: ~528,000 square feet
- Former Pemco HQ:~370,00 square feet
- 200 Occidental :~370,00 square feet (100% leased to Weyerhauser)
- Midtown 21:~365,00 square feet
- Tilt 49:~307,296 square feet
- Urban Union:~291,00 square feet (100% leased to Amazon)
- The Alexandria Center:~288,850 square feet
- Hill 7:~285,000 square feet (Redfin and HBO as anchor tenants)
- Hawk Tower:~208,840 square feet (anchor tenant Avalara)
- 15th & Market:~204,000 square feet
- NorthEdge:~202,620 square feet (100% leased to Tableau)
- 450 Alaskan Way: 166,772 square feet (anchor tenant Saltchuck)
- 1101 Westlake:~ 150,000 square feet
Proposed Office Developments: Given the health of Seattle’s market, office developers are eager to break ground. The following are proposed office developments:
- Developer Wright Runstad is looking for preleasing to kick off their 762,800 square foot Rainier Square redevelopment.
- Skanska has 650,000 square feet of office space planned for the site at 1201 Second Avenue; construction is scheduled for Q4 of 2016.
- Beacon Capital has plans to redevelop the historic Maritime building on the Waterfront. The scope of the project is yet to be determined but could include up to an additional eight stories.
- Martin Selig also plans to redevelop a historic former Federal Reserve Building at 1015 2nd. Initial plans show an additional 12 floors of apartments.
- Talon has a 200,000 square foot office project planned for the former Bucca di Beppo site at 820 Roy Ave North.
- Urban Visions is proposing to build a 170,000 square foot office building at 1516 2nd Ave near Pike Place market.
- Miami based Crescent Heights is planning a 101 story mixed use project at the west side of Fourth Avenue between Columbia and Cherry Streets that will include 151,650 square feet of office space.
- Expedia has filed plans to expand its already massive waterfront headquarters on Elliott Ave. The travel company plans to build an additional 600,000 square foot building and has room for several more phases of development on the 40 acre campus in the future. Construction to turn the former Amgen laboratory space into office is slated for 2016.
Finally, Vulcan has several blocks in South Lake Union that can be developed. Google has signed a lease for over 600,000 square feet of space from Vulcan, a construction timeline is not yet clear.
Office Sales: In general, building sales in Q2 2016 stayed cool compared to 2015 and Q1 of 2016, with only a couple of significant properties changing hands. The following building sales were completed in Q2:
- Schnitzer West and Investcorp purchased the 41 story office tower 901 Fifth Ave from Kennedy Wilson and RREEF North America. The group paid $233.3 million or $431.56 per square foot for the 540,600 square foot building. Schnitzer added the building to their central business district portfolio, which is within a block of their 36 story Madison Centre office development.
- Mack Real Estate sold the 124,740 square foot 1411 4th Ave building for $29.75 million to Vancouver based Omni Development. Omni paid just over $238.49 per square foot and plans to undergo extensive renovations to the property.
Office Leases: Office leasing in the second quarter of 2016 was a bit slower than previous quarters, although several tech companies made news of expansion including:
- Redfin leased 112,990 square feet in the new Hill 7 development, which will give the company plenty of room to expand in Seattle.
- Avalara confirmed it has leased 100,000 square feet in the new Hawk Tower development at 255 S King Street.
- Proquest is moving its headquarters from Fremont into 29,716 square feet in Home Plate Center near Safeco Field.
- Gravity Payments signed a lease for 22,000 square feet at the new development, The Commons @ Ballard.
- 3D Printing startup Glowforge has leased 21,721 square feet at 2200 First in South Seattle.
- WATG architectural group opened a new Seattle studio. The 5,700 square foot space in the Olympic Tower will focus on commercial, residential, and hospitality projects.
Below is a table providing information for the major sub-markets of Seattle: