General Conclusion: Seattle’s office market continues to strengthen into the later part of the year with vacancy decreasing to 6.6% in Q3 2016 down from 7.3% in Q2. Year to date net absorption for the Downtown Seattle Office Market stands at 2,283,096 square feet. Continued demand for Seattle office investment product compiled with decreasing vacancies continues to put upward pressure on rental rates across all submarkets and building classes. Market fundamentals are expected to be in favor of landlords for the rest of 2016 and into 2017.
Economy: The northwest has continued to see significant job growth in 2016. Washington’s preliminary seasonally adjusted unemployment decreased to 4.1% in August of 2016 according to The Washington State Employment Security Department, down from 4.7% in Q2. The Bureau of Labor Statistics is reporting a slightly higher of 4.5% for the Seattle/Tacoma/Bellevue area.
Office Construction: The raging construction boom in Seattle continues with the following developments all 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:~750,00 square feet (Davis Wright Tremaine is anchor tenant)
- The Mark:~528,000 square feet
- Former Pemco HQ:~370,00 square feet
- Midtown 21:~365,00 square feet
- Tilt 49:~307,296 square feet
- The Alexandria Center:~288,850 square feet
- Hawk Tower:~208,840 square feet (Avalara is anchor tenant)
- 15th & Market:~204,000 square feet
- North edge:~202,620 square feet
Office Developments: As noted, office development in Seattle continues to remain strong. Below are a few significant updates on office development from Q3 2016
- The Seattle design review board unanimously signed off on Google’smassive South Lake Union Expansion. The project will include several buildings up to 14 stories tall totaling 621,100 square feet. Construction is expected to begin in early 2017 and completion is slated for 2019.
- Converseley, Expedia revealed that they will not initially be building an additional 600,000 square foot building on its new Seattle waterfront campus. It still remains to be seen if they will construct any new space or just remodel the existing footprint of the campus.
- Martin Selig is also reportedly downsizing the scope of his development project on the former Federal Reserve building site. Filings show that Selig now plans to add eight stories to the existing structure, totaling 125,000 square feet of office space. Previous plans had shown as many as 44 floors added to the historic building at 1015 2nd Ave, which must be kept intact.
Office Sales: In general, building sales in Q3 2016 stayed cool compared to 2015 with only a few properties changing hands. The following building sales were completed in this quarter:
- Vulcan sold the 317,000 square foot Amazon Phase VIII to Korean based Mirae Asset Global for $246.8 million. The high price of $770/sf continues to show strong demand for office product in Seattle and also reinforces the trend of foreign capital interest.
- GLL Real Estate Partners and Vestas Investment Management (Munich and Seoul based) purchased the 793,679 square foot Safeco Plaza building from CommonWealth Partners for $387 million. The building is 98 % leased and the price equals $488 per square foot.
- The Watermark Tower at 1109 1st Ave sold to Martin Smith Inc. The 71,150 square foot office and residential building sold for $20.25 million or $284.61 per square foot. The building is situated right in front of the soon-to-be demolished viaduct and has seen the value appreciate from its purchase in 2012 for $11.2 million.
Office Leases: Office leasing in the third quarter of 2016 continued to slow from the second quarter, although several companies expanded:
- Law firm Davis Wright Tremaine announced that they will be the anchor tenant for the new Madison Centre development at 5th & Madison in downtown Seattle. DWT will occupy eight floors or 164,000 square feet in the project that is expected to open in 2017
- Dropbox leased another floor in the Columbia Tower at 701 5th Avenue as it continues to hire aggressively in the region. The San Francisco based storage provider has 65 employees in Seattle currently.
- Darigold will be moving its headquarters from South Seattle to the Georgetown neighborhood where it has leased 37,000 square feet in the newly renovated Georgetown Squared at 5601 6th Ave S.
- Nanostring Technologies expanded by 19,000 square feet in the Vue Research Center at 500 Fairview Ave N, bringing their total footprint to 76,800. In addition, a stealthy new Biotech, Silverback Therapeutics, will be taking 19,600 square feet in the same building.
Below is a table providing information for the major sub-markets of Seattle: