Seattle Office Space News – January 2018

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of January 2018.

OFFICE DEVELOPMENTS

There was a good amount of coverage regarding Seattle office developments in the first month of 2018.  PCC Community Markets will be the anchor tenant for Regency Developers’ new project, Ballard Blocks II. The new space is scheduled to open in spring 2019. Ballard Blocks II will be approximately 115,000 square feet and, when combined with Ballard Blocks I, the total square footage will be 265,000.  This will be PCC’s first Ballard location.

The University of Washington has officially opened its new Nanoengineering and Sciences Building. The 78,000 square foot building was designed by ZGF Architects and is part of a larger, 168,000 square foot complex at the center of campus. The building is five stories tall, and includes space for classrooms, learning centers, and 4 floors of lab space. It was designed to reduce the environmental impact of laboratory work, with a rooftop rain garden and phase changing gel in the walls, which responds to outside temperature and regulates heat and cooling within the building.

1818 Fairview Avenue East has been in development for 10 years, and is – at last – under construction. Alexandria Real Estate purchased the project from Washington Holdings when it was called “the Atrium.” Now, after laying dormant and changing hands, the lab/office hybrid project is at last getting off the ground. The project will total 205,000 square feet and have a four-story atrium lobby. None of it has been preleased yet, but Alexandria is in discussions with potential tenants.

Kevin Conroy, owner of the Blue Rooster building in Fremont, is planning a second development with partner Jim Neuburger. The Fremont NorthShore Building located at 1326 Northlake Way, will be about 30,000 square feet and have three stories, ending in a rooftop deck. Bicycle storage, parking and a 2,440 square foot restaurant on-site will round out this new addition to Fremont’s growing office neighborhood. Conroy hopes to have a permit by March, and complete construction within 12 months.

Alexandria Real Estate Equities Inc. has submitted drawings of their new development at 1150 Eastlake Avenue E, which include plans to open a portion of the building with glass and feature a two-story visible “urban forest.”  The building will face the freeway, and this is part of why the architects at Gensler will be designing the transparent walls. The goal is for this urban forest to be visible from the freeway and give the building a unique, tangible presence.

BUILDING SALES

The 112,686 square foot Joseph Vance Building at 1402 3rd Avenue sold for $43.3 million in January 2018. The price per square foot equates to roughly $326/sf.  An entity of New York based Brickman purchased the building from RSGF Vance Building LLC, who previously purchased the building in 2006 for just over $23 million. The sale also included the Sterling Building, which occupies the same property and includes 20,000 square feet. The Joseph Vance Building was recently renovated in 2007 by ZGF Architects and achieved a LEED certification. Building tenants included the Sightline Institute and the American Jewish Committee among others.

OFFICE LEASES

Despite Amazon’s HQ2 search, the tech giant is still rapidly expanding in Seattle. Amazon has recently leased two more mid-sized office buildings in South Lake Union: the 162,000 square foot Ninth and Thomas building and the 186,000 square foot former PEMCO headquarters building on Eastlake Avenue. The PEMCO building is small, but incredibly visible as it sits right along I-5 next to the REI building. Amazon will move into both buildings in June of this year. Amazon now occupies over 8 million square feet in Seattle, and has plans to reach over 12 million square feet soon.

Co-working giant WeWork continues to rapidly expand, planning to double its Seattle footprint in 2018. WeWork opened its fifth location in the Seattle area this month, with plans to open three more locations this year. In addition, WeWork’s presence will further increase after it completes its 36-story WeWork/WeLive tower in Belltown and takes two floors at the new 15th & Market building opening in Ballard next year.

Police body camera developer Axon is growing in Seattle, with plans to hire an additional 50 people this year to add to its current headcount of 150. Axon recently leased another floor in the Metropolitan Park West building to supplement its current office and bring their square footage up to 32,000. They now have room for up to 210 employees, which will cover their current hiring plans for this year. Axon reports that as of Q3 2017, 38 of the nation’s 68 largest city law enforcement agencies have bought their body cameras or use its other services.

Accenture and Avanade, a subsidiary of Accenture, will be moving from their current Denny Triangle location to a new headquarters space in the Second and Seneca building. The companies have leased the first three floors of the building, giving them a total of 61,000 square feet and a new hub of regional and international operations. The move is scheduled for this fall and will affect around 2,100 employees. The new space, which is being designed by Gensler architects, will be “a forward-thinking, human-focused space that really does lean on technology” according to Gil Wooton, Accenture Managing Director.

ECONOMY

Amazon published its list of HQ2 finalists in January 2018, narrowing the choice down to 20 cities across North America. Several other Puget Sound cities applied to Amazon, but none made the cut. It appears that Amazon is truly interested in moving out of the region and exploring new territory.

Amazon and the City of Seattle are set to meet and discuss their relationship in early February. While plenty on the council are eager to keep the tech giant here and happy, GeekWire recommends avoiding financial breaks to companies like Amazon and Microsoft, and instead integrate their capabilities into the City’s inner workings. Suggestions include blending Amazon Alexa into law enforcement as a voice assistant to cut down on notation time during crimes/emergencies in progress, spearheading the integration of augmented reality, and upgrading/implementing 311 and next-gen 911 capabilities.

It’s been 15 months, and Seattle remains at the top of the housing markets in the country. According to the latest report, Seattle home prices rose in November 12.7% over the same period a year ago, more than double the national average of 6.2%. The average cost of a home in Seattle is now $718,700 according to Zillow. Zillow also reports that prices rose 16.2% over the last year, though they expect that rate to slow to 5.7% over this next year.

The recent drop in housing price growth rate could be largely caused by the new federal tax code revisions recently signed into law. Windermere Real Estate Chief Economist Matthew Gardner expects that Puget Sound sale prices will rise by 7.6% this year, and King County rates will rise by 8.5%. Under the new tax law, mortgage interest rate deductions will be capped at $750,000, down from $1 million. While this is largely viewed as a tax on wealthy households, some of this effect will be felt in Seattle, though major targets of this law will be in the high cost markets of California, Hawaii and New York.

Seattle traffic was bad, is still bad, and is about to get worse. The Emerald City has reached what experts call the “period of maximum constraint” in terms of the number of people attempting to navigate the Seattle city center. From now through 2021, the already-crowded city center is going to get even tighter, with a number of projects designed to increase accessibility reducing it instead – at least until those projects are complete. Dozens of cranes dot the city skyline and over 110 buildings are proposed in the near future, which will result in lane closures and sidewalk detours. A full write-up of all these projects, their effects, and timelines can be found here.

Month-over-month apartment rental rates have shown a decrease in Seattle, though experts are torn on whether this decrease is relevant in the long term. Rents have declined in Seattle 1.4% in the past month, though are still up 3% year over year. Dylan Simon, a broker at Colliers, says that rents are always lower in the winter months along with higher concessions. Still, even allowing for the normal seasonal slowdown, rent growth is still significantly slower than it has been in previous years: 3% in 2017 as opposed to 4.9% and 5.8% in 2015 and 2016 respectively. It is likely that the decrease is due to Seattle’s increase in multi-family housing options and the seasonal decline.

Despite the signs of a booming economy here in Seattle, the metro area has dropped out of the Mulken Institute’s Top 10 Cities ranked by economic growth. However, the entire region, which includes Bellevue and Everett, still ranks 17th in the nation. Recent aerospace layoffs at Boeing and Rockwell Collins are reducing economic diversity. However, the Puget Sound’s thriving tech sector, most notably its cloud computing industry (Amazon and Microsoft) is bringing high paying jobs to the area and creating a highly educated labor pool to fill demand. However, increasing housing costs as well as business costs have caused some companies to move outside of large city centers like Seattle, San Francisco and San Jose.

Seattle ranked second among the nation’s 20 largest metros in small-business job growth in a report by Paychex/HIS Markt Small Business Employment Watch. The state of Washington also ranked second in small business job growth, behind Tennessee.

It’s no surprise that Seattle is getting denser, but that density applies to more than just new office towers. Residential construction has largely followed office construction this year, with the majority of new homes and apartments being built in urban centers and urban villages. The goal is to reduce the need for residents to drive to work, instead living within walking, biking or bus distance to their place of employ. Developers have been closely watching Amazon’s leasing and purchasing patterns, erecting housing near these new employment centers in South Lake Union, the Denny Triangle, and First Hill.

With all this new development, it may come as a surprise that our crane count has actually dropped by more than a fifth, coming down to 45 from 58 six months ago. The all-time high was 62 cranes in the last half of 2016. However, Seattle still tops the nation in cranes, though Toronto beats out even Seattle with a staggering 88 cranes.

ARENA

The ink is dry on Oak View Group’s deal with the city for the renovation of KeyArena, but apparently the idea of a SoDo arena isn’t dead yet. Mayor Jenny Durkan gave hope to SoDo arena fans, saying that the idea of two arenas isn’t completely out of the picture. Chris Hansen still needs the city to vacate the street where he wants to build the area, and with new people on the City Council, the vote could go either way.

An attorney for Oak View Group has registered 13 different internet domain names for potential Seattle NHL teams. Some of the suggested names included the Seattle Sockeyes, Seattle Krakens, Seattle Totems, and Seattle Seals.

TUNNEL/VIADUCT

The Highway 99 tunnel could be ready to open this fall, according to the latest schedule. The builders are forecasting October 25th to finish construction. However, the state needs an additional three to five weeks to connect ramps at the Sodo and South Lake Union entrances. This new projected opening date is sooner than the previous January 2019 estimates, though it’s still three years behind the original goal of late 2015.

OTHER NEWS

Here is a 4-minute time lapse video of the last three years in Seattle, showing the massive increase in development that us locals have been witnessing. The compressed time period makes Seattle’s boom look almost comically sudden, but it truly hits home on how much the city has grown, especially areas like Denny Triangle and South Lake Union. The images were taken from a panoramic camera installed on the top of the Space Needle. Full video here.

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