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Amazon, Zulily, Real Networks, Intel, eBay, Attachmate, PATH, Omeros, F5 Networks, Microsoft. Collectively, these technology companies have dominated Seattle’s office leasing landscape over the past 12 months. This period has seen an eye-popping absorption of more than 1.9 million square feet. That would be astonishing growth in nearly any city, but with a Class A and B base of 63 million square feet, this number is even more impressive.
The vacancy rate has dropped and now stands at 11.5 percent, while correspondingly rental rates rose more than $4 per square foot, cresting above the $30 per square foot, full service, for the first time in more than a decade. In addition, both rental abatement and discretionary tenant improvement allowances have diminished.
What’s noteworthy is that none of these companies made commitments in the Central Business District. Instead, each opted for an urban campus style as opposed to a traditional stacked, high-rise presence. These companies either backfilled Class A properties immediately south of Downtown in Pioneer Square or relocated into first-generation space just north of the core in the South Lake Union submarket.
Despite this current trend, Seattle’s core is very healthy. It’s even listed as a top-three investment market on a national basis. As an example, view space in Class A properties has a vacancy rate of less than 2 percent. However, while nearly half of all 50,000-square-foot contiguous blocks are Downtown, the majority are located in low-rise elevator banks, or lack abundant natural light or are in buildings with smaller (less than 20,000 square feet) footprints that do not offer the same efficiencies as newer product.
Toward the end of the last cycle, green and LEED-certified properties were just becoming en vogue. Though these designations were acknowledged by the majority of tenants as nice intangibles, they were certainly not the main drivers in leasing decisions. That dynamic has shifted.
We recently polled a client with more than 100 local employees. We asked each employee to rank, in order of importance, a building’s view, whether it had a private office, and whether it offered a subsidy toward commuting or minimizing its environmental footprint. The latter was ranked first in 61 percent of the surveys.
Leasing decisions have historically been heavily weighted toward cost per square foot, per employee, per year. For these leading technology companies, however, the goal is productivity per employee, per year. If their annual rental commitment needs to be 10 percent greater in order to provide internal amenities or to secure newer, well-located product, the expense can more than pay for itself if the employee base is more productive through extended hours.
Pioneer Square and South Lake Union will continue to thrive because progressive tenants are focused on projects that can aid in their business success. Progressive landlords, such as Urban Renaissance, Skanska, Vulcan, Touchstone and Urban Visions, have heeded that call and brought new developments to market just outside of Seattle’s core to reflect this trend.
— Kirk Johnson, principal, NAI Puget Sound Properties in Seattle