Lack of New Office Supply Pushes Large Users to Tertiary Puget Sound Markets
A decade ago, the Seattle office market was still reeling from the effects of the global recession. Total downtown vacancy had reached 14.9 percent with nearly every submarket from the Central Business District (CBD) to Lake Union experiencing some form of negative absorption. Total vacancy today is slightly more than half of what it was back then, hovering at around 7.7 percent. This is despite the total net rentable area growing by more than 11 million square feet. Seattle has also shifted from largely being considered a secondary market to one of the leading real estate hubs in the nation, thanks to consistent talent and demand from the engineering, aerospace and technology industries. Seattle currently ranks second behind San Francisco in our annual Scoring Tech Talent report. And yet, while our extensive growth has been a benefit to the office market, a new problem has cropped up in the face of this progress: availability.
The rise of coworking, as well as the surplus of partial floor spaces, has been a benefit to smaller companies in the midst of early stage growth and expansion. In fact, there are more than 700 options in Downtown Seattle for smaller tenants, primarily under 15,000 square feet, that don’t need a full floor. The picture changes for companies looking for larger options, however. While total availability — space that is advertised as a possible option for potential tenants — remains slightly higher than the historical, pre-recession low, vacancy has continued to trend steadily downward over the past two years. Developers have been stepping in to meet demand, but actual availability of this newly developed space is dwindling, About 1.9 million square feet of the 4.1 million square feet of space currently under construction has been preleased prior to project completion. In fact, nine of the 15 buildings delivering in the next two years are already fully leased up. Technology firms do play a large part in this process; the majority of space leased over the past 12 months has been taken by tech firms. A good portion though, about 28 percent, has also been leased by financial and professional services firms, which paints a picture of a more diverse user pool.
Downtown Seattle is not likely to be a feasible option for companies looking to expand in the next 24 months. Tenants looking for large blocks of space may need to push farther south toward Renton, Federal Way or Tacoma where housing is more affordable and transit options continue to expand. Compelling options exist to the north that cannot be overlooked as well, as new developments in Lynnwood and Northgate — along with the impending expansion of the Link light rail system — begin to take shape. Lastly, the Eastside continues to flourish, with new and updated options in Kirkland, Bellevue and Redmond coming together. Downtown may yet be a viable option, but until more development occurs or space becomes available, large users will continue to be pushed toward the outer submarkets.
— By John R. Miller, senior managing director, CBRE. This article first appeared in the August 2019 issue of Western Real Estate Business magazine.