Puget Sound Office Market Sees Positive Signs of Recovery

by John Nelson

— By Leah Masson, senior director, Cushman & Wakefield —

The real estate landscape in the Puget Sound region is shaped by a dynamic contrast between the Eastside and Downtown Seattle. The Eastside continues to thrive, particularly with its robust tech activity. Major developments, such as the Eight, Skanska’s 540,000-square-foot project, is nearing full occupancy, underscoring the area’s strong demand. 

Leah Masson, Cushman & Wakefield

OpenAI is actively seeking space on the Eastside, with expectations of more artificial intelligence groups to follow. It’s worth noting that the Eastside is not plagued by the safety issues that have been a concern for Downtown Seattle. The anticipated 2025 opening of the light rail is set to drive even more growth in the area.

Downtown Seattle is also experiencing an uptick in leasing activity, with active tenants expanding in terms of both square footage and lease term lengths. Since 2021, professional services groups, such as law and engineering firms, have been the primary drivers of leasing, but there is now a welcome return of tech companies to the Seattle market. New AI-focused tenants are beginning to emerge, moving out of coworking spaces and seeking permanent office locations in the city. However, Downtown Seattle continues to face significant challenges, particularly concerning homelessness and safety, which have adversely impacted the retail sector.

Tech companies continue to grapple with the complexities of returning to the office. Although there is a gradual push to bring employees back, the shift to hybrid work models has led to a need for companies to right-size their office spaces. Despite this, there remains a solid presence of tech firms in the market, with a cautious approach to leasing decisions. Encouragingly, new tech groups have been touring the market, with space requirements ranging from 15,000 square feet to 30,000 square feet, indicating potential growth.

According to Cushman & Wakefield’s latest report, Downtown Seattle currently faces an overall vacancy rate of around 30 percent, with Class A properties faring slightly better at 21 percent. On the Eastside, the vacancy rates are significantly lower, hovering around 10 percent for both overall and Class A spaces. Vacancy rates in both markets are projected to peak in 2025, after which a gradual decline is expected, marking a positive trend for the foreseeable future. In today’s market, Class A trophy and boutique assets are the ones securing deals. Tenants are increasingly drawn to high-quality, amenitized properties that can attract employees back to the office.

This article was originally published in the September 2024 issue of Western Real Estate Business.

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