Seattle’s Office Market Remains Healthy
Seattle is on the rise, and companies are thriving in the downtown core and surrounding submarkets. Seattle’s office market is one of the healthiest in the country. Leasing continues to be led by a robust technology sector that’s fueled by both the expansion of homegrown companies and the addition of engineering offices from mostly California-based companies. These companies have established significant footprints in Seattle as they have been able to attract, hire and retain workers from a talented employee pool. Institutions like the University of Washington continue to produce additional engineering graduates from an expanding computer science program, and companies have had great success recruiting talent eager to move from across the country and internationally to the Puget Sound region.
Traditional brick-and-mortar companies like Sears, Best Buy and Starbucks are all working in Seattle to monetize the use of electronic devices. Many new companies to the market like Snapchat, Airbnb and, most recently, Pinterest, have opened their first Seattle locations in co-working spaces. The collaborative nature of the co-working environment is also popular among startups. These companies are often created by former employees of some of the region’s longstanding heavyweights.
Amazon has had a significant ripple effect on the region, especially in the Downtown Seattle market. The company is attracting a workforce to its urban campus at a stunning pace. It is now the city’s largest tenant with 7.5 million square feet owned and leased in 2016, and commitments to 10.2 million square feet by the end of 2019. After 45 years in suburban Federal Way, Weyerhaeuser is furthering the trend of office urbanization by opening its newly developed Pioneer Square headquarters in late summer of this year. Bellevue-based Expedia purchased the former Amgen campus in Seattle’s Interbay neighborhood in 2015. The company plans to repurpose the lab space and add additional square footage to house about 3,500 employees by the end of 2019. Google leased more than 600,000 square feet of prime lakefront real estate in South Lake Union this past March that will be developed by Vulcan. Other notable lease transactions this year include Avalara at Hawk Tower, Saltchuk at 450 Alaskan Way — both at about 100,000 square feet in Pioneer Square — as well as Davis Wright Tremaine’s recent lease of 178,600 square feet at Madison Centre. All three projects are currently under construction.
Vacancy in the Seattle Central Business District and surrounding area submarkets was 7.89 percent while availability was 11.2 percent in the second quarter of this year. The downward vacancy trend is expected to continue through the next two years, with space under construction totaling more than 6 million square feet across 20 projects, 44 percent of which is already pre-leased. Another six projects have announced a start date within the next few months, all with delivery dates before the conclusion of 2019. The first and second quarter of 2016 had an average absorption of nearly 1.4 million square feet, maintaining the recent trend of an average annual absorption that more than tripled the 30-year historical average. Average Class A rents have also risen steadily to $42 per square foot annually.
— By Jake Bos, Senior Associate and Office Specialist, Kidder Matthews. This article first appeared in the October 2016 issue of Western Real Estate Business.