The Downtown Seattle office leasing market continues to be led by growing tech firms, especially Amazon.com. Amazon recently signed leases for 5th & Bell (125,000 square feet), 635 Elliott (180,000 square feet) and Blanchard Plaza (125,000 square feet with the possibility to take down the entire 250,000-square-foot property).
The online retailer is also moving forward with the development of three high-rise buildings totaling 3.3 million square feet. Amazon owns additional lots for more projects in the future as needed.
Other tech firms, including Zulily, Twitter, Tableau Software, Nuance Communications, Avalara, Acucela and Simply Measured, are either opening new offices or expanding rapidly. Developers are responding to this demand by moving fast to bring new projects to market. These projects include Dexter Station, 400 Fairview, Hill7 and Troy Block, which are all under construction.
Trammell Crow recently announced its 1007 Stewart project, while Holland Partners is developing buildings sites one through three at Westlake Steps, and Schnitzer’s ready to begin construction on its Urban Union development. These development sites are all located in the South Lake Union area in and around the Amazon projects. This addresses the demand seen from other tech firms that want to be near Amazon and the amenities – including retail, residential and mass transit options – that are now available.
Meanwhile, old-line traditional firms like banks, law firms, national CPA firms, insurance, etc., are either static or downsizing. Bank of America recently returned 400,000 square feet in Seattle, while US Bank has shrunk by 60,000 square feet.
The Pioneer Square submarket is another area that has been quite active lately. This region is popular with the smaller/younger tech firms looking for less expensive creative, loft-style office space. Landlords in this area have traditionally catered to this tenant group, and continue to do so today. Creative firms, including ad firms, architect firms, graphic design, public relations firms, etc., is the second most active sector in Seattle. Most are looking for brick-and-beam space, though a few have ended up in traditional drop-ceiling spaces.
Despite the strong leasing activity the past several years, the overall market still remains roughly in balance between landlords and tenants. The market vacancy is about 10 percent, but this is dropping slowly. Tenants with five-year leases can still expect to get three to five months of free rent and a tenant improvement allowance between $10 per square foot and $30 per square foot for second-generation space. Allowances jump to between $50 and $70 per square foot for shell space with a 10-year lease term. Lease rates in Seattle are varying greatly. Class A rates range anywhere from $30 to $50 per square foot, full-service, depending on location, lease term, tenant improvement allowance and view.
Seattle remains popular to both investors looking to acquire well-located, top-of-the-line assets like Rockwood, Commonwealth, Callahan, Hudson Pacific and LaSalle, and to developers that are bringing new products to market, including Skanska, Touchstone, American Life, Schnitzer West and Trammell Crow. Continued job growth and a strong local economy are bringing new investors and developers everyday to this region.
By Rod Keefe, Senior Vice President, Kidder Mathews. This story originally appeared in the June 2014 issue of Western Real Estate Business magazine.