We saw plenty of activity in 2011 in both office leasing and the sale of office buildings in the Greater Seattle area, particularly in the Downtown core markets of Seattle and Bellevue. Amazon alone has leased 460,000 square feet at 1918 8th Ave.; 281,000 square feet at West 8th Avenue; and 106,000 square feet at the 1260 Mercer Building. KPMG has also leased 50,000 square feet at 1918 8th Ave. Other notable leases include Boeing’s 45,000 square feet at the Russell Investments Center; Allrecipes.com’s expansion to more than 55,000 square feet at the 5th & Pine Building; Facebook occupying 27,000 square feet at Met Park; Getty Images agreeing to nearly 60,000 square feet at 605 Union Station; and Brooks Sports inking a pre-lease agreement for 80,000 square feet for a yet-to-be-built office in the north Lake Union submarket.
There have also been some major sales in the Greater Seattle market. These include the sale of 1918 8th Ave. and 818 Stewart by Schnitzer West to JPMorgan; Westlake Center Office Tower to TIAA by GGP; 505 1st Ave. and 83 King to Spear Street by Starbucks; Seattle Tower by LaeRoc Partners to the Teachers Retirement System of Illinois. As of December 2011, Tishman’s Second & Seneca Building, Northwestern Mutual’s Russell Investments Center, and Walton Street’s Met Park I and II are for sale and predicted to trade in 2012.
While Seattle has experienced explosive demand, Bellevue, its neighbor to the east, has not had the same level of activity. There are signs, however, that this market is slowly turning a corner. Similar to Seattle, the majority of demand is coming from expanding companies in the high-tech industry. For example, Expedia expanded to 54,000 square feet at Skyline Tower, and it is anticipated that the company will need even more space in the future. The real bright spot in Bellevue is the I-90 corridor. Intellectual Ventures (150,000 square feet); ArenaNet (67,000 square feet); HTC (54,000 square feet); and eFinancial (31,000 square feet) have taken down a total of more than 300,000 square feet. These four transactions have contributed to more than half of the Bellevue office market’s positive absorption in 2011.
Bellevue also has a number of major office projects in the development pipeline, though none will move forward without a significant pre-lease. The most likely candidates to drive development come from the fast-growing high-tech sector. Major sales in the Bellevue market include the two Class A office buildings purchased by Kilroy Realty; the Key Tower in Downtown Bellevue that traded for $445 per square foot and Plaza at Yarrow Bay in nearby Kirkland, which traded for $359 per square foot. Brickman’s Civica Office Commons in Downtown Bellevue is also on the market and expected to close in 2012.
As we enter 2012, we expect to see increased rental rates as vacancies drop and investors continue their appetites for core trophy properties in Seattle and Bellevue. Seattle vacancy will drop from 20 percent to 15 percent, and Bellevue should decrease from 14 percent to 13 percent by the end of 2012.
— Rod Keefe, senior vice president and office broker, Kidder Mathews' Downtown Seattle office.