General Conclusion: The vacancy rate in Seattle’s office market dipped to 9.5% at the end of Q4 2014 and positive absorption for the year concluded at 1,392,917 square feet. Looking ahead to 2015, strong demand for Seattle commercial real estate investment product is anticipated with rental rates rising and a decrease in concessions. Barring any unforeseeable geopolitical or economic crises, market forces will be trending in the favor of landlords for all of 2015.
Economy: According to the Washington State Economic and Revenue Forecast Counsel, the moderate pace of economic recovery should continue in Washington. The Washington State Employment Security Department reported that the State’s preliminary seasonally adjusted unemployment rate for November 2014 was 6.2% down from 6.8% in November of 2013. The unemployment rate reported by the Bureau of Labor Statistics dropped from 6% at the start of 2014 to 5.1% as of November in the Seattle/Tacoma/Bellevue area.
Office Construction: Office development activity took a big jump at the end of 2014 with several significant projects breaking ground. Notable office buildings currently under construction include:
Many of these projects have started construction without any pre-lease, which is a significant sign that developers and capital markets are increasingly confident about Seattle’s office market. Also, it should be noted that office buildings under construction are no longer limited to the South Lake Union and Denny Triangle submarkets as 1,274,000 square feet of office is under construction in the CBD. We should expect more news of office projects breaking ground throughout Seattle into 2015.
Office Sales: Sales activity remained strong at the end of 2014 with the continued trend of institutional developers and investors from outside of the area buying Seattle assets. The following notable transactions were completed in Q4 2014:
Additionally, the following buildings are pending a sale:
Office Leases: Office leasing activity closed the year in strong form. Below are lease transactions that were concluded in Q4 2014:
Below is a table providing information for the major submarkets of Seattle:
The total vacancy rate for Seattle at the end of 2014 is 9.5%.
If your company:
– Start educating yourself on available alternatives and negotiating with your current building to get an understanding of your landlord’s position in the market. Given the increasing pressure on rents and decreasing concessions, companies are incentivized to be educated on proposed developments that will be delivering in 18-24 months. It is also helpful to be educated on the market so you can prepare to react quickly to increasingly volatile conditions.
Alternatively, if your company:
– Wait until six months prior to your lease expiration and be prepared to act quickly. The three to six month window prior to lease expiration is when you are most attractive to potential landlords and when they will offer you the best economics. However, have a lease/sublease signed three months before your lease expires. You don’t want to be in a holdover situation or without space and you need to give your company time to complete tenant improvements and plan a move.