General Conclusion: At the start of 2014, the vacancy rate for Seattle’s office market dipped below 10% for the first time in this cycle to 9.9% and .6% below the 10.5% rate in Q4 2013. Year to date positive absorption is already 347,990 square feet signaling a fast start to an increasingly tight market. Rental rates are high and concessions are decreasing for all submarkets and building classes when compared to recent years. Office owners, developers and investors are extremely confident about the Seattle market and the Puget Sound region.
Economy: The seasonally adjusted unemployment rate for the state of Washington continues to drop as it is now 6.4% according to The Washington State Employment Security Department. The state unemployment rate was 6.8% last quarter and 7.2% at this time in 2013. According to the Bureau of Labor Statistics, the Seattle/Tacoma/Bellevue unemployment rate increased slightly to 6% in February although it is also historically low. Confidence in the regional economy is also supported the strong residential real estate market with indicators like property valuations and sales volume at pre-recession levels.
Office Construction: In the first quarter of 2014, Amazon broke ground on phase one of their proposed 3.3 Million square foot development in South Lake Union. Also, a couple of office developers announced plans to begin construction on speculative projects including Schnitzer West (278,000 sf at 501 Fairview) and Holland Partner Group (150,000sf of office as part of a mixed use project at 1101 Westlake). Other notable office projects that are under construction include: 400 Fairview (360,000sf (Tommy Bahama as anchor tenant)), Dexter Station (~341,000 square feet), Hill7 (~300,000 square feet), Stone34 (129,000 square feet for Brooks Sports), and a couple of Vulcan projects in South Lake Union (260,000 for the Allen Institute for Brain Science and 380,000sf for Amazon Phase VI). There are still a lot of other proposed office developments that are on hold until they achieve significant pre-lease at top of the market rental rates.
Office Sales: Investment interest and activity in office product in Seattle continues to be extremely strong. The following transactions were completed in Q1 2014:
Office Leases: Below are lease transactions that were concluded in Q1 2014:
Below is a table providing information for the major submarkets of Seattle:
The total vacancy rate for Seattle is 9.9%.
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 competitive 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.