Q1 2015 Seattle Office Market – Tenant Perspective
28/ April 2015
General Conclusion: Seattle’s office market continued rapid growth with vacancy decreasing to 9.0% in Q1 2015 down from 10.2% one year prior. This decrease was in part due to 278,452 square feet of positive absorption in Q1. Due to strong demand for Seattle commercial real estate investment product and increasing demand for space, we expect rental rates across all submarkets and building classes to continue to increase. We expect market fundamentals to be in the favor of landlords for all of 2015.
Economy: The northwest has continued to add jobs in 2015. Some of the more visible job growth is coming from companies outside of Washington who are setting up shop in Seattle to tap into our rich talent pool. Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.5% in February 2015 according to The Washington State Employment Security Department. The Bureau of Labor Statistics is reporting the same unemployment rate for the Seattle/Tacoma/Bellevue area.
Office Construction: The office construction boom continues in Seattle with the following developments under construction:
- Amazon II, and Amazon Phases VI, VII & VIII totaling:~ 2,094,000 square feet
- Troy Block :~817,000 square feet
- Madison Centre:~750,00 square feet
- Fifth & Columbia tower:~528,000 square feet
- 200 Occidental:~370,00 square feet *
- 400 Fairview:~367,898 square feet
- Midtown 21:~365,00 square feet *
- Dexter Station:~ 345,992 square feet
- Urban Union:~291,00 square feet
- Hill 7:~285,000 square feet
- Allen Institute for Brain Science:~272,408
- North edge:~202,620 square feet
- 1101 Westlake:~ 150,000 square feet
* = broke ground in Q1 2015
Given the health of Seattle’s market, office developers are eager to break ground. The following proposed developments made news in the first quarter of 2015:
- Project: Yesler Terrace, Size: 5,000 residences and 900,000 square feet of tech or medical office space, Location: Southern portion of First Hill, Developer: Vulcan.
- Project: Second and University, Size: Between 12,000-30,000 square feet of retail and 510,000-690,000 square feet of office space, Location: Between First and Second avenues and Seneca and University, Developer: Skanska.
- Project: Third and Harrison, Size: 183,779 square feet of office space, Location:229 West Harrison Street, Developer: Martin Selig.
- Project: Former CarQuest Site, Size: 105,432 square feet, Location: 744 N. 34th Street, Developer: First Western Development and Stephen Grey & Associates.
- Project: Former King 5 Site, Size: Unknown, up to twelve stories, Location: 333 Dexter Ave N, Developer: Kilroy Realty Corp.
- Project: Former Buca Di Beppo Site, Size: Unknown, Location: 721 Ninth Ave N, Developer: Walton Street Capital, Talon, and Lake Union Partners.
Office Sales: Q1 2015 continued to provide proof of the robust demand for office investment in Seattle. The following transactions were completed in Q1 2015:
- Project/Location: Metropolitan Park East & West located at 1100 Olive Way, Price $272.8 Million, Size: 729,750 SF Price/SF $374, Buyer: CBRE Global, Seller: Brookfield
- Project/Location: Seattle Trade and Technology Center located at 2601 Elliott, Price $170 Million, Size: 335,500 SF Price/SF $507, Buyer: JP Morgan Chase, Seller: Wright Runstad & Shorenstein Properties.
- Project/Location: Smith Tower located at 506 2nd Ave, Price $73.7 Million, Size: 264,350 SF Price/SF $279, Buyer: Unico, Seller:
- Project/Location: Blanchard Plaza located at 2601 6th Ave, Price $122.6 Million, Size: 255,818 SF Price/SF $479.48, Buyer: AFL-CIO Building Investment Trust, Seller: Shorenstein Realty Services.
- Project/Location: 401 Terry, Price $106.125 Million, Size: 140,605 SF Price/SF $754.77, Buyer: Kilroy Realty Corp, Seller: Vulcan Inc.
- Project/Location: 1213 Valley Street and surrounding land, Price $20.5 Million, Size: 35,500 SF Price/SF $580, Buyer: Seattle Cancer Care Alliance, Seller: I-5 Limited Liability Co.
- Project/Location: Former Federal Reserve Building located at 1015 Second Ave, Price: $16 Million, Size: 99,148 SF Price/SF $161, Buyer: Martin Selig Real Estate, Seller: GSA Real Property.
- Project/Location: Rosen Building located at 960 Republican, Price $170 Million, Size: 60,375 SF Price/SF $507, Buyer: JP Morgan Chase, Seller:
There were two office sales in the first quarter that already have new proposed developments and were mentioned earlier under the proposed development sections: the former Pemco and KING 5 sites.
Finally, Vulcan has begun to list some of assets in south lake union for sale: The first is PATH’s headquarters building at 2201 Westlake. The 317,200 square foot building is completely full and is home to other tenants such as Amazon and West Elm home furnishings.
Office Leases: Office leasing activity was on fire again this quarter. Below are lease transactions that were concluded in Q1 2015:
- Tenant: Amazon, Size: 817,000, Project/Location: Troy Block located at 307 Fairview Ave N, Landlord: Touchstone Corp.
- Tenant: Facebook, Size: 280,000, Project/Location: Dexter Station located at 1101 Dexter Ave. N, Landlord: Capstone Partners.
- Tenant: Homestreet Bank, Size: 142,000, Project/Location: Two Union Square located at 601 Union Street, Landlord: Washington Holdings.
- Tenant: Galvanize, Size: 71,000, Project/Location: 111 S Jackson, Landlord: Brickman Real Estate.
- Tenant: Nokia, Size: 41,750, Project/Location: One Convention located at 701 Pike Street, Landlord: Deutsche Asset Management.
- Tenant: Indeed, Size: 16,194, Project/Location: National Building located at 1020 Western Ave, Landlord: Washington State Department of Transportation.
- Tenant: X5, Size: 8,487, Project/Location: National Building located at 1020 Western Ave, Landlord: Washington State Department of Transportation.
- Tenant: Best Buy, Size: 32,000, Project/Location: Seattle Times Building located at 1000 Denny Way, Landlord: Century Pacific.
- Tenant: HBO, Size: Unknown, Project/Location: Hill 7 located at 1730 Minor Ave, Landlord: Touchstone Corp.
- Tenant: Porch, Size: 50,000, Project/Location: Former Zulily Headquarters located at 2200 First Ave South, Landlord: Urban Renaissance Group.
- Tenant: King 5, Size: Unknown, up to three floors, Project/Location: Home plate center located at 1501 1st Ave S, Landlord: American life.
Below is a table providing information for the major submarkets of Seattle:
The total vacancy rate for Seattle is 9%.
If your company:
- Doesn’t need to move
- Has an upcoming space/lease requirement in the next 2 years
- Can reasonably forecast headcount needs for years into the future
- Has a rental rate in line with or above market
– 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:
- Might need to move
- Needs size flexibility
- Wants to pursue a sublease or plug-n-play opportunity
- Prefers not to commit to a lease term beyond the next six months
– 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.