Q2 2012 – Seattle Office Market Overview – Tenant Perspective

16/ August 2012

Analyzing the DataGeneral Conclusion: The market is tightening.  Vacancy rates should continue to decrease through 2013 barring a complete Eurozone meltdown.  Upward pressure should continue on rental rates while concession packages available to tenants should decrease.

Through the first two quarters of 2012, all information sources have shown the following trends:

  • Increasing rental rates
  • Decreasing vacancy rates
  • Positive absorption

Economy: Despite uncertainty in the global economic picture, Seattle has put the recession in the rear view mirror.  Demand for space has consistently increased over the past six months driven mostly by job growth in manufacturing, technology, and construction (multifamily related).  According to the Bureau of Labor Statistics, the regional unemployment rate has shown a steady decrease.

Need Supply: In order for the Seattle office market to soften, the supply of space is going to need to exceed the demand.  There are no indications that this will happen in the foreseeable.  Supply is created by companies giving back significant amounts of space (think WAMU in 2008) and by new construction.  Bank of America, Real Networks and Dendreon are the biggest companies rumored to be giving back space, but combined they will only affect the market by a fraction of a point.  Additionally dozens of companies have been expanding, most notably: Facebook, Tableau Software, Zillow, F5 Networks, Zulily.com, Amazon, Nordstrom, and Boeing.

There are two planned office building developments of significance (over 500,000sf) in the Seattle market.  They are 5th & Madison and 5th & Columbia.  The soonest these buildings will hit the market ready for tenant improvements is late 2015.  Each building will need a pre-lease of roughly 1/3 of the building at a NNN rate in the mid $30’s/SF to get financing. Otherwise, the only new office projects in Seattle are: Spear Street’s 156,577sf building that recently broke ground at 202 Westlake (rumored to be leased by Amazon), Homeplate Center Phase 1 delivered ~150,000sf of office in SODO, and Skanska’s proposed  301,000sf office building at 400 Fairview.

Outside $ Driving Up Rents:  Another factor which inflates rent is the investment of outside institutions in Seattle office buildings.  When institutions pay too much for office buildings based on an above market pro-forma rent schedule, they must keep rents high in order to justify these prices to their investors.  In Q2 the following significant transactions took place:

  1. Russell Investments Center – $480 million ($550/sf) – bought by Commonwealth Partners
  2. Metropolitan Park East/West – $201 million – bought by Brookfield Office Properties
  3. Lake View and Fremont Lake – $146 million – bought by Kilroy Realty
  4. 1600 7th – $137 million – bought by Clarion Partners
  5. Metropolitan Park North – $61 million – bought by Spear Street Capital
  6. 500 Yale and RepublicanBuildings – $49 million – bought by LBA Realty

Market Reports:  Attached are a couple of market reports for your review:

  1. 2012 office market report published by the Downtown Seattle Association.  Although the DSA uses information from CBRE, it is meant to offer an independent understanding of the state of the market.
  2. Below is a table providing information for the major submarkets of Seattle:

The total vacancy rate for Seattle is 10.8%, which is the number I tell my customers.

Below is a compilation of info gathered from market reports of 5 brokerage companies in the area. The variance in numbers is due to different methods of calculation.  Also, some of these companies report for Seattle specifically, while others only provide numbers for the region as a whole.

Overall, what these companies agree on is that vacancy has decreased, positive absorption continues, and rental rates are increasing.


If your company:

  1. Doesn’t need to move
  2. Has an upcoming space/lease requirement in the next 2 years
  3. Can forecast headcount needs for years into the future
  4. Has a rental rate in line with or above market

– Start educating yourself on available alternatives and negotiating with your current building as soon as possible.  Given the foreseeable upward pressure on rents, look for buildings/spaces that your organization can use to leverage renewal discussions today.  The educational process is quick/free and should only take a couple of hours.

Alternatively, if your company:

  1. Might need to move
  2. Needs size flexibility
  3. Wants to pursue a sublease or plug-n-play opportunity
  4. 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.

Written by // Jade Rice