General Conclusion: Seattle’s office market in Q3 2014 remained relatively flat when compared to Q2 as the vacancy rate increased slightly to 10.2% and year to date positive absorption remained at 492,310 square feet. However, due to strong demand for Seattle commercial real estate investment product, rental rates across all submarkets and building classes are still on the rise while concessions continue to decrease. Market fundamentals have been in the favor of landlords for all of 2014.
Economy: In general, local and regional economic data inspires cautious optimism about a slow and steady recovery. David Schumacher, director of The Office of Financial Management, said “It is encouraging to see this economic and revenue growth, but we are still climbing out of a deep hole.” Washington’s preliminary seasonally adjusted unemployment rate dropped to 5.9% in September according to The Washington State Employment Security Department. The Bureau of Labor Statistics is reporting an unemployment rate of 5.3% as of August for the Seattle/Tacoma/Bellevue area.
Office Construction: Office development activity is steadily ramping up. Notable projects currently under construction include:
Two projects broke ground in Q3 2014:
Also in Q3, Touchstone and Trammell Crow announced plans to break ground soon on Tilt 49 (~307,000 square feet at 1812 Boren) and 1007 Stewart (365,000sf of office) respectively. It should be noted that all of the existing office construction is in South Lake Union or the Denny Triangle, which doesn’t pose much of a supply relief in Seattle’s Central Business District. All of the proposed office developments in the CBD are on hold until they achieve significant pre-lease at top of the market rental rates. Activity for the CBD projects is limited.
Office Sales: Sales action in Q3 2014 was steady as institutional developers and investors from all over the world are eager to grab a stake in the Seattle market. The following transactions were completed in Q3 2014:
The above closings only scratch the surface of the story because the following properties came to market in Q3:
Office Leases: Office leasing activity was on fire again this quarter. Below are lease transactions that were concluded in Q3 2014:
Below is a table providing information for the major submarkets of Seattle:
The total vacancy rate for Seattle is 10.2%.
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.