Seattle Office Space News – December 2018

7/ January 2019

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of December 2018.

OFFICE DEVELOPMENTS

While the year was winding down, development in Seattle
continued at full speed with several new projects and updates hitting the
pipeline.

If it seems like the city just keeps getting taller, that’s because it is. In early December, the University of Washington won approval from the City Council for its massive growth plan, which includes a high-rise innovation district in West and South Campus. The university plans to construct up to 6 million square feet to accommodate over 7,000 new students and employees. For more information and a visual map on UW’s 10-year growth plan, visit this link.

It isn’t only the University District that will be getting taller and denser. The City Council intends to vote on up zoning parts of 27 Seattle neighborhoods this March, in an effort to create more housing. Councilman Rob Johnson, who is spearheading the plan, wants to take action quickly to ride the end of Seattle’s building boom. The plan would up zone parts of over two dozen neighborhoods but only affects 6% of the lots zoned for single-family homes. Affordable housing units will be interspersed with market-rate housing in an effort to combat Seattle’s housing inequality. A detailed look at the density changes and a map of the affected zones can be found here.

Google will be keeping its Fremont office even after its new 1 million square foot headquarters is complete. While Google originally had planned to move its employees into the new campus, that no longer appears to be the case. The tech company has filed building permits to improve its current campus at the Park View and Waterside buildings. Google’s decision to stay reflects its intentions of future growth, but also the tight market for tech-ready office space in Seattle.

The former Westlake Terry complex in South Lake Union is getting a $25 million makeover courtesy of Kilroy Realty, all for a “confidential tech client” that is almost definitely Amazon. The online retailer signed a 15 year lease for all the office space at the campus (275,000 square feet) in 2016. Amazon and Kilroy have yet to comment, but it is likely that the project will be finished in 2020. B+H Architects is listed as the architect on the project.

Finally, Seattle Children’s is building a new $400 million expansion to keep up with its own growth. The 310,000 square foot project is called Building Care, and will be north of the hospital’s Building Hope in the Emergency Department lot. The building will have eight floors above ground and one below, and will house new operating rooms, cardiac labs and spaces for teams in the Cancer and Blood Disorders Center.

BUILDING SALES

Sabey Corporation sold the historic Rainier Brewery building in Georgetown to Portland-based ScanlanKemperBard (SKB). SKB bought the property for $38.5 million, which was originally built in the early 1900s and is currently home to over 50 tenants. The property is about 187,000 rentable square feet and is over 90% leased with tenants such as Fran’s Chocolates, REI, and Elysian Brewing Co. SKB plans to maintain the building’s historic character while “elevating its stature”.

WeWork continues to be a driving force in the Seattle office market, this time as an investment asset. Clarion Partners purchased WeWork’s first Seattle location at 500 Yale Avenue North in South Lake Union for $52.35 million or $699/sf. Urban Renaissance Group and Stars Real Estate Investments sold the 74,853 square foot building  for just under $20 million more than the purchased it four years ago. WeWork has become a barometer of successful markets and therefore has helped investors decide whether or not to purchase and sell commercial buildings near WeWork offices.

OFFICE LEASES

Job-search engine Indeed will be taking 200,000 square feet (10 contiguous floors) in the new 38-story 2+U building, which is currently under construction in the central business district. Indeed is the first major tenant for the tower, which is scheduled to be complete midway through 2019.

The lease came as no surprise, as Indeed was rumored to be taking a large portion of the tower in September 2018. When complete, the 686,000 square foot tower will rise 85 feet off the ground and host an urban village of nearly a half-acre of open space and local retail.

Indeed is not the only tenant eyeing space in the new 2+U. WeWork co-working rival Spaces, an offshoot of Regus, has also leased 91,000 square feet in the tower. Spaces plans to occupy their floors in the 3rd Quarter of 2019, when the tower is scheduled for completion.

Spaces’ lease at 2+U may have been spurred on by WeWork’s seemingly-endless accumulation of new space. The co-working titan has leased its first location on Capitol Hill: the 86,000 square foot Kelly Springfield Building at 1525 11th Avenue. WeWork has taken the entire building, which has 73,000 square feet of office space and 13,000 square feet of retail. It is speculated that with all this retail space, this location may host WeWork’s first retail store in Seattle. WeWork noted Capitol Hill’s nightlife and plentiful amenities, in addition to the historic character of the building, as a driving factor for this new location.

Compass, the high-tech brokerage firm hailing from New York, has put down roots in Seattle to compete with local giants Zillow and Redfin. The region is quickly becoming a hub for real estate tech. Compass is seeking to hire at least 100 engineers for their new West Coast headquarters. Currently, Compass is located at the coworking space Industrious, but they have also leased additional space somewhere in downtown Seattle and are ready to bring on new talent.

ECONOMY

Apple plans to expand its Seattle employment numbers to more than 1,000 employees and establish a new site in the city. This Seattle expansion is just one part of a nation-wide expansion initiative it unveiled in mid-December. Austin, Texas landed Apple’s new 15,000 employee campus, but other cities including San Diego and Culver City will be expanding alongside Seattle.

Seattle’s urban-suburban divide continues to widen, with less than a quarter of the city’s land area absorbing more than 70% of the growth this decade. Seattle’s strict zoning laws in single-family neighborhoods make it almost impossible to increase density there. In addition, rising home prices effectively exclude the vast majority of people looking to live in those neighborhoods. If a home is unaffordable, then living there is, too. However, Seattle has, on the whole, become a more diverse and affluent city, with most neighborhoods diversifying over the last decade. For a detailed look at the census numbers, follow this link.

Despite Seattle’s rising affluence, housing inequality and zoning disparity continues to rise and cause increasing problems. An advisory report published by a city planning commission has concluded that single-family zoning has forced Seattle’s booming population into increasingly cramped sectors of the city that allow for higher density zoning. Single-family neighborhoods have remained mostly unchanged, but this new report proposes the idea of changing these zoning regulations. Naturally, these changes elicit plenty of controversy and outcry from single-family home neighborhoods, who do not want large multifamily blocks to change the character of their neighborhoods. The planning commission seeks to try and mitigate these fears by offering solutions that expand housing but do not affect neighborhood character: duplexes, single-story apartment buildings, and triplexes.

Office rent continues to rise in Seattle, which is unfortunate news for tenants but excellent news for landlords. As the demand for space escalates, driven mostly by tech companies, rents continue to climb in response. While construction booms downtown, space is snapped up almost before it is built. More than three quarters of the 5.8 million square feet under construction has already been claimed, which is bad news for tenants seeking space and we forecast a supply problem in the next 2 years.

ARENA

Early in December, work began on the new $800 million Key Arena renovation. The NHL is most definitely coming to Seattle, having approved Seattle as the 32nd NHL franchise team. The project has hit the ground running and will nearly double the interior of the arena to 750,000 square feet. The arrival of the NHL will give Seattle’s growing population of transplants something to rally around in the winter months.

In addition to the stadium renovation, Seattle’s new team is likely going to approve Seattle’s plan to build a 180,000 square foot practice facility at Northgate Mall (image slideshow at link). The team will not begin its first season until 2021.

Seattle’s new NHL team is likely to bring about a phenomenon that the city is not prepared for: a massive increase in amateur hockey interest. Both children and adults are expected to flock to beginner classes in the area once the team begins playing at Key Arena.  Sno-King, an Eastside-based amateur hockey association, operates two of the 6 rinks in the Seattle area, and those rinks are already crowded. To help alleviate all these extra people, Sno-King and other amateur associations are hoping to attain membership at the new Northgate Mall practice facility. These associations are excited about the new popularity and interest in hockey once the NHL arrives, and they want to be ready for it.

Oak View Group has announced a new roster on the design and construction of the new Key Arena, replacing Skanska and Aecom Hunt with Mortenson construction company. The desire for a single-source team led this replacement, and Skanska Hunt appears to have been congenial about the replacement as well. Mortenson has built more than 170 sports and entertainment venues and is certainly more than qualified to work on Key Arena, since they actually did some of its pre-construction work. The project is expected to cost between $800 and $850 million, and is privately funded.

TRANSIT

Highway 99 is scheduled to close on January 11, 2019, and Seattle is about to enter the “period of maximum constraint” when it comes to traffic. Yes, sadly, as bad as traffic is now, it’s about to get worse. And despite the opening of the new tunnel this summer, impacts on traffic will continue long after Highway 99 is open again. The waterfront area will be congested and hard to navigate until 2021, when the new waterfront central streets open. The downtown transit tunnel will soon become a light-rail corridor, displacing bus routes onto the surface streets. Maximum constraint won’t end until 2023. Unfortunately, this will be the “new normal.”

The Viaduct will be crunched and pulverized over the course of 5 ½ months by Kiewit Infrastructure West, hanging cloth barriers to protect nearby buildings. Crews will work from the top levels downward, moving the debris once it has been pulverized enough. Demolition equipment will move around the waterfront area as needed, but all businesses on the waterfront will remain open during demolition. The central waterfront will likely be open and clear of all equipment by Memorial Day, and by June 1, clear views of the waterfront will be visible throughout the city – sans Viaduct. Prepare for some extra noise downtown, however, as crews will be able to perform heavy demolition from 7am to 10pm in order to meet the June 1 deadline.

In the wake of this Viaduct shutdown, Seattle businesses are doing everything they can to help their employees navigate the “period of maximum constraint”. Plenty are incentivizing or subsidizing transit travel, giving free ORCA cards during January and February. Others are encouraging their employees to work from home, avoid downtown during peak commute hours, and shift schedules to keep people off the highways.

The Seattle Times requested reader questions about the Viaduct closure and new tunnel, and readers submitted over 600 of them. Answers about tolls, bus routes, detours, bike paths, and more can be found here. For those especially worried about tsunamis during the “period of maximum constraint” (in addition to other matters), this link is for you.

OTHER NEWS

Home Plate Center in SoDo is about to be the scene of a landmark legal case that could change the way EB-5 developers relate to their investors. American Life, developer of Home Place Center, formed an EB-5 limited partnership and offered investors an opportunity to cash out on their Home Place Center investment, or take a new stake in the new partnership. However, that limited partnership is now disputing the worth of their investment. Building permits suggest that Facebook is about to move into the office complex and that would substantially raise the worth of their investment – or so the partnership thinks. The court will decide how much their investment is worth, and the decision could have significant ripple effects on future EB-5 investment partnerships.

Seattle’s grand vision for the new waterfront is currently on hold, as the proposed Local improvement district (LID) is being challenged by some business owners. The LID plans to tax downtown property owners up to $200 million to fund the new waterfront park and promenade, and some members are refusing to pay. If enough owners protest the LID, the legislation will be blocked. Currently, the decision has been pushed to early January.

Technology is now helping tenants view their office space in virtual reality – well before it has even been built. Architects, developers, and builders have all started to use virtual and augmented reality tech to help prospective tenants visualize an unfinished space – literally. Avalara Hawk Tower used this tech when the building was still just an empty lot. Now, more and more businesses are seeing the benefits of the VR preview. While this technology has yet to become widespread, interest continues to rise. By allowing the tenant to walk through the space before it has even been built, communication and satisfaction between tenants, brokers, and architects/contractors will only increase and sync up faster.

Written by // flinn

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