Seattle Office Space News – June 2018

10/ July 2018

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

BUILDING SALES

It was reported in June that four Amazon-leased buildings are speculated to sell this year. The sudden interest in selling indicates that at least some investors consider this the “peak” of the market. The offices to watch this year include the Troy Blocks (both North and South), and the Macy’s Building. Amazon’s Roxanne building, located at 202 Westlake Avenue N, already sold for $992 per square foot ($192.5 million total). The seller, GLL Real Estate Partners, sold the property for 33% more than they paid for it in 2013.

Also, Alexandria Real Estate paid Blackstone Group $95 million ($475 per square foot) for another Amazon-leased building: Fifth & Bell at 2301 5th Ave in Belltown. Amazon occupies around 186,750 square feet in the building, which is over 90% of the building.

Pet insurance company Trupanion announced that it will be purchasing its Seattle headquarters building at 6100 4th Ave S. in Seattle’s Georgetown neighborhood for $65 million ($283 per square foot) from Benaroya Capital Co. Benaroya paid $26.3 million for the building in 2005 and converted it from a retail to an office building.  Trupanion moved there from Ballard three years ago, hoping to account for its growth and seeking more affordable rent.  Trupanion leased 108,218 square feet of the 229,134 square foot building. Other tenants in the building include Sur la Table and Aerotec. The sale is set to close in August.

OFFICE LEASES

The former Seattle City Light Steam Plant on Lake Union will continue as a laboratory and research space for the foreseeable future. Fred Hutchinson Cancer Research Center will be taking over the 106,000 square foot building in fall 2019. With the generous lab buildout already in place, “The Hutch” seeks to cut down on time wasted building an entirely new lab, instead focusing on getting their employees and scientists straight to the business of cancer research. The lease will span 10 years, and the financial terms have not been disclosed.

Midwest-based law firm Polsinelli leased a new space in Seattle on the 35th floor of Martin Selig’s 1000 Second Avenue tower. The space is 10,289 square feet and boasts 15 window offices for attorneys, giving the firm (currently at 8 lawyers) room to grow. For look at Polsinelli’s new space, click here:

ECONOMY

Seattle’s “Head Tax” controversy, proposed to alleviate our homelessness crisis,  has shaken not only this market, but cities all across the nation as Amazon’s HQ2 finalists take their own stances on the issue. Some cities like Pittsburgh and the finalists in Texas lambasted the tax and Seattle for being “anti-business”, using the time to assure Amazon that nothing of the sort would befall them in their city. Other cities took a different tack, writing to Seattle and imploring them to follow through with the tax as a way to cement the city’s authority (as well as the autonomy of other cities by association).

After the passing of the Head Tax, a campaign was started to get the tax repeal on the ballot. The No Tax on Jobs campaign has support from many local firms and businesses, and sought to get 18,000 signatures of registered voters by mid-June to get the referendum on this November’s ballot.

Due to the referendum’s heavy support and the overall backlash regarding the Head Tax, Seattle city leaders suddenly backpedaled in mid-June saying it was likely that they would repeal the vote. Mayor Jenny Durkan sought to avoid a “prolonged, expensive political fight” and announced the pending repeal to both praise and disappointment.

The tax was indeed repealed less than a month after its passing, with the vote going 7-2 on repeal versus uphold. After working for more than nine months to find a solution, the City is now no closer to enacting measures to alleviate homelessness than it was before. While plenty of people are disappointed with the tax repeal, the majority of the council – as well as at least 45,000 people who signed the No Tax on Jobs petition – lauded the repeal as sound economic policy that would not punish job creation.

Following this result Amazon praised the repeal, calling it “the right decision for the region’s economic prosperity.” The company expressed a desire to help find a solution to Seattle’s homeless problem, and will continue to invest in homeless support charities such as Mary’s Place and FareStart. This is the first statement of support by Amazon regarding the City Council since discussions began regarding the Head Tax. After stopping construction on an office development and threatening to pull out of major office leases in Seattle, this message of support is echoed by dozens of smaller companies that would also have been radically affected by the Head Tax. Local businesses seem to be using the Head Tax debate and repeal as a way to get involved in the homelessness crisis. The City Council as well as those in the business center are both in agreement that a less divisive, more productive effort will be needed to properly solve the crisis of Seattle homelessness.

A lack of leadership regarding this problem – present on both sides of the issue – has contributed to the lack of communication and forward movement toward a solution. Some have cited Seattle’s dislike of open confrontation as a roadblock towards positive momentum. Businesses are afraid to get political, have an opinion, and fund issues that are important. Still, the Head Tax issue has gotten a lot of formerly silent people to sit up and take notice. Plenty are hopeful that this is a wakeup call to the entire community and a good start to get the community moving forward toward a solution.

While the drama and speculation revolving around the Head Tax was new and divisive, it’s been business-as-usual regarding the Seattle housing market. Seattle’s nation-leading streak in home prices is now tied for the title of 2nd longest on record. The cost of a single family home in the Seattle area grew 13.1 percent in April compared to the previous year, and over the last 20 months, the cost of a Seattle home has grown $200,000. The only two contenders for Seattle’s longest-ever streak is San Francisco, who led the country in housing price increases for 20 months between 1999 and 2001, and Portland, who did so for 23 straight months between 1990 and 1992.

The downside of a hot housing market is the burden it puts on home buyers. Nearly a third of households in the country spent more than 30% of their income on housing in 2016 – a condition known as being “cost-burdened” by housing.  While wages have increased in recent years after the recession ended, housing costs rose 41% faster than inflation, and median rents rose 20% faster. The age-old problem of supply and demand is also causing extreme strain. Multi-family housing, in particular, is at a serious shortage. While homeownership is actually up for the first time in 13 years, the people fueling this increase are a shrinking population at the top of the economic ladder.

The Seattle area has long seen a lack of houses available for sale, which has in turn ratcheted up prices and cut down on listing times. However, small pockets of the market have actually seen an increase in inventory. Some real estate experts, like Moya Skillman of Avenue Properties, says she senses a change in the air. With more inventory being built or selling off, prices – and the ferocious pace of housing sales – may finally be on a slight decline.

Has Seattle’s epic construction boom finally begun its decline? The decreasing number of cranes dotting the skyline hints at “yes.” Another hint comes with the 54% decrease in the value of construction starts this year. In the first four months of 2018, there were $1.36 billion worth of construction starting for office and non-residential construction. Last year in that time, the number was $3 billion. Still, some large projects are set to begin construction, and those starts could push numbers back up. Work on the Convention Center addition will total $1.7 billion, and in Bellevue construction began on both an 11-story office building and a $180 million medical tower.

OTHER NEWS

You’ve heard about – and likely walked through – Amazon’s corner of Downtown Seattle. See “Amazonia” through the eyes of a visitor as Geekwire’s summer intern takes a day-by-day tour through the tech giant’s public (and private) world. Spheres, dog-friendly lobbies, and more await you here.

Thinking about moving your office? Want to know what a relocation really looks like? Karen Sherwood of Avalara has overseen over a dozen office moves in the last ten years, and she’s here to give you a summary of exactly what it takes. A quick takeaway: “Something always goes wrong.”

Airbnb has officially opened its new Seattle office worth 42,000 square feet in the 8th + Olive building, and they want to show it off. With room for over 300 people, the tech company has put down some firm roots and intends to grow. For a first look at their unique, “home”-inspired office layout, follow this link.

Looking for office space in Seattle? Get in line. The vacancy rate in Seattle is below 5%, and Bellevue is projected to drop to 2.9% in 2019. With this squeeze on space, it’s crucial that business owners re-think their office layouts and seek to maximize the space they have – because it may be all they’ve got. Open, flexible layouts support technology, growth, and the ability to add density to a floorplan. When planning an office space, it’s important to keep an open mind and utilize any and all new advances in space planning, to better leverage today’s mobile workforce and accommodate changes with grace.

Written by // flinn

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