Who Will Shape Seattle’s Skyline Next?

6/ December 2012

It is the time in the cycle again for Seattle when office developers are almost ready to build ‘on spec’ (without pre-lease).  The overall Seattle office vacancy rate is 11% and dropping, and very little new office building construction is under way.   Below are some buildings that are delivering or breaking ground soon on a speculative basis:

Building/Location             SF Office              Developer               Delivery

400 Fairview                           316,000                  Skanska                     Q4 2014

HomePlate Center North       151,842                   American Life           Q3 2012

Hill 7                                          300,000                 Touchstone               Q4 2015

200 Occidental                        175,000                  Urban Visions           Q1 2015

5th & Columbia                       528,000                  Daniels Real Estate  TBD

These buildings total 942,842 square feet of new office space delivery over the next couple of years.  Seattle’s office market totals 73,371,567 square feet (according to commercial real estate resource CoStar) which means the new development will soften the market by only 1.3%.  Why aren’t more cranes in the ground for office?

The main challenge for office developers in this cycle has been financing.  Money partners willing to take risk on office product are scarce.  Most developers will need a triple-A credit tenant to pre-lease at least 1/3 of their building at a rental rate of $32.00-$40.00/SF/ NNN for the ‘bank’ to fund swinging hammers.  Then, after that pre-lease, it will take 18-36 months before space is ready for occupancy.

Regardless, many office developers in Seattle have already assembled their land and they are finished with the preliminary design stage.  The next step is to begin the entitlements and permitting processes.   Below is a list of proposed Seattle office projects and developers who are waiting for a significant prelease:

Building/Location             SF Office Possible              Developer

Stadium East                           1,460,000                                 Urban Visions

601 Fourth Avenue                593,452                                     Triad Development

Madison Centre                       750,000                                    Schnitzer West

Troy Block                               800,000                                    Touchstone

Vulcan S. Lake Union             Several Million                         Vulcan

Yale Campus & 624 Yale       746,000                                     The Blume Company

Westlake Steps                       1,500,000                                  Equity Office Properties

NorthEdge                               228,000                                     Touchstone

HomePlate Center S.             189,602                                      American Life

What does this mean for office tenants in Seattle?

With no significant, available, new office space construction in the foreseeable future, the market will likely continue to tighten.  I know too well that office tenants don’t like higher rent.  However, the optimist in me believes that as the economy continues to improve, businesses will grow and space will be naturally absorbed.  If this happens, the vacancy rates will decrease and rents will increase.

Written by // Jade Rice