By Jack Stubbs
It will come as little surprise to anyone tracking the Puget Sound commercial real estate marketplace that leasing activity in all of Seattle’s submarkets has become increasingly driven by the rapidly expanding tech industry. “The tech companies are infiltrating every neighborhood in Seattle because the owners are getting more accommodating, and the space is becoming more what they want,” Alex Muir, research analyst at the global commercial real estate brokerage and consulting company Jones Lang LaSalle, said.
According to David Abbott, senior vice president at Colliers International in Seattle, his company has already been involved in over 1 million square feet of lease transactions during just the first two quarters of this year. Three of the most prominent deals that Colliers brokered involved Amazon, which leased the Troy Block Buildings, 817,000 square feet of space in Seattle’s South Lake Union submarket; Facebook, which leased Dexter Station, a 274,000 square foot block in South Lake Union; and HBO, which leased Hill7, a 112,000 square foot space in Seattle’s CBD. While these three specific transactions—all of which went into ‘Class A’ space—involved heavy hitters in the tech industry, the broader leasing landscape is also becoming increasingly shaped by tech, according to Abbott. “A lot of the velocity and demand has been driven by tech, and a lot of the growth has been organic. It’s not only been the headline deals. We’re also seeing companies that are expanding their existing footprint within their building.”
It’s not only been the headline deals. We’re also seeing companies that are expanding their existing footprint within their building.
Some of the key stats from Colliers’ Q1 Research and Forecast Report suggest that leasing activity in the Puget Sound region shows no signs of slowing: the Seattle submarket achieved a net absorption of 395,622 square feet. The vacancy rate declined 40 basis points from the fourth quarter of 2014 to 9.8 percent in the first quarter of this year. There are also 8.2 million square feet currently under construction across the region, with 58 percent of space for those projects preleased. According to the report, the tech industry accounts for 90 percent of preleases and over 60 percent of tenants currently in the market looking for space.
The technology industry is presently making waves across the Seattle leasing landscape, according to JLL’s first quarter Seattle Office Market Overview. Notable completed transactions included Porch.com’s acquisition of 2200 First, a 75,313 square foot space in South Seattle, and Nokia’s capture of One Convention Place, a 41,750 square foot block in Seattle’s CBD. Seattle’s various individual submarkets are currently a very attractive option for tech companies looking to locate there right now—however, the entire Seattle market is showing extreme potential for future growth, as well. “There’s no question. The Puget Sound region has definitely arrived as a major technology hub in the nation for companies looking to grow and expand their footprint,” Chris Hughes, managing director at JLL, said.
Some office statistics from JLL’s first quarter report also indicate the current success of the submarkets. The first quarter vacancy rate for the CBD was 11.4 percent, 1.3 percent for the Ballard/U District, 7.8 percent for South Lake Union, 5.7 percent for Belltown/Denny Regrade and 7.7 percent for the Pioneer Square District. All of these five vacancy rates are down from the fourth quarter of last year, indicating the increasingly desirability of the Seattle submarkets. Average rental rates for Class A and Class B space also reaffirms the appeal of the overall market: the average rate for the CBD was $36.51 per square foot, $29.31 for the Ballard/U District, $35.94 for South Lake Union, $28.91 for Belltown/Denny Regrade, and $28.14 for Pioneer Square.
The increase of eye-catching expansion projects underway across all of the Seattle submarkets shows no signs of slowing in the near future, either, as the area’s tech behemoths look to continually increase their footprint. Facebook has confirmed its early 2016 move to Dexter Station, a 275,000 square foot office in South Lake Union that will allow for up to 2,000 employees, while Dropbox has opened a new office in the Columbia Center district of Seattle. Twitter has recently signed a lease for 16,000 square feet of space in downtown Seattle’s Century Square building to provide for another 100 employees, which will double the company’s total number of Seattle employees. Lastly, Oracle plans to hire more than 100 new employees for their office across from Westlake Park, the same building that Twitter will occupy. As the many tech companies continue searching for expansion opportunities throughout Seattle’s various submarkets, it appears as though the future for the region’s leasing market appears bright.