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CoStar’s Seattle Office Market Report: A Tenant’s Landscape Amid Surging Vacancies and Falling Rents

CoStat Seattle report Amazon Bellevue Felton Properties Google Lionstone Meta Metropolitan Park North Tower Microsoft Puget Sound Snohomish
Photo by Patty Zavala on Unsplash

By The Registry Staff

The Seattle office market is facing a steep rise in vacancy rates, which have reached 13.6 percent, mirroring the national average. Yet, in a concerning trend for the region, CoStar’s projections suggest that Seattle’s vacancies will soon surpass the national figures. The current availability rate has outpaced vacancies, climbing to 17.6 percent and marking a worrying 42.6 million square feet on the market, an increase from just 17 million square feet in early 2020. Occupied office space is now at its lowest since 2018, despite a 15 percent increase in office-using employment.

Layoffs are making headlines and correlate with companies like T-Mobile, Amazon, Meta, Microsoft, Google, and Tableau reducing office space—a move counterintuitive to their workforce expansions during the pandemic. Foot traffic analysis by the Downtown Seattle Association indicates that office utilization remains substantially below pre-pandemic levels, with only about 56 percent of workers returning, leading to a reassessment of leasing strategies and smaller average lease sizes.

The glut of available office space has rendered the Seattle market highly favorable to tenants, with significant discounts and concessions now the norm. Despite some tech giants like Meta and Amazon making commitments to new spaces, the investment interest in office assets has significantly waned, highlighted by sales like the Bellevue Gateway One. 

Lionstone Investments sold this property to Felton Properties for $35 million ($306 per square foot). That comes out to about 27 percent less than the property’s sale price of $48 million just three years prior, according to CoStar data. The property was 95 percent leased at the time of the sale and was reported to be fully leased at the time of the previous sale in 2019. The cap rate for the transaction was 9.5 percent, according to industry insiders, which was a significant increase from the last reported cap rate of 6.1 percent for that property in 2015. 

Microsoft’s decision not to renew certain Bellevue leases has notably affected the submarket, where the I-90 corridor has seen a vacancy rate surge to 40 percent. This consolidation trend has resulted in significant negative absorption across the region.

While the Seattle CBD submarket initially showed leasing activity, it, too, faced substantial negative absorption. Even with occasional renewals like Amazon’s at the Metropolitan Park North Tower, over a quarter of space in downtown Seattle and Bellevue remains available.

Tech companies are shaping this landscape, their non-renewals reflecting both an adjustment to their rapid pandemic-era expansions and a strategic consolidation of operations. Despite Microsoft’s expansions at its Redmond campus, the broader trend of space reduction persists.

Seattle’s office market has underperformed in rent growth, particularly when compared to its robust 37.3 percent cumulative rent growth over the past decade. Current market asking rents have decreased to $38 per square foot from a 2020 high of $40 per square foot, and forecasts suggest a continued decline, potentially reaching 2016 levels by 2026.

The market has seen a negative 0.3 percent rent growth over the past year, underperforming the national average. The increased sublet availability, reaching a record 3.7 percent of the existing inventory, further pressures the market. The lease of the Puget Sound Regional Council epitomizes the trend toward smaller leases and tenant bargains in this tenant-centric market.

The organization downsized its footprint as part of this lease, according to CoStar data, going from 27,000 square feet in its former location near the waterfront to 21,000 square feet at 1201 Third Ave. It secured a 13.5-year lease at $31 per square foot, a significant discount over the neighborhood’s estimated market rent of just under $40 per square foot.

Lastly, the trophy assets, which comprise nearly half of Seattle’s inventory, have experienced the weakest rent growth, while suburban office parks like those in Snohomish County defy the trend with stable or growing rents. This bifurcation signals a shift in preferences and potential opportunities for those willing to look beyond the urban core.