Commercial real estate transactions across the greater Puget Sound region have continued into the second half of 2022, although the pace of activity may slow down from what the industry saw during the first half of the year. One transaction that is planned to close by the end of the third quarter is in Lynnwood, where Los Angeles-based Hudson Pacific has agreed to sell its 179,985 square foot Northview Center office property for $46 million, or roughly $256 per square foot. The company made the announcement of the sale in its second quarter of 2022 results.
Hudson Pacific purchased the property in July of 2013 for $48.5 million, according to Snohomish County records, so this transaction comes at a loss for the company. The acquisition was part of a larger four-building office portfolio that Hudson purchased in 2013, so the dollar-for-dollar comparison may not be fully appropriate in this case.
According to Hudson’s reporting, the building is 81.2 percent leased and 69.5 percent occupied. The property generates annualized base rent of roughly $3 million, which comes to $24.24 per square foot.
The investor had awarded the listing for the sale to the Capital Markets Team of Newmark. One person working on the sale is Nick Kucha, vice chairman of the firm’s Pacific Northwest Capital Markets team.
Hudson Pacific chose to sell Northview Center because it deemed the asset as one that is not part of the company’s overall strategy going forward, according to earlier reporting by The Registry. “We decided to market Northview Center for sale because it doesn’t have the right long-term strategic fit for our portfolio. It’s a single asset located in Lynnwood, well outside of our core market in downtown Seattle, which is where we’ve grown our Class A office portfolio of more than 2.5 million square feet,” said Mark Lammas, president of Hudson Pacific Properties.
The transaction will likely set a baseline for suburban properties in the Seattle region in the second half of the year. Across Puget Sound, and especially outside of the urban cores, the market has been impacted by what brokerage group Broderick Group terms the trifecta of interest rates, inflation and remote work. In its Eastside Office Market Overview for the second quarter of 2022, the firm noted that from a statistical and transactional perspective, Q2 2022 mirrored the first three months of the year. Vacancy rates again trended slightly higher, large tenant activity was essentially absent and while rental rates have been growing for smaller quality spaces, rental rate growth is expected to flatten or even decrease for large spaces over the next 12 months.
It should be noted that Lynnwood is north of Seattle and not in the Eastside, but the market dynamics across the region are impacting the industry in similar ways.
The company does see suburban markets as fundamentally sound with Class A vacancy at a minimum and no new speculative development will be delivered to the market until 2024. Yet, companies will likely continue to right-size for the next couple of years, which will have an impact on valuations and sales such as the one in Lynnwood.