Transportation and traffic have played a huge role in Seattle and the greater Puget Sound region over the last several years. As more companies gravitate towards Seattle and bring employees with them, congestion is only worsening. But as rents continue to soar in the urban core, many workers are heading to the suburbs, seeking relief from the burden of city cost. And as more people push out of the city, commutes become longer and more delayed, a daily drive that many people don’t want to take. So how do we ease congestion and make it easier for people to get to work?
At a Washington chapter NAIOP 2017 Broker Forecast meeting last week, three brokers in office leasing from Portland, Seattle and Silicon Valley discussed some of the challenges with transportation in each market. Laura Ford, an executive vice president with Colliers International spoke about Seattle’s challenges with transportation as well as the desire from tenants to be more centrally located to public transportation.
The leasing environment in transit-accessible submarkets is significantly more landlord-favorable than the overall market
“It is becoming much more important for tenants on transportation,” Ford said. “With all of this growth, our roads haven’t gotten bigger, so how are we getting people there?” She added that when working with clients, public transportation has been an important factor in location. “When tenants are looking to where they’re going to locate, where are they in proximity to public transportation or how are they going to get to the freeways?”
Ford said that Seattle used to be a driving city, but in the last few years, that has changed. Big tech companies in the region are densifying in some neighborhoods, like South Lake Union, which ultimately bring more people into the area. Some companies provide ORCA passes for their employees or reimburse travel expenses but others, like Microsoft, provide shuttles to pick up employees and drive them to campus each day.
According to a new national report from brokerage firm JLL, transit-served submarkets are outperforming the greater office market and are among the strongest performers in terms of vacancy rates and rent. “This space, which is only slightly more than one-third of national inventory, is poised for sustained capital appreciation and strong tenant demand over the long-term, making it one of the strongest niche asset classes,” according to the report.
In the U.S., 37.3 percent of office space is transit accessible. Take out New York from the mix and the U.S. is left with only 29.5 percent of office space transit accessible. However, 47.9 percent of new construction is taking place is these transit-accessible submarkets.
The report indicates that tenants have shown a desire to meet the needs of employees for urban and active office locations, which has sometimes resulted in companies moving from the suburbs to the city as well as companies relocating to less traditional submarkets to attract talent.
In transit-served markets with Class A office space across the country, average asking rents reach as high $51.52 per square foot and overall transit-served markets see asking rents at $45.57 per square foot. On the contrary, non transit-served markets ask only $25.39 per square foot, roughly half of the transit-oriented development rates. Granted, each market is different, and the report does not imply that such a drastic difference would be found in Seattle, as well. However, it serves to provide evidence that development around public transportation often can capture a premium over a comparable lease in a setting that is not proximate to public transportation, and developers are taking note. “Viable fundamentals and sustained demand for this type of space means that nearly half of all office development nationally is taking place in submarkets with public transportation,” according to the report.
JLL researchers anticipate this trend will continue for the long haul as many new projects are delivered. A problem, however, is that limited large blocks and especially blocks with quality space, make it difficult to be located near transportation. Additionally, investments in public transportation capital projects will become increasingly more important as urbanization continues.
“The leasing environment in transit-accessible submarkets is significantly more landlord-favorable than the overall market, with lower vacancy and higher asking rents making development and repositioning more viable than anywhere else,” states the report. “In Seattle, vacancy rates below 7 percent are common in many non-CBD urban submarkets such as Pioneer Square, Ballard, U-District, Belltown, Denny Regrade, Queen Anne and Lake Union, compared to the 11.2 percent in Bellevue’s CBD.”
Seattle is one of a relatively small number of major public transportation expansion projects according to JLL’s report, with the adoption of ST3. The measure will expand the light rail by about 41 miles by 2040. The goal is to connect the core with tech hubs on the Eastside as well as north into Ballard. “With the metro area seeing population growth of 8.5 percent since 2010 and Seattle proper up 12.5 percent over the same time period, provision for light rail and bus rapid transit will open up new areas for the development of housing and offices,” according to the report.
“Transportation is going to be one of the biggest drivers in Seattle going forward with this huge influx of people,” Ford added.