JLL’s 2016 Skyline reveals that tenants demand more bang for their buck as trophy rental rates continue to command a premium
SEATTLE, June 22, 2016 – Rents for the office buildings that make up the Seattle skyline have jumped into record territory in 2016 — an average of $43.42 per square foot, which is a slight increase from the first quarter of 2015 and nearly 8 percent higher than 24 months ago. Seattle skyline rents have now increased for seven consecutive years. And rents for trophies (those ultra-premium office towers within the Skyline) are even pricier at $45.56 per square foot. But JLL’s 2016 Skyline shows that rent growth around the country may be moderating, especially in high-growth markets such as Seattle that have enjoyed consistent rent appreciation over the last several years.
- Skyline and trophy rents at record highs; owners retain leverage due to limited stock
- Foreign investors active in Seattle skyline investments
- Landlords need to retain gold standard of Skyline assets, mindful they don’t tarnish with complacency
“Despite rents moving almost 8 percent higher in the last two years, tenants have continued to take down large blocks of space in the CBD, pushing overall vacancy in the 17 Skyline buildings in Seattle down 13.6 percent since the recession,” said Alex Muir, Seattle research manager, JLL. “We saw 2.2 percent net absorption in Skyline properties last year and, following more than six years of steady leasing, direct vacancy is at 11 percent,” he added.
New construction commands a premium
Owners, especially those with Skyline properties currently under construction, still have the upper hand for now. Rents for those rising towers are hitting an average of $50 per square foot, a nearly 17 percent premium over average Skyline asking rents due to greater efficiencies inherent in such factors as layouts and operating costs. There is currently over 2.2 million square feet of Skyline space under construction in Seattle’s CBD with two properties – The Mark and Madison Centre – accounting for 1.5 million square feet of that total.
Investors continue to covet Seattle properties, especially Skyline assets. The sales of Columbia Center and West 8th contributed to $1.1 billion in overall Skyline sales activity in Seattle in the last five quarters putting it on a par with other investment hotspots such as San Francisco.
“We’ve seen six consecutive years of cap rate compression and heightened liquidity across the Skyline which has led to strong pricing gains for investors and, despite an anticipated decline in transaction activity nationally this year, Seattle is likely to see significant sales activity again this year,” said Lori Hill, Managing Director, JLL Capital Markets.
Contributing to Seattle’s strong sales transaction activity is the presence of foreign investors. Seattle is one of a handful of primary markets around the country where foreign money has become a major part of the investment landscape. In 2015, cross-border buyers remained focused on the biggest and the best—with more than 60 percent of their investment dollars targeting trophy assets. Foreign buyers pumped $700 million alone into the Puget Sound region last year.
What have you done for me lately?
Despite Skyline assets continuing to be the gold standard for investors and tenants, landlords should not be complacent and need to stay ahead of changes in tenants’ desires and demands when seeking space.
“A growing number of tenants are no longer willing to focus only on traditional office space in well-located trophy assets—they want their space and their building to reflect the image of their company and represent their brand,” said J.J. Shephard, Managing Director with JLL’s Agency Leasing in Seattle. “Several Skyline buildings have gone through renovation programs designed to increase their appeal to tenants seeking more amenities and efficient space but several more probably need to make that leap. Rooftop decks, plenty of open space and wellness are huge factors that will increase an asset’s value and owners need to be willing to make this investment in these common areas,” he added.
About the Skyline Review
Investors and tenants alike can access JLL’s Skyline via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 52 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios. In addition, the site will offer videos and infographics. All information will also be available via mobile access.
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.