By Jack Stubbs
The Seattle office market continues to be in demand, especially from the vantage point of several large Bay Area- and Seattle-based tech companies, who have taken up large swaths of space, signing sizable leases throughout the Emerald City’s Central Business District, which is comprised of neighborhoods including South Lake Union, Pioneer Square and the waterfront district adjacent to Pike Place Market.
The 2019 year-to-date net absorption has climbed to over 1 million square feet, and as Bay Area technology companies, in particular, continue to lay roots in the Seattle office market, net absorption is expected to eclipse 1.5 million square feet by the end of 2019, according to a recently-released Third Quarter 2019 Seattle Office Market Overview by Broderick Group. As inventory in the Seattle office market becomes tighter, it is anticipated that the construction of developments offering large blocks of leasable space will accommodate users looking to settle down in Seattle in 2020 and beyond.
Several key metrics indicate how the Seattle office market continues to be seen as a desirable landing spot. The entire Seattle office market comprises 60,121,417 square feet as of third quarter, which just under 40 million square feet accounted for by Class A buildings. As of third quarter, the vacancy rate for Class A buildings was 3.91 percent, down from the 4.84 percent posted at the beginning of this year, according to Broderick Group’s First Quarter 2019 Seattle Office Market report. Average asking rates across the entire Seattle market rose from $39.70 per square foot to $41.07, with asking rates for Class A buildings rising from $46.54 to $47.94 over this same period.
Large-scale leases in third quarter 2019 indicate significant demand heading towards the end of the year, with approximately 481,000 square feet of space signed for by three companies alone. SAP-Qualtrics took 280,000 square feet in the Skanska’s 2+U, a Class A office development in the Central Business District, which is expected to be completed later this year. As part of the agreement signed signed at the end of September, Qualtrics leased the space across thirteen floors, with the office portion of 2+U, known as Qualtrics Tower, now 100 percent leased.
Sound Transit expanded in 705 Union Station in Pioneer Square, resulting in a total footprint of approximately 173,000 square feet, while a King County agency inked a lease for 28,000 square of space in the Elliott Bay Office Park on the waterfront. Large technology companies continue to drive demand in the Seattle area, capturing large chunks of future vacant available space, notes the report, with this trend marking the continuation of a pattern which started earlier this year. Some of the larger leases in second quarter 2019 included Cupertino-based Apple’s 645,000 square foot lease at 333 Dexter in South Lake Union; Disney’s renewal of a 170,000 square foot lease at Fourth & Madison in the Central Business District; and San Francisco-based company Dropbox’s agreement to take 121,000 square feet at 2+U, in a move which sees the company join SAP-Qualtrics in the heart of downtown Seattle.
Looking ahead towards the turn of the year, there are rumored to be approximately 2 million square feet of active tenant requirements evaluating opportunities in the downtown market, with a limited supply having already been leased, states Broderick Group’s report.
Longer-term, the forecast for the Seattle office market looks positive—though inventory remains limited—with large users continuing to seek high-quality space, and several requirements (blocks of space between 200,000 and 400,000 square feet) are not expected to have leasing opportunities for the foreseeable future.
As one indication of increasing demand, average rental rates are expected to hit $48.58 by the end of 2019 (up from $45.83 in 2018), with this figure expected to rise to $50.57 by 2020 and $52.44 by 2021. Overall vacancy rates for Class A product stood at 5.6 percent at year-end 2018—the vacancy rate sits at 3.9 percent as of third quarter, with this figure forecasted to drop to 2.9 percent by 2021.
As the Seattle office market remains tight due to the continued presence and expansion of technology companies like Facebook, Apple and Google, among other growing companies, there is not anticipated to be an alleviation of vacancy for the remainder of 2019, since all new developments being delivered are 100 percent pre-leased. In terms of existing product, some of the largest blocks of contiguous space available include 111,950 square feet for lease at 800 5th Ave. in the Central Business District (available first quarter 2021); a combined 214,000 square feet currently available for lease across two buildings at the Elliott West office property on the waterfront; and, in the fourth quarter 2019, there will be just under 95,000 square feet available across four floors at 2601 Elliot Ave. in Belltown/Denny Triangle.
Looking ahead at inventory in the pipeline, third quarter saw 303,000 square feet of new construction in South Lake Union with the completion of Phase 1 of Vulcan’s Lakefront Blocks development, with Phase 2–comprising the remaining 304,000 square feet—expected to deliver later this year. The entirety of the project is 100 percent pre-leased to an undisclosed technology company, states Broderick Group’s report.
Three additional endeavors—Skanska’s 665,000 square foot 2+U development, Martin Selig’s 204,000 square foot 15th & Market property in Ballard, and Kilroy’s 645,000 square foot development named 333 Dexter–are expected to deliver in third quarter. By end of this year, 2019 will have seen over 1.8 million square of new office space brought online, all of which is 100 percent pre-leased.