By Meghan Hall
Over the course of the past market cycle, Seattle has largely been regarded as the epicenter of the region’s growth, with the city’s downtown core in particular experiencing record rates of job activity, investment and construction. However, according to Kidder Mathews’ Regional President of Brokerage, Pacific Northwest Brian Hatcher, the Eastside market of Bellevue is quickly growing to challenge Seattle when it comes to office leasing fundamentals. Located just across Lake Washington, the suburb’s growing office market, proximity to major employers and city initiatives, such as streamlined permitting and tax exemptions, make Bellevue a popular location for investment and development.
Tell me a little bit about yourself and your career with Kidder Mathews. How is the firm growing and expanding throughout Seattle to match the growth of the commercial real estate market?
I have been in commercial real estate 35 years, 27 as an office broker in Bellevue (15 years at Kidder Mathews), and I have been in my current role of running the NW brokerage group for 8 years. Over the last 8 years, our NW group has expanded considerably. Not so much in number of brokers, but our revenue has almost tripled. We have continued to grow our service lines, mostly in multi-family and investment sales which has contributed 60 percent of our annual brokerage revenue. This falls in line with the amount of investment sales in the whole region as investors continue to increase values with the growth of tech companies in the NW.
What is your current perception and understanding of the Seattle metropolitan area and its office leasing market? How does it stack up to other expanding markets around the United States? Do you anticipate that momentum to carry throughout 2019? Why or why not?
The greater Seattle market is highly viewed around the country and in most publications, and Seattle is considered a “Top 5” leasing market in the country. Our rates and lack of vacancies stack up quite well with any other market, which is why investors continue to invest buildings in the Puget Sound. We have seen little, if any, let up in that area.
With the quality of high-tech tenants in the Seattle area, we really don’t see any drop off from one quarter to the next in activity. Companies like Amazon, Google, Facebook and of course, Microsoft don’t differentiate their growth from quarter to quarter; it happens when it happens. These major tenants occupy when the buildings become available and it just so happens some of these buildings were ready in the fourth quarter, thus the additional absorption. Amazon is definitely the driver for this market, as long as they continue to grow, the market will be good.
What is your outlook for the Seattle office leasing market for the rest of 2019? Where do you think leasing fundamentals will go and why?
We believe this existing strong market will continue for the rest of 2019 and into 2020, with Amazon, Facebook, Google and now Apple continuing to take more space. Simple supply and demand show the market will remain strong until Amazon pauses. The only moderation of growth and perhaps pause, in Seattle, would be if Amazon continues to look at space on the Eastside. Their sublease of space in downtown Seattle in the Wright Runstad development, Rainier Square, shows that perhaps Bellevue is more accepting of their continued growth versus Seattle.
How much impact will these rent projections have on the Seattle office investment market in the next 12 to 24 months?
The rent projections, assuming they are going up, which will only go up if supply is being leased, and going up will have a positive effect on office investment. With Amazon announcing over 9000 potential new hires in Seattle, even if they hired half of that amount, the office rents and office values will climb.
Looking ahead, is there anything about the Seattle office market that concerns you? If so, why? Can these challenges be mitigated?
In the last recession, Seattle was one of the last cities to feel the recession effects and one of the first to get out of those effects. All markets drop at some point, and as mentioned, there may be a pause coming, but I don’t see that lasting long. My only concern is that of the City of Seattle is treating growth companies differently than other cities, like Bellevue. I don’t believe it is a coincidence that Amazon is moving ahead with new buildings on the Eastside, where it seems Bellevue is recruiting them to come across the lake.
What are tenants really looking for in their office spaces in the Puget Sound? What assets garner top rents in region and why?
Tenants are looking for amenities for their employees when looking at new buildings. This is an employee’s market, and finding the right people to make them happy at work is first and foremost. This just doesn’t pertain to tech companies, it pertains to all companies as employees are being recruited by all industries and the market is tight.
Is there anything else you would like to add that The Registry did not think to ask?
Right now, all growth is pointed toward downtown Bellevue. There are many sites getting ready to be built. They have the sites available, downtown, with new housing going up and a City government that is pursuing new companies and expanding companies on the Eastside. Currently, younger people want to work and live in Seattle over Bellevue, but there is change in the air that Bellevue, which is already a big player, will become an even bigger player.