By Meghan Hall
A Quality Inn & Suites near Seattle Center has sold as plans for its redevelopment fall into place. Fresno, Calif.-based Blackstone Seattle LLC, sold the property for $24.5 million in a deal that closed on February 25th. According to public documents, the buyer is Gemdale USA, which submitted a proposal to revamp the property at the end of January.
The asset is located at 618 John Street, and the existing four-story hotel was originally constructed in 1959. Blackstone Seattle LLC originally acquired the property back in 2014 for $19 million. With the most recent deal now closed, Gemdale intends to build a 10-story office building on the site.
Just blocks away from the project site, Gemdale is gearing up to begin construction on a residential tower at 222 Dexter Ave. N. The project—dubbed SkyGlass Tower—will include 324 units and features a tower with two scales and two expressions. The project has been designed by HEWITT Architecture and underwent its design review at the beginning of 2020. The Space Needle, Seattle Center and major employers like Amazon and Facebook are all located within minutes of the properties.
Gemdale’s pitch for offices at 618 John Street comes after a tumultuous year for the Seattle office market, whereby market activity slowed significantly due to the coronavirus pandemic. Between the first and fourth quarters of 2020, total vacancy increased by 370 basis points to 14.7 percent as a result of increased sublease space, vacant deliveries coming online and limited leasing activity. According to data released by brokerage firm JLL, sublease space increased by 29 percent quarter-over-quarter to more than 5.2 million square feet at the end of the fourth quarter as tenants continued to re-evaluate the role physical office space would play in their business strategies. JLL notes that sublease availability reached levels seen during the dot-com bust in just three short quarters, a “velocity that has outpaced all other historical recessions.”
JLL also adds that leasing volume dropped 81 percent between Q3 and Q4, and many companies have expanded their work-from-home policies until at least the third quarter of 2021. However, landlords are holding steady with rents, and asking rates have risen two percent to $45.59 per square foot despite the current market dynamics. JLL adds the rising rates have been somewhat balanced with“generous” concession packages and more term flexibility are being provided than in previous market cycles, giving tenants some cushion.
Seattle’s development pipeline also remains active, with 18 buildings totaling 5.5 million square feet under construction. 72 percent of that space is pre-leased, much of it to tech tenants with long-term plans for growth in the region. JLL explains that while underlying market fundamentals are likely to remain soft in the near-term, they are expected to pick up during the latter half of 2021. JLL believes that widespread immunization will bring companies back into the office with zeal, bolstering the local office market long-term.