By Meghan Hall
Seattle’s commercial real estate industry has a lot to look forward to in the coming year, as major projects such as Amazon’s Block 17 and the Watershed Building in Fremont break ground. Downtown Seattle is also expected to do particularly well, as well-known technology and coworking firms continue to sign new lease agreements, according to Kidder Mathews’ 2019 Seattle Office Market Projections. According to the report, vacancy in downtown Seattle is expected to steadily decline over the next five years, despite a potential slowdown in new commitments from Amazon.
Amazon is on pace to occupy close to 3 million square feet of additional office space downtown between 2019 to 2021, which Kidder Mathews estimates could host an additional 20,000 employees. Currently, the company has committed to leasing 26 locations around Seattle, totaling 6,162,762 square feet of space. The e-commerce giant also owns 3,896,100 square feet in the city, bringing its total share of the market to 10,058,882 square feet of space at the end of 2018, or roughly 11.50 percent of the market.
Amazon’s share of the market, while still anticipated to grow, won’t grow as quickly as years past, according to Kidder Mathews. The firm predicts that although Amazon will continue to take up space in the downtown Seattle submarket, it will be at a slower pace. While over the next year Amazon is expected to take up over 1,000,000 square feet downtown, by 2022, Kidder Mathews predicts that the company will take up only 400,000 square feet of new space.
However, the downtown Seattle submarket is expected to plow ahead, as other major technology and coworking companies lease up large swaths of office space. Major companies that have already pre-leased space include coworking firm Regus Spaces, who has taken up 300,000 square feet at 2&U, Facebook, who has committed to 630,000 square feet at 333 Dexter and Google’s 600,000 square foot lease in South Lake Union.
Kidder Mathews states in its report that the increased competition for space in Seattle’s tight office market is causing tenants and brokers to look for space much further ahead of their planned occupancy. 2018 was a year in which companies felt an urgency to lease and “bank” space for projected expansion. This trend that is likely to continue in the coming year, given that the tenant profiles will remain largely the same, with demand coming largely from California-based technology companies and engineering firms. Gradual expansion by companies in the FIRE industry is also expected to have an impact on space, the report states.
There are currently 17 office projects in the pipeline in Seattle, for a total of 5,254,000 square feet of new space. However, the vast majority of that space, just over 70 percent, is already leased up, according to Kidder Mathews. Large developments such as Arbor Blocks, Block 31 and Block 25, as well as Rainier Square are completely leased up by Facebook, Google and Amazon, respectively. Smaller developments, such as 3rd and Lenora, are 100 percent leased by WeWork. According to Kidder Mathews, the largest block of space still completely available is Dexter Yard, which will bring 500,000 square feet of office space to market in 2021. Several other smaller projects, such as the Federal Reserve and 515 Minor, have also yet to be leased.
Based on announced leases of this kind — and others — stated construction delivery and historical absorption rates, Kidder Mathews predicts that the vacancy rate in downtown Seattle will decline from 5.64 percent in 2018 to as low as 2.09 percent in 2023. However, as demand continues to rise and the market struggles to keep up, base rent rates are also expected to steadily increase; the report estimates that throughout 2019, rates will rise between three to five percent downtown.
The result, overall, is a positive one for Seattle’s downtown office market, which will continue to be active and dynamic over the course of the next several years thanks to steady demand.