By Meghan Hall
Like many core, urban markets around the country, Seattle sat largely frozen as waves of the pandemic continued to arise. This attitude, and the limited office activity that accompanies it, continued through the first quarter of the year. However, a recent report released by Broderick Group indicates that there are still a few reasons for optimism, and the seeds for the office market’s recovery have been planted.
At the end of the first quarter, direct vacancy in Seattle totaled 12.02 percent, slightly higher than 2021 levels, while sublease availability totaled 4.69 percent. Total vacancy came to 16.2 percent by the end of Q1.
Tenant decisions within Seattle largely remained delayed, with just a handful of leases signed. The largest of the quarter was CBRE’s decision to renew for 41,000 square feet at the US Bank Center. Oculus VR, owned by Meta, signed up to take 39,000 square feet as part of an expansion at the Stadium Innovation Center in SoDo. The largest purely new lease was by Brooks, who took 32,000 square feet in Ballard. Despite these leases, however, net absorption was negative, with 147,347 square feet hitting the market.
“We continue to see active tenant demand in Class A+ assets throughout the Seattle market as the flight to quality trend continues,” Broderick Group explains. “Despite a slight up-tick in vacancy for Class A+ during Q1 2022, we anticipate a lower overall vacancy rate for this asset class as of the year-end 2022.”
Rental rates have generally declined over the past two years, but during the first quarter, rental rates rose to $45.91 per square foot for Class A assets, up slightly from $45.80 per square foot in 2021. By the end of the year, Broderick Group predicts that rental rates will continue to grow, reaching about $46.72 per square foot.
Construction activity in Seattle also remained slow; no new office deliveries occurred in Seattle during the first quarter. Many projects have been delayed by concrete worker strikes, while other projects, especially life sciences, are beginning to pre-lease. While activity has been slow, leasing activity is expected to gain momentum, especially as availability in downtown Bellevue remains extraordinarily tight.
Broderick Group maintains that there are still a number of reasons for optimism, despite a sluggish start to the year. In March, mask mandates were lifted in King County, creating a “liberating and positive atmosphere,” according to the report. Because of this, more companies are likely to be more comfortable returning to the office in the coming months. Currently, office occupancy sits between 30 to 40 percent. A number of major companies have already returned to the office, according to the report. Microsoft’s return to the office occurred at the end of February, followed by Meta on March 28th, and Expedia and Google on April 4th. Apple, Amazon and T-Mobile are all expected to return in the coming months.
“With the Omicron surge behind us most companies have again dusted off plans to get employees back to the office,” states the report. “Many are phasing employees back over the course of the next 60 days. Hybrid models are widespread, and large employers are allowing team managers to dictate the percentage of time employees are required to be in the office.”
Additionally, Seattle Mayor Bruce Harrell has been working to implement improvements around downtown Seattle that are “much needed,” according to Broderick Group. Many of these improvements, including street safety, the activation of city streets, and addressing the homeless crisis have become deterrents for some companies in recent months. If successful, new policies to increase safety and pedestrian activity could lure companies back to Seattle’s downtown urban core.
“The Seattle market’s growth will continue to offer unexpected surprises from growing local companies and from companies located in the San Francisco Bay Area and other areas of our country who will open a Seattle expansion office,” states Broderick Group’s report. “Seattle’s bright future is real!”