By Meghan Hall
Like many urban areas, Seattle’s core office market recorded another slow year in 2021, highlighting the sticky nature of the pandemic’s impacts. While those in the industry generally remain hopeful about the future of the office sector, a fourth quarter report released by Broderick Group shows that while market trends have become clearer, uncertainties still persist.
“At year end 2021, we are experiencing both clearer trends and continuing uncertainties in our Seattle office market…” notes Broderick Group in its report. “…[However,] we expect the positive signs to continue in 2022 and our Seattle area to resume a national powerhouse position for expanding firms and companies.”
At the end of 2021, the Seattle office market recorded a direct vacancy rate of 11.57 percent. Sublease vacancy did decrease from 4.1 million square feet to 2.9 million square feet, but still accounted for 4.63 percent of available space and resulting in a total vacancy rate of 16.2 percent. Currently, there is just under 4.6 million square feet of vacant space on the market.
There were a handful of deals that were solidified during the fourth quarter, despite the challenging market. In the largest lease of the quarter, Shape Therapeutics–a life sciences tenant–took 120,000 square feet at Dexter Yard in South Lake Union. The next largest deals were Facebook’s expansion into 80,000 square feet at HomePlate North, and its 39,000 square foot expansion at the Stadium Innovation Center, both in Seattle’s South of Downtown (SoDo) neighborhood.
The next largest new lease, however, was much smaller. GGLO took 20,279 square feet at Rainier Tower, while Indigo Slate signed up for 13,544 square feet in the Moses Building, in Pioneer Square.
Elevated vacancy and limited leasing has meant that rental rates were also impacted. Year-to-date rent growth came in at -5.5 percent, with rental rates falling from $48.47 per square foot in 2020 to $45.80 per square foot in 2021. Rental rates aren’t expected to hit a similar level until about 2024, according to the Broderick Group’s report.
There are a number of factors that will continue to shape the local market in the coming months. The report notes that most companies have established clearer work from home policies and hybrid arrangements are becoming “the dominant strain” for operations. Broderick Group states that two national surveys show that 50 to 60 percent of employees are working in a hybrid model, with three days in the office and two day from home, while 30 to 40 percent of employees are back in the office full-time. Between 10 to 20 percent of employees are still fully remote.
However, the virility of the Omicron variant has once again postponed additional returns to work. Many major firms were expected to return to the office this month but have since postponed their plans even further.
“While a few companies are back in the office, most have either placed their occupancy plans on hold or have given group managers the option to make their plans based on their group’s strategies and work-related needs,” states the report. “Fortunately, this variant appears to have less severe patient reactions which should lead to a better workplace environment in the future.”
Broderick Group notes that the latest variant has also prompted a slowdown in leasing activity. As companies again delay their returns, there is now, even if temporary, a renewed hesitancy to take space. Broderick Group anticipates that this trend will be short-lived due to the number of companies who have plans to expand in the region, and positive net absorption is expected during 2022.
When demand does fully return, there could be plenty of space up for grabs. At the end of 2021, there were about 2.4 million square feet of new office buildings under construction, of which 24 percent were pre-leased. The quarter saw just one delivery: that of 400 University, which totals 110,000 square feet. While the project came to market without a tenant, Broderick Group believes the building will be snapped up quickly given its central location and proximity to amenities. Many current tenant requirements are life sciences companies, who landlords and developers are keen to please with flexible and creative developments.