According to a report released by Colliers this week, Seattle’s already high office vacancy rate experienced a further increase in the second quarter, hitting 24 percent. The situation is as bleak as one would expect, and it is anticipated that vacancy rates will continue to rise. In the quarter, more than 800,000 square feet of office space were vacated, surpassing the negative net absorption for the entire year of 2022. The overall vacancy rate rose from 22 percent to 24 percent, and the average asking rate for Class A space dropped by 4 percent compared to the previous year, settling at $57.18 per square foot.
The rise in vacancy rate comes as no surprise following the layoffs of numerous employees, predominantly from the technology industry, according to Colliers research manager Jacob Pavlik, who helped prepare the report. Interestingly, these numbers do not align with what is observed downtown, he said, where thousands of Amazon workers were called back to the office last month, according to a report in the Puget Sound Business Journal.
This serves as a prominent example of how office tenants are navigating the “new normal.” Increasingly, it entails adopting a structured hybrid approach that requires employees to be present in the office for two to three days a week. Downtown Seattle is bustling with office workers and tourists, with the average number of workers reaching its highest point in three years, according to a Downtown Seattle Association report based on Placer.ai data. In May, the number of office workers downtown was nearly 49 percent of the pre-pandemic level, and it increased to 51 percent from Tuesday to Thursday.
Colliers predicts that the vacancy rate will continue to rise as companies upgrade and reduce their space, renew leases in their current location, or, in limited cases, experiment with vacating office spaces altogether. However, it is impossible to determine the long-term outcome.
As trends in office leasing are tied to turnover of leases, it will take a few more years before the full impact of new workplace strategies take hold,” states the report.
Aaron Kraft, a broker at Kidder Mathews, highlighted the Colliers report in a social media post, acknowledging the increase in vacancy but also noting increased activity downtown.
“Leases have lifespans, and markets go in cycles,” said Kraft, who expects more negative absorption but also anticipates increased leasing activity. If Amazon retrenches in [South Lake Union], things will turn around in the next couple of years, he added.
Trophy or Class A-plus spaces in areas that are perceived as safer are outperforming the rest of the market. These recently constructed or renovated assets have a direct vacancy rate of 12.5 percent, compared to 22.5 percent in other Class A buildings.
