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Spotlight Continues to Shine on Seattle as Office Leasing Reaches New Heights

San Francisco

By Meghan Hall

The Seattle office market is well-poised for continued success in 2020, as the market’s annual growth continues to see historic highs. While the fourth quarter of 2020 appeared slow, with only a few major leasing transactions, a new report from Broderick Group suggests that Seattle’s time in the limelight is far from over. Currently, there are about 2 million square feet of tenant requirements exploring the Seattle market, and the year ended with 1.45 million square feet of net absorption. These, states Broderick Group, are indicators that companies are keen on all that Seattle has to offer: solid public transportation, centrality to amenities and restaurants, a diverse labor pool and strong market fundamentals.

Overall, the entire Seattle market ended 2019 with about 61.3 million square feet of total office space, of which just 5.81 percent was vacant. While the vacancy rate was up from 2018, when the entire market had 4.7 percent vacancy, 2019 still fared better than 2015, when the vacancy rate sat at 7.1 percent, or 2016 and 2017, when vacancy sat at 2.3 and 6.4 percent, respectively.

Class A buildings throughout the metro account for 41.031 million square feet of space; Broderick Group also reports their vacancy rates were lower in 2019, at 4.09 percent.

While leasing activity continues to grow, there were only a few large transactions completed during the fourth quarter, partially because available inventory is so constrained. “Although Seattle continues to exhibit low vacancy, we’ve seen a slow down on the leasing front, primarily driven by a lack of options in the market and new developments being slated for a 2023- 2024 delivery,” states Broderick Group.

Those who were able to ink leases at the end of the year include Calgene, who took 34,000 square feet in a new agreement at 1000 Dexter in Lake Union.

An undisclosed tenant has signed up for a 63,000 square foot expansion at 999 Third in the Central Business District. Based on industry reporting, the tenant is DocuSign.

In 2016, then-owners Ivanhoe Cambridge and Callahan Capital Partners announced four major leases for the building, which all started the same year. The largest transaction was by DocuSign, Inc., who took 118,830 square feet of space. Moss Adams, LLP took 77,274 square feet, while Seattle-based law firm Hillis Clark Martin and Peterson P.S. and Leisure care signed for 31,000 and 25,000 square feet, respectively. In 2019, EQ office acquired 999 Third, along with the U.S. Bank Centre, for $1.2 billion.

Industry reporting has revealed that Bank of America has subleased 115,000 square feet at Rainier Square in the Central Business District from Amazon. Amazon had originally leased more than 700,000 square feet in the building but pulled out in February in a reaction to the City’s plan to tax jobs at major companies such as Amazon to pay for affordable housing and homeless services. Broderick Group states that currently there are rumors of other multi-floor leases in negotiation.

There are still several large blocks of space up for grabs in the immediate future, including Elliot West Buildings One and Three; the two buildings have 110,000 and 104,000 square feet, respectively. Much of Amazon’s Rainier Square space, more than 600,000 square feet, has yet to be officially spoken for, as well. 102,000 square feet at TwoPine, owned by LBA Realty, is up for grabs, as is 150,000 square feet of space at Safeco Plaza.

Broderick Group also examines WeWork’s impact on the Seattle office market in light of the company’s decision to restructure and pull out of several large real estate deals. Currently, WeWork represents 67 percent of all coworking space in Seattle and about 1.7 percent of the total office market.

“We have gotten used to seeing WeWork make a splash in Seattle every quarter, reliably taking space to expand their footprint in the city – that can no longer be expected,” Broderick Group cautions. “While WeWork continues to move forward with current lease commitments, opening their coworking office at 15th and Ballard this quarter and Roosevelt Commons coming online next quarter, they most notably ended their deal to develop a WeWork-WeLive location at Third and Lenora and paused some negotiations for future expansion around Seattle.”

Whatever WeWork’s impact on the market may be, Broderick Group believes 2020 will be a strong year. The brokerage firm predicts that the local office market will see four percent rent growth, given that new developments such as 2+U and 333 Dexter, are fully leased, and 15th and Market is mostly pre-leased. Phase 2 of Vulcan’s Lakefront Blocks, totaling 304,000 square feet, 645,000 square feet at 333 Dexter and the 202,000 square feet of 15th and Market all came online during the final quarter of 2019, and around 1.8 million square feet of space is expected to deliver during the first half of 2020, with “only” 77 percent of it pre-leased, states Broderick Group.  

During 2019, asking rates reached $41.95 across Greater Seattle, while asking rates for Class A buildings reached $48.67 per square foot. In 2020, asking rates are expected to break $50 per square foot, while Broderick Group predicts that in 2021 and 2022, asking rates will reach between $52 and $54 per square foot.

“Supply is struggling to keep up with demand – our relative lower rent compared to the Bay area, deep pool of tech talent, and creditworthiness of the most dominant Seattle tenants create strong fundamentals as our long positive economic cycle continues,” states the report. “Landlords should remain cautiously optimistic as our fundamentals and high demand for quality product warrant, but keep an eye on the horizon as we are in a longer positive economic cycle than we’ve seen in recent memory, and the impact of WeWork’s restructuring, new REET tax, local and national politics have yet to reveal themselves.”