The Seattle/Puget Sound office market started strong in 2017.
The regional vacancy rate ended the first quarter at 8.0%, down 60 basis points from Q4 2016. The Puget Sound market enjoyed the 28th straight quarter of positive absorption with 837,076 SF, slightly up from Q1 2016 when the region saw 812,097 SF. Unemployment in the region is anticipated to drop to 4.5% in 2017, according to the Puget Sound Economic Forecaster, while personal income is expected to grow by 5.2%, 40 basis points up from last year. Redmond-based Microsoft has not added much to employment growth (only 4,000 jobs since the recession) but has increased total wages and salaries by $4 billion. On the Eastside, the Salesforce engineering office finally moved into 929 Office Tower in the Bellevue CBD. Sterling Talent Agency and HDR Engineering have also decided to make 929 their new home in Bellevue as the CBD’s vacancy dropped 1.6% quarter-over-quarter. Lincoln Square’s South Tower is already 76% leased after delivering in December 2016 as WeWork plans to open three coworking floors next quarter. Back in Seattle, Urban Union was a hub of activity this quarter, selling for almost $940/SF while Amazon moved into the building. Amazon also signed a lease at Tilt49 for 290,000 SF, which will commence next year. Since 2012, Amazon’s commenced leases have accounted for 62% of Seattle area absorption. Tech tenants continue to dominate the area as Google added another 51,000 SF to its Fremont footprint at 437 N 34th while Redfin moved into 112,000 SF of new space at Hill7. In 2017, we should start to see some tapered growth, but the Seattle region will remain a resilient office market as it benefits from the talent and success of companies that call the Puget Sound ‘home.’
Regional SupplyRegional Supply
- 2.9 million SF is set to deliver in Seattle & Bellevue in 2017, yet, 55% of this space has already been pre-leased. Under construction projects are 62% leased in Seattle and 58% leased on the Eastside.
- Amazon projects make up almost 1.9 million SF of the office inventory currently under construction, which does not include additional office developments it still has in its pipeline.
- Seattle tenants in the market for space exceed 4.3 million SF of demand. Tech tenants = 61% of total demand.
- Eastside tenants in the market for space exceed 3.5 million SF of demand. Tech tenants = 56% of total demand.
- Seattle – the market will continue to level out as more supply comes online, spiking the vacancy rate. Technology giants like Amazon, Facebook, and Google should continue to grow and attract more talent to the area, leading to more start-ups and therefore more competition for space in a landlord favored market.
- Eastside – vacancy rates are at post-recession lows yet demand continues at elevated levels with the help of existing and expanding tech tenants. With no major speculative office deliveries on the near horizon, finding space could be difficult for tenants for the next two years, potentially spurring developers to break ground on additional office projects sooner than expected.