The Seattle/Puget Sound office market continued its momentum through the first half of 2017.
The regional vacancy rate ended the second quarter at 8.2%, 20 basis points above the first quarter as the market continues to absorb new fully-leased office developments. The Puget Sound office market tallied 660,917 SF of positive net absorption during Q2, bringing 2017’s year-to-date absorption total to almost 1.5 million SF. Full building users are still dominating the market as Tilt49 and Troy Block North both delivered fully leased to Amazon and 400 Dexter has become Juno Therapeutics’ new home. Amazon continues to blow past even its own growth projections as it is moving into Midtown21 ahead of schedule and is opening its Downtown Bellevue office at Centre 425 in August. The sustained optimism for the Seattle market helped Kilroy Realty make the decision to break ground on 333 Dexter this quarter. Vulcan started construction on Google’s new South Lake Union campus and Skanska is going full speed ahead on its 38-story speculative project, 2 & U, in Seattle’s CBD. F5 Networks logged the largest lease of the year, taking down all 516,000 SF at The Mark. In the Bellevue CBD, Hines reapplied for its permit to kick-start Summit III in order to capitalize on the lack of available space at existing buildings and new supply coming online. Bank of America leased the last remaining contiguous high-rise floors at Lincoln Square South Tower, taking 76,740 SF while WeWork opened its 81,494 SF three-floor office earlier in the quarter at Kemper Development’s newest tower that is now 90% leased. The Seattle region is situated to continue its growth trajectory through the remainder of 2017.
- Seattle submarkets have seen over 1 million SF of new supply so far in 2017 with another 2 million SF scheduled for completion in the final two quarters of the year. Of the 5.4 million SF of added regional supply from 2016 to Q2 2017, Amazon accounted for 56%, over 3 million SF.
- 59% of all under construction office space has already been pre-leased with a few more sizable deals nearing signature. The Global Innovation Exchange at The Spring District in Bellevue is set to open in the fall while REI’s new corporate headquarters is working its way through design review on pace for a 2020 opening.
- Seattle tenants in the market for space exceed 4.3 million SF of demand. Tech tenants = 65% of total demand.
- Eastside tenants in the market for space exceed 3.5 million SF of demand. Tech tenants = 61% of total demand.
- Seattle – as the city maintains its lead with the most construction cranes of any other U.S. metro, the slowdown is far from becoming reality as the office market’s runway still has room to run. Demand from full building tenants continues to reduce the options for smaller tenants as job growth sustains its breakneck pace, resulting in bullish developers constructing speculative projects and landlords raising rents.
- Eastside – vacancy remains quite low in the suburbs east of Lake Washington. As Microsoft renews at off campus locations and Amazon is opening its first Bellevue office, it is likely that space will remain hard to come by in the quarters to come, giving landlords plenty of reasons to raise rents and developers ammunition to commence construction to meet demand.