Large number of tech tenant move-ins push Puget Sound office market to unprecedented net absorption and the lowest overall vacancy the past decade.
Demand from tech giants continued to have a resounding impact on the region this period, with activity and expansion plans in the Seattle and Eastside submarkets the strongest drivers. Of the 1.9 million SF of Puget Sound net absorption thus far this year, Class A properties saw over 1.7 million SF or nearly 91%. Vacancy declined in reflection of the absorption, and full-service rental rates continued to increase for all spaces as options became more limited. Seattle’s overall weighted average rate for Class A space ended the quarter at $51.06/SF full service. Apple signed the largest lease of the quarter and year so far, claiming the entire 333 Dexter development in Lake Union, where it will house an additional 2,000 new jobs. Amazon, which lists more than 10,000 regional job openings, continued to dominate headlines on the Eastside after leasing all 715,000 SF of Trammell Crow’s proposed Binary Towers in the Bellevue CBD. Sales activity on the Eastside was strong in Q2, highlighted by Preylock RE Holding’s acquisition of T-Mobile’s nearly 1 million-SF headquarters for $482/SF in the I-90 Corridor.
- In Q2, more than 1.9 million SF of properties delivered across all markets — most in Seattle and south King County. The Lake Union submarket saw Arbor Blocks East and West, Lakefront Blocks – Block 31 N and 31 S, and The Atrium all complete, while SECO Development’s Southport Campus opened its doors in Renton.
- 82% of all under-construction office space in the Puget Sound has been pre-leased.
- Tenant requirements totaled 5.5 million SF in the
Puget Sound by the end of June: 2.5 million SF in
Seattle and 3.0 million SF on the Eastside. This level
of demand was consistent with the previous quarter,
even as tech tenants Amazon, Apple and Dropbox’s
large requirements were satisfied.
- Of all tenants currently looking for space in the Puget Sound, nearly 40% are in the technology industry.
- Seattle – Large blocks over 100,000 SF remain limited across all submarkets,
with only five blocks of premier Class A space unclaimed. This number will only
decrease as the year progresses. One of these, the 722,000 SF of sublease
availability at Rainier Square in downtown, has seen significant interest from a
number of very large tenants, including Oracle, Bank of America and WeWork.
This escalated tenant demand has exponentially increased rates, as Class A
spaces eclipsed $51/SF full service in Q2 — a trend likely to continue. Proposed
projects that could help alleviate stress for tenants are Onni’s 1.5 million-SF, twotower
project at 1120 John Street and Hudson Pacific Properties’ 526,000-SF
development at 1000 Olive Way, expected to deliver in late 2022.
- Eastside – Aside from Q2 2018, Class A rental rates in the Bellevue CBD experienced their highest quarter-over-quarter increase in three years in Q2 2019, rising to $56.47/SF full service. Rates should continue this trend through the rest of 2019 as no new product will hit the market until next year. The market is seeing more renewals as tenants look to avoid both the higher rates likely in a different building and construction costs of building out new space. Expectations of continuing strong demand are reflected in new developments launched this quarter, including 245,000 SF of speculative construction at Esterra Park in Redmond. Seattle’s declining vacancy and ongoing competition for space will spur further tenant migration to the Eastside in the near term.