The Seattle/Puget Sound office market is riding high on a still growing local economy.
The quarterly regional vacancy rate declined to 8.3% and positive net absorption totaled 1,072,274 SF as job growth continues to accelerate. From June 2015 to June 2016, the region added over 64,000 jobs according to the Puget Sound Economic Forecaster. With the Puget Sound region forecasting 3 million total jobs by 2040 after surpassing 2 million earlier this year, Seattle’s office submarkets should continue to benefit. Seattle’s vacancy rate dropped to 8% for the first time since Q2 2007 while the Eastside fell to below 7%. Pre-leasing at under construction projects is picking up steam. Video game maker Valve signed its lease for 223,785 SF at Lincoln Square II in the Bellevue CBD while law firm Davis Wright Tremaine picked up 166,500 SF at Madison Centre in the Seattle CBD. Coworking king WeWork also finalized its lease at Lincoln Square II for 81,494 SF, its first Puget Sound location outside of Seattle. On the supply side, NorthEdge, Tableau Software’s soon-to-be 207,791 SF corporate headquarters on the north end of Lake Union, was completed. In Pioneer Square, Weyerhaeuser employees have started relocating from the Federal Way campus into its new 138,330 SF headquarters at 200 Occidental. Urban Union, a 285,000 SF office building in South Lake Union soon to be occupied by Amazon also delivered this quarter. On the Eastside, months-long rumors were finally proven true as Amazon will be opening its first office outside of Seattle in downtown Bellevue. The e-commerce giant leased all 350,000 SF of Centre 425 on the very last day of Q3. In Kirkland, demolition has been completed for Phase I of Kirkland Urban, which will bring over 395,000 SF of Class A office space to downtown Kirkland in 2018. Current large tenants in the market outside of Amazon include: Big Fish Games, WeWork, T-Mobile, Capital One, and Indeed.com.
- Space remains tight throughout much of the Puget Sound as supply struggles to keep pace with demand. Over 1.2 million SF have delivered through Q3 2016 with another 1.2 million SF scheduled to deliver by the end of the year. Over 85% of this 2.4 million SF of new supply has already been accounted for by a signed tenant.
- Vacancy rates will likely remain low until 2017 when over 4.7 million SF of new office product is scheduled to deliver across the region. Still, Seattle’s office tenants have shown few signs of slowing down as an incredible 54% of 2017 deliveries have already been leased.
- Seattle tenants in the market for space exceed 5.8 million SF of demand. Tech tenants = 63% of total demand.
- Eastside tenants in the market for space exceed 3.4 million SF of demand. Tech tenants = 47% of total demand.
- Seattle – demand continues to outpace supply for the moment. We anticipate vacancy rates will remain low until significant deliveries in 2017 as previously signed leases will help spike net absorption totals. Technology tenants such as Amazon, Facebook, Tableau, and Google continue to drive the market by gobbling up large chunks of space for its future needs in which most project exponential employment growth.
- Eastside – what a difference a few months makes. With Amazon’s lease at Centre 425, investor and tenant interest alike has seemingly doubled overnight following this uptick in leasing. We anticipate space will remain hard to come by in the CBD possibly spurring proposed projects to move forward as opposed to waiting for the next cycle.