The Seattle/Puget Sound office market ended 2016 with a bang.
The regional vacancy rate ended the year at 8.6% following 4.4 million SF of deliveries since January 2016. Net absorption for Q4 surpassed 1.4 million SF as Amazon moved into its second 1 million SF tower and also opened up the 383,476 SF south tower at the Troy Block. The Seattle region enjoyed its 27th straight quarter of positive absorption as 2016 blew past 2015 by over 1.4 million SF. Jobs continue to pour into the Puget Sound, assisting the vitality of the office market. From November 2015 to November 2016, the Seattle-Bellevue-Everett metro area added 53,500 jobs, according to the Washington State Employment Security Department. The region is on track to finish a year of 3.1% overall job growth, according to the Puget Sound Economic Forecaster. Looking ahead, however, forecasts for 2017 and 2018 come in at 1.8% and 1.3%, respectively. Wages are also on the rise. The average hourly wage for all Puget Sound area employees increased 3.8% from September 2015 to September 2016, per the Bureau of Labor Statistics. Technology companies are certainly contributing to these increasing salaries. Facebook doubled down on its South Lake Union expansion by leasing all 383,900 SF at Vulcan’s Arbor Blocks and will likely grow its Seattle office footprint further. Big Fish Games made a huge splash along the waterfront, leasing 186,806 SF at Beacon Capital’s soon-to-be-renovated Maritime Building. In Bellevue’s CBD, Kemper Development’s Lincoln Square II delivered 715,000 SF to the Eastside. Pokémon was the latest tenant to sign on, leasing 101,388 SF, getting the project to 72% leased at delivery. Schnitzer West’s 345,000 SF Centre 425 also delivered in downtown Bellevue in December and is now undergoing tenant improvements for Amazon. All of this activity spurred some eye-popping sales with high price points at the end of the year and we expect office investment interest to continue into 2017.
- Over 3 million SF is set to deliver in 2017, yet, already 48% of this space has been pre-leased. Under construction projects are 57% leased in Seattle and 56% leased on the Eastside.
- Of the 4.4 million SF of 2016 deliveries, 2.8 million SF, or 64%, was delivered in the city of Seattle. The pent-up demand we are witnessing leasing large blocks of space at new developments suggests there may be more significant speculative projects to kick off construction in 2017 as tenants battle for top-quality space.
- Seattle tenants in the market for space exceed million 5.8 million SF of demand. Tech tenants = 60% of total demand.
- Eastside tenants in the market for space exceed 3.5 million SF of demand. Tech tenants = 42% of total demand.
- Seattle – South Lake Union continues to be the top submarket for expanding technology tenants as only 9% of 2015-2016 deliveries are currently vacant. Seattle’s CBD vacancy rate will spike by the end of 2017 as 1.6 million SF is set to deliver by June yet only 12% of this space has been pre-leased as of December 31, 2016.
- Eastside – The vacancy rate in downtown Bellevue has fallen by 12% year-over-year, despite the delivery of over 1.5 million SF during that same time period. Space is disappearing in the CBD as Salesforce completes its tenant improvements at 929 Office Tower and Lincoln Square II might achieve stabilization by May.