Seattle/Puget Sound closes 2017 strong
but peak in construction activity is apparent moving forward.
The regional vacancy rate ended 2017 at a staggeringly low 6.6%, the lowest of the year. Regional absorption remained positive at 542,066 for the thirty-first straight quarter and has totaled 2.36 million SF for the year. The largest Q4 move-ins were Amazon occupying 423,000 SF at Troy Block North and 132,000 SF at Westlake Terry East, both in South Lake Union. F5 Tower, fully-leased to F5 Networks, delivered this quarter along with Amazon-leased 9th & Thomas. The tech giant also began construction on their skyline-defining, 722,000 SF Rainier Tower Development. Year-over-year employment grew by 2.8 percent but appears to be peaking as projections for 2018 and 2019 come in at 2 percent and 1.2 percent, respectively. Unemployment reached a ten-year low of 4 percent, according to The Puget Sound Economic Forecaster. Bellevue CBD’s rezone was approved by the City this quarter and will allow building heights up to 600 feet in the heart of downtown. Lincoln Square’s South Tower had vast activity this quarter and finishes the year 100% leased. 929 Office Tower was also bustling with activity as Sucker Punch Productions moved into their new space covering two floors. Amazon properties highlighted sales activity with Centre 425 trading for $313 million ($877/SF) and Tilt49 for $268.5 million ($924/SF).
- Puget Sound submarkets experienced close to 3 million SF of new supply in 2017, down nearly 1 million SF from 2016. This trend is expected to continue into the new year as the rise in construction costs and lack of space will continue to impede Seattle construction activity. Seattle expects notable deliveries of both Hawk Tower and The Maritime Building in the first half of Q1 2018.
- 62% of all under-construction office space has already been pre-leased, hovering around last quarter’s total. The limited office supply in the Bellevue CBD pipeline will allow for speculative developments by big names such as Vulcan Properties, who have already expressed concrete plans on the Eastside.
- Seattle tenants are currently in the market for nearly 3 million SF of space, 1.7 million of which is tech space.
- Eastside tenants in the market for space exceed 3.1 million SF of demand, almost 70% of which is required by tech companies.
- Seattle – Despite the volume of SF under construction, activity dropped heavily in the final months of 2017. According to a report by Dodge Data & Analytics, commercial construction starts fell by 76 percent in November compared to 2016. This can be widely attributed to rising construction costs and dwindling space to build. Seattle is set to deliver just 663,722 SF in 2018 but is expected to jump to more than 3.75 million SF in 2019, with 57 percent being pre-leased.
- Eastside – Despite lower absorption in recent quarters, the Eastside market’s outlook remains healthy going into 2018. The market is positively responding to the new spaces coming available in the future and avoids over saturation. Increased popularity and demand will continue to benefit the Eastside as the Seattle market fills up and pushes its larger tenants across the lake. Tech firms continue to reign on the Eastside, including longstanding Microsoft, who announced an extensive campus expansion to be completed in 2023.