Q4 2019 Puget Sound Office Market Report

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2019 was a year to remember for the Puget Sound office market, with never-before-seen tallies in absorption and continued declines in vacancy. Tech drove the record-breaking year and will continue to keep the region among the country’s top markets in 2020.

The fourth quarter ushered the Puget Sound office market into historic territory by adding 1.6 million SF of absorption, bringing the year-end total to 5.6 million SF. This is by far the highest annual absorption of the century. 2019 also marked the first time in recent memory that the region absorbed more than 2 million SF in two quarters. Overall vacancy followed suit, dropping to 7.0% to close the year, again the lowest since the year 2000. Amazon was a big reason for the surge, moving into 853,000 SF at its newly delivered Block 21 project in Seattle. The cutting-edge 2+U office tower also delivered this quarter, and following Qualtrics’ 275,000-SF lease, is believed to be the first multi-tenant office tower in Seattle to hit the market 100% leased. Google and WeWork influenced Eastside absorption in Q4, moving into nearly 480,000 SF of aggregate space in four buildings. Sales activity was just as robust as leasing in Q4 as buyers raced to avoid the new REET excise tax or add properties to their portfolio by year end. The Puget Sound saw $3.3 billion in volume transacted in 32 properties. The Summit I, II and III properties in downtown Bellevue garnered the largest price tag of the quarter at $756 million. Both the high volume of transactions in this last quarter and the implementation of the REET are likely to impact future activity.

Regional Supply

  • Nearly 1.6 million SF of office projects delivered in Q4, all in Seattle submarkets. Amazon’s Block 21 project accounted for more than half of this total. More than 7.2 million SF of projects are proposed in the Seattle and Bellevue CBDs, 4.7 million SF of which is estimated to deliver by 2023.
  • At 687,234 SF, Suburban Bellevue has the most proposed SF among non-CBD Eastside submarkets— 100% of which is spoken for following Facebook’s deal at The Spring District.

Regional Demand

  • Tenant requirements totaled 10 million SF in the Puget Sound in Q4, 5.6 million SF in Seattle and 4.6 million SF on the Eastside. These requirements resulted in strong leasing in Q4, with Facebook sign-ing for more than 400,000 SF across the Eastside, among other major tenant activity.
  • 47% of all Seattle tenants looking for space hail from the technology industry, not including Amazon, which is rumored to need several million SF. More than 45% of Eastside tenant demand stems from companies looking for more than 100,000 SF, excluding Amazon.

Regional Outlook

  • Seattle – While a substantial amount of supply is set to deliver in 2020, much of that new product is already leased, and therefore unlikely to impact vacancy or rate trends. Big tech’s seemingly unstoppable expansion will bring mixed results to the region. Although these large-user deals will further increase the region’s attraction for investors moving forward, they will make it tougher for smaller tenants to contend for space as landlords push rents higher. That said, Seattle remains more affordable than its competitor tech markets. Regional and international legislative risks will be the focus of the new year as progressing U.S. trade talks with China and the local REET could have strong implications. Continued job growth combined with migration from other tech markets means an increasingly stable local economy in 2020. Despite potential market risk and fluctuation in an election year, Seattle’s strong local economy should insulate the area from any adverse effects.
  • Eastside – Eastside rents saw a slight decline in Q4, though they still remained at historic levels for that market. Ongoing low vacancy should keep rates high into 2020. More than 1.2 million SF is scheduled to deliver on the Eastside in 2020, only 313,000 SF of which is available for lease, however. This is partially due to migration by Seattle tech tenants such as Facebook. It will be interesting to see what leasing activity the monumental proposed projects in the Bellevue CBD generate, as they will greatly affect expansion of other tenants. With core Eastside submarkets lacking space, tenants will look to smaller ones such as Issaquah, where 69,000 SF of Class A space broke ground in Q4. Overall, demand for Eastside space will remain strong and vacancy limited in the new year as tenants claim even proposed projects on the distant horizon. Like Seattle, Eastside investment volume may feel the impact of the REET.


Q4 2019 Puget Sound Office Market Report

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