IRR-Seattle Mid-Year Viewpoint 2015 Local Market Report - Office
Solid office market fundamentals continue to attract strong demand from institutional investors. Rents have been increasing over the past year and are expected to continue trending up for the balance of 2015; lease-up concessions are projected to continue to decrease. Solid job growth is driving the market, largely driven by tech companies spurring office construction, with the majority of projects scheduled for completion in 2016. Conway Pedersen Economics reports the Puget Sound region added 48,200 jobs in the last 12 months. In 2014, approximately 400,000 square feet was added to the regional market, and an additional 4,154,000 square feet were under construction and expected to be added to the inventory in 2015. Of this total, 3,492,890 square feet were in downtown Seattle, of which 2,094,000 square feet (60%) are Amazon HQ buildings currently under construction.
This surge in new construction will likely result in higher vacancy rates in 2016, slowing rent growth as the new inventory is absorbed, including space give-backs by Amazon.
For office tenants who want more than 100,000 square feet, little supply is available in Seattle; 2014 was the year that speculative construction began without pre‐leasing to an anchor tenant. At the end of 2014, Trammell Crow and Touchstone unveiled plans for two new office buildings in the Denney Triangle (Touchstone announced 307,000 square feet to be called Tilt 49 at 1812 Boren and Trammell Crow will add a 365,000 square foot high-rise at 1007 Stewart Street). In addition, Urban Visions announced a build-to-suit 165,000 square foot Built-To-Suit office for Weyerhaeuser’s new HQ building at 200 Occidental Avenue South in the heart of Seattle’s Historic Pioneer Square (for completion and occupancy in mid-2016). A number of credit tenants are actively looking for space in Seattle, including Tableau Software, HomeStreet Bank, Disney, Avalara, Facebook and Starbucks; all are seeking in excess of 100,000 square feet in Seattle. Microsoft is seeking more than 100,000 square feet in Bellevue. On the Eastside, Boeing leased nearly 300,000 square feet of office space (split between Bothell and Kent) to replace the office space that was demolished on their Paine Field campus in 2014. Boeing's former owned office space on Paine Field (used by Boeing engineers and administrative staff) was replaced by leased space which dramatically improved the Bothell office market fundamentals. Notable office transactions in 2015 include the sale of the 699,766 square foot Class A Metropolitan Park East/West office at 1100 Olive Way in March 2015 for about $390 per square foot. Shorenstein Properties sold the 332,000 square foot Class B office at 2601 Elliott Avenue inMarch 2015 for about $510 per square foot. Walton Street Capital sold the 359,000 square foot One Bellevue Center Class A office at 411 108th Avenue NE in April 2015 for about $418 per square foot. Finally, the 330,000 square foot Class A Civica Office Commons, located at 205/225 108th Ave NE in Bellevue sold in February 2015 for about $634 per square foot. Stabilizedinstitutional office investments is in high demand, often trading at sub- 5.0% cap rates and discount rates in the mid-6%’s on a
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.