By Owen Rice
With the first quarter now behind us, the Seattle office market shows no signs of slowing down. In what has already become the longest recovery period in the Seattle office market, 2018 is shaping up to be another year of both positive absorption and positive rent growth. Recognized throughout the country as one of the hottest real estate markets, Seattle still boasts lease rates that are far less than other major metro areas such as San Francisco and New York, helping to attract companies to our region in addition to our strong, diversified workforce.
Seattle’s 12 month rent growth is well above the national average at 5.5%. Class A gross rates have soared to $45.89 per square foot, which is nearly $7.50 per square foot more than our 5-year average. Some of Seattle’s premium office towers are achieving lease rates at, or close to $60 per square foot. While lease rates have continued to rise, office space availability continues to fall largely due to the 4 million square feet of net office space absorption since Q1 of 2017. Seattle’s overall office availability rate is now well below our 5-year average at just 9.7% with vacancy rate at a 7.3%. To put that in perspective as to where we were approximately 10 years ago during the financial crises, our office availability and vacancy rates have fallen by nearly 20%.
If the fundamentals of our office market aren’t enough evidence that Seattle’s office market is not cooling off in 2018, consider that BioMed Realty announced earlier this quarter that they will be building a new biotech and office building in South Lake Union called Dexter Yard. This 515,000 square foot building will provide much needed relief for Seattle’s biotech real estate market which has only a 1.5% vacancy rate. Despite being branded as a biotech building, BioMed is also talking to other marquee technology tenants in Seattle given their ability to provide such a large, contiguous block of real estate on the door steps of Amazon, Google and Facebook’s South Lake Union offices. According to BioMed Realty, Dexter Yard “strives to respect the industrial history and character of the area (and) instead of two glassy boxes, the development projects the aesthetic of a stout warehouse.” Dexter Yard is scheduled to deliver close to the end of 2020.
Not far from BioMed’s development, Unico Properties is planning a new office tower on a site formerly owned by Pemco Insurance at the corner of Yale and Harrison. This building will deliver approximately 200,000 square feet of office space over nine stories. It’s located next door to one of Amazon’s leased buildings at Yale and Thomas, the former home of Pemco Insurance.
Trammell Crow Company, a wholly-owned subsidiary of CBRE, Inc., is planning their latest high-rise office tower in the Denny Triangle which will be located at 1930 Boren Avenue. It will be located just a block and a half from Midtown21, a 21-story office high-rise Trammell Crow developed and leased to Amazon.com in late 2016. 1930 Boren will add additional office space to a neighborhood already anchored by Amazon.com, Redfin, HBO and Seattle Children’s “Building Cure,” opening in 2019. Seattle Children’s “Building Cure” will expand their campus to over one million square feet and will be home to research laboratories, a Good Manufacturing Practice (GMP) facility, and a Science Discovery Lab to house teaching laboratories for youth.
While it’s hard not to talk about Amazon when discussing Seattle’s office market, other companies have grown significantly over the past year. Facebook has leased over 700,000 square feet of office space in South Lake Union at Dexter Station and Vulcan’s Arbor Blocks. Google has leased 610,000 square feet at what will be a six-story, four building mixed used complex in South Lake Union along Mercer Street. Technology companies aside, the leader in the co-working office space, WeWork, has leased a tremendous amount of space this quarter at 255 King Street, 1411 4th Avenue, 925 4th Avenue and at a new office building being developed by Martin Selig Real Estate located at 15th and Market in the Ballard neighborhood. Lastly, not to be outperformed by Microsoft and Amazon in the race to serve the growing needs in cloud computing, Oracle leased 160,000 square feet in Russell Investments Center which is home to Indeed.com, Zillow, Russell Investments and our Hughes Marino Seattle office. Stay tuned next quarter for updates on the growing Seattle market.