By Owen Rice
At the end of the 2nd quarter, we are continuing to see trends continue much like we have over the past few years. Our region’s largest tenants; Microsoft, Amazon.com and Facebook, continue to expand and the co-working giant, WeWork, has become one of our region’s largest occupiers of office space. In fact, WeWork now occupies more office space in the Puget Sound than companies such as T-Mobile, Alaska Airlines and the Gates Foundation. While this seemingly insatiable demand for office space continues, many experts agree that we’ll start to see demand cool off in 2019 as employment growth starts to decrease.
Despite what could be a cooling trend in 2019 and beyond, the vacancy rate for the Puget Sound is at a low 7.1% compared to our national average of 9.5%. Some parts of Seattle are experiencing sub 5% vacancy rates as we get closer to record lows not seen since the dot.com era. Average Class A rental rates in Seattle remain at or near record high averages of $45.21 per square foot and Bellevue continues to outpace Seattle with Class A rental rates averaging $46.26 per square foot. Some new construction projects and Class A premium buildings are achieving rents in excess of $60.00 per square foot, establishing new-record highs for both downtown Seattle and Bellevue.
This past quarter, one of the largest leases to be signed in 2018 occurred at the former Seattle City Light Steam Plant located at 1201 Eastlake Avenue East. The 106 year-old-building is recognizable from Interstate 5 given its six white smokestacks, part of the building’s historic landmark status. Built in 1912, the building’s original purpose was operating as a power plant which employed hydro power from water coming down from Volunteer Park which turned turbines located inside the building. Now, a century later the Fred Hutchinson Cancer Research Center has added the building to its South Lake Union portfolio by signing a 10-year lease for all 106,000 square feet. They will move into the building during the fall of 2019 and operate it as a life science facility to support their research. As demand for office space remains at near all-time highs, developers are still showing interest in opportunities in Seattle and Bellevue. Recently, the City of Seattle decided to sell 2.9-acres of land in South Lake Union along Mercer Street surrounded by tenants such as the University of Washington, the Allen Institute, Amazon and the Gates Foundation. That property, known as the Mercer Mega Block, could provide nearly 1 million square feet of office space to the burgeoning and sometimes frenetic South Lake Union office market.
Given the congestion of South Lake Union and throughout Seattle, the city is investing $30 million dollars in what they call One Center City Near-Term Action Plan, a partnership founded to keep people and goods moving through the neighborhoods between Pioneer Square and South Lake Union. This project includes transit and pedestrian improvements, bicycle network connections and other projects focused on mobility options. The city is investing in projects like this to meet the growing needs of Seattle where the number of households are expected to increase by 42% by 2035.
Despite the continuous demand for office and residential space, not all development is moving quickly. In 2015, Crescent Heights of America, a real estate developer with projects nationwide, announced it would be building Seattle’s tallest building to be located at the corner of 4th Avenue and Columbia Street. At 101 stories tall, it was to be the West Coast’s tallest building until the Wilshire Grand in Los Angeles was delivered in 2017. After publicly announcing that the building would start construction in 2017, nothing has happened less some preliminary design submittals to the City. Given the project’s lack of activity with the City’s Department of Construction, don’t expect to see a 101-story building gracing the Seattle skyline anytime soon.
After nearly 10 years of construction, the State Route 99 and Alaskan Way Viaduct Replacement is nearing a project milestone. With tunnel construction completed, the Washington State Department of Transportation expects that the new State Route 99 tunnel will be open in May of 2019. That means shortly thereafter, the viaduct that has framed Seattle along the waterfront will be demolished, paving way for our Waterfront Redevelopment which will extend through 2023.
Scheduled to be completed in September of 2020, the $600 million Key Arena redevelopment led by Oak View Group from Los Angeles, CA, will double the size of the arena and pave the way for Seattle’s first NHL team, yet to be officially awarded. The arena reconstruction will retain the existing roof structure and is designed to hold 17,000 fans for both hockey and dare I say “basketball” someday?
Stay tuned next quarter for updates on the growing Seattle market.