Seattle’s Office Sector Sees Surge in Deliveries

June 19, 2024

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The market recorded a ninefold increase in space coming online, according to CommercialEdge information.

Seattle’s office sector shows signs of improvement, especially for completions. In the first four months of the year, the Emerald City saw 2.5 million square feet of space delivered, almost nine times the figure delivered during the same interval in 2023, CommercialEdge data shows. Six properties came online, accounting for 1.4 percent of the total stock.

In April, Office Properties Income Trust completed the renovations of Unison Elliott Bay. *Image courtesy of The RMR Group*

Despite some positive signs, U.S. tech markets were the most affected by the current economic conditions. These challenges impacted Seattle’s office sector figures on several levels; for instance, the vacancy rate witnessed a 400-basis-point increase year-over-year as of April.

The under-construction pipeline dropped year-over-year as of April from 6.9 million square feet to 3.3 million square feet. However, the metro fared better than Manhattan (2.7 million square feet), Chicago (1 million square feet) and Los Angeles (1.6 million square feet).

Less office space being built as deliveries peak

As of April, the Emerald City had some 3.3 million square feet—2.3 percent of total stock—of office space under construction. This represents a 50 percent drop from the previous year, when 6.9 million square feet—5.0 percent of total stock—was underway.

The metro’s share of office space in the under-construction and planning phases stood at 9.8 percent of existing stock. Other gateway markets like San Francisco (13.1 percent) and Boston (11.6 percent) surpassed Seattle, while Washington, D.C. (4.7 percent) and Manhattan (2.9 percent) lagged behind.

Sabal Investment Holdings and Palisade Group acquired 1000 & 1100 Dexter Ave. for $47.5 million. *Image courtesy of Sabal Investment Holdings*

One of the largest projects currently under construction that will reshape Seattle’s office sector is Amazon’s Tower 1 at Bellevue 600, a more than 1.1 million-square-foot tower in Bellevue, Wash. The 43-story property, scheduled for completion this month, is set to be LEED Gold-certified. The development will also comprise a phase two, a 31-story project that will measure 764,400 square feet.

Additionally, Skanska is nearing completion of The Eight, a 541,000-square-foot speculative development also in Bellevue. The company topped out the 25-story building in May last year and aims for LEED Platinum certification.

Seattle sees surge in office deliveries

Year-to-date through April, Seattle’s office sector saw 2.5 million square feet coming online across six properties, amounting to 1.4 percent of total stock. This figure is almost nine times larger than in the same interval of 2023, when only about 287,000 square feet were completed.

The Auburn facility is situated on the MultiCare Auburn Hospital Campus. Image courtesy of Newmark — A joint venture between Anchor Health Properties and Australian Retirement Trust purchased a three-property medical office portfolio in Seattle and Charlotte, N.C., for $62 million. Image courtesy of Newmark

Among peer markets, the Emerald City saw the highest increase in deliveries compared to the first third of last year. Washington, D.C. (435,428 square feet) posted a 50.9 percent decline, while Chicago’s completion figure (875,110 square feet) rose only by 13.3 percent. Boston ranked second in terms of growth, with almost 1.4 million square feet completed, a 110.3 percent increase.

At the end of April, Office Properties Income Trust completed renovations at Unison Elliott Bay, a three-building mixed-use campus near downtown Seattle. The park, which features 300,000 square feet of office, lab and R&D space, is expected to achieve LEED Gold certification.

The month before, Vulcan Real Estate completed the more than 1 million-square-foot West Main campus in Bellevue, Wash. The developer financed the construction of the three-building property with a $706 million loan originated by U.S. Bank in September 2020.

Larger sales volume, smaller prices per square foot

Seattle’s sales volume year-to-date as of April reached almost $160 million, according to CommercialEdge data. Seven assets totaling 732,663 square feet changed hands during this period. This represents a considerable increase year-over-year when the sales volume stood at $54.7 million.

Skanska has landed a long-term tenant for The Eight in Bellevue, Wash. — The Pokémon Co. signed a 526,596-square-foot leasing agreement at The Eight at the beginning of this year. *Image courtesy of Skanska*

However, office properties in the metro traded for $241.26 per square foot on average in the first four months of this year, about $46 less than 2023’s same period. Among gateway markets, Los Angeles ($359 psf) was the priciest, followed by Manhattan ($351 psf) and Washington, D.C. ($345 psf). Chicago was at the opposite end of the spectrum, with $81 per square foot.

In February, a joint venture between Sabal Investment Holdings and Palisade Group purchased 1000 & 1100 Dexter Ave., a two-building office campus in Seattle, for $47.5 million—or $231 per square foot. SBC and Stockbridge sold the 223,233-square-foot property that came online in 1996 and was renovated in 2003.

A month earlier, Anchor Health Properties partnered with Australian Retirement Trust for the acquisition of a three-property medical office portfolio in the Seattle and Charlotte, N.C., metros for $62 million. The Emerald City asset is a 41,000-square-foot MultiCare Health System property in Auburn, Wash.

More vacant space in the Emerald City

With tech markets being the most affected by recent economic challenges, Seattle’s vacancy rate rose 400 basis point year-over-year as of April, reaching 23.0 percent. This figure is also 4.2 percent higher than the national average. San Francisco (25.9 percent) had the most vacant space among gateway metros, while Washington, D.C. (16.8 percent), Manhattan (17.6 percent) and Chicago (19.1 percent) fared better.

The office building at 1313 Broadway in Tacoma, Wash. — The six-story office building is currently undergoing cosmetic renovations, including a new lobby, common area and storefront. Image courtesy of CommercialEdge

In January, Skanska signed one of the largest recent office deals in the Puget Sound area, agreeing to lease 526,595 square feet to Pokémon. The firm will occupy 72 percent of The Eight’s capacity, a 729,000 square feet office building.

A few months later, Commencement Bank expanded its presence in the Seattle area after committing to 18,000 square feet at 1313 Broadway Plaza in Tacoma, Wash. The company’s headquarters and Tacoma branch are less than half a mile from their new location, which will open next year.

As of April, Seattle’s office sector had an average listing rate of $37.02 per square foot, a 6.8 percent decline year-over-year. The national figure during the same month was $37.66.

Coworking remains steady

CENTRL office will open a 53,365-square-foot shared office space at the Kelly-Springfield Building that was previously operated by WeWork. *Image courtesy of Kidder Matthews*

As of April, Seattle’s coworking sector consisted of more than 3.0 million square feet of coworking space, outperforming only Miami (2.9 million square feet). Across peer markets, Manhattan led with almost 12.7 million square feet, followed by Los Angeles (6.6 million square feet), Washington, D.C. (6.3 million square feet) and Chicago (6.2 million square feet).

Seattle’s shared space volume represented 2.0 percent of all leasable office space, 20 basis points higher than the national average. The Emerald City surpassed Chicago (1.9 percent), Boston (1.8 percent) and Washington, D.C. (1.6 percent).

In March, CENTRL Office took over 53,365 square feet of coworking space at the Kelly-Springfield Building. Previously operated by WeWork before filing for Chapter 11 bankruptcy, the space will reopen in July.