2Q’11 PUGET SOUND MARKET REPORT
Seattle Office Market SEATTLE R E IGN S The Seattle office market ended the second quarter with positive
SEATTLE OFFICE SUBMARKETS MAP
signs on all fronts - experiencing increased tenant activity, 244,000 SF of positive absorption and a decline in vacancy of 20
BALLARD/ U DISTRICT
basis points. The technology sector continues to thrive and has had a major impact on the office market. Organic growth, combined with expansions and relocations all contributed to the sustained
QUEEN ANNE/ MAGNOLIA
positive momentum in the CBD and surrounding submarkets.
LAKE UNION
Many of these tech companies are centralizing themselves
DENNY REGRADE SEATTLE CBD
around Lake Union where Amazon.com is now anchored. Although there was nearly 500,000 square feet of negative absorption in the Seattle CBD, Pioneer Square and South Seattle
520 CAPITOL HILL/ CENTRAL DISTRICT
SEATTLE
PIONEER SQ/ WATERFRONT Elliott Bay
Lake Washington
90 5
submarkets combined, this figure was offset by close to 622,000 square feet of positive absorption, mostly as a result of Amazon moving to the Lake Union submarket.
S SEATTLE/SODO WEST SEATTLE
The new world headquarters of the Bill & Melinda Gates Foundation is also located in the Lake Union area. The nearly 600,000 SF campus consolidates the foundation’s regional operations, which also contributed to the negative absorption in the surrounding submarkets. In addition to these two large users, the Biotech industry continues to strengthen its presence in the Lake Union area as
“Class A+” property in Seattle with large blocks of available
well. Major firms such as UW Medicine, Fred Hutchinson and the
space, which has seen significant tenant activity as the Class A
Institute for Systems Biology continue to expand their footprint
market continues to tighten up.
in that very active submarket.
Overall, the Seattle office market is nearing equilibrium as
For the first time in the last three years tenants are starting
landlords and tenants are moving toward middle ground in rents
to vie for coveted premier locations and there has been an
and concessions. With the third quarter occupancies of Amazon.
uptick in bidding wars for desirable spaces. As a result of this
com at 1918 8th and Dendreon at Russell Investments Center
positive activity deal velocity is increasing and timelines are
the Seattle office market is expected to see as much as one
shortening; landlords are just as compelled as tenants to lease
million square feet of absorption come October.
spaces. Even the less expensive, more commodity-type spaces
Seattle is returning to its status as a “darling” for investors, with
are experiencing competition between tenants as the market
many properties reaching required occupancy and experiencing
tightens and large blocks of available space diminish.
a declining cap rate. While new speculative construction is most
There has been a shift in demand for the “Class A+” space,
likely still two years away, we may begin to see a rise in the
as premier properties like Russell Investments Center and 1918
ground breaking of new build to suit properties that can service
8th have seen their occupancy levels skyrocket over the last
the larger tenants in the market.
two years. West 8th is now the only remaining new construction (4 2 5 ) 9 7 4- 4000
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S EAT T L E | BEL L EVU E | TA COM A | PORTLA N D
2Q’11 PUGET SOUND MARKET REPORT
Seattle Office Market The Seattle office market is comprised of 693 total properties spread
HISTORICAL VACANCY RATES & RENTAL RATES
throughout eight submarkets and totals just under 60 million square
18.0%
feet. The overall vacancy rate declined slightly, with the largest decrease
15.0%
in the Lake Union submarket. Positive net absorption was slightly lower
12.0%
than first quarter, ending at 244,642 square feet and average rental rates in all submarkets continue to be on the rise.
$32.00 $30.00
9.0%
$28.00
6.0% $26.00
3.0% 0.0%
2005
2006
INVENTORY Buildings
Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle DOWNTOWN SEATTLE
2008
Rental Rates (FS)
Seattle Office Overview Market Area
2007
103 82 78 84 103 99 74 70 693
SF
Direct Vacancy
Sublet Vacancy
Total Vacancy
25,122,835 3,164,052 5,474,188 4,628,331 8,018,207 6,218,623 3,912,636 2,830,388 59,369,260
13.9% 5.2% 11.8% 6.9% 17.1% 23.5% 18.4% 25.5% 15.0%
1.3% 4.4% 1.2% 0.0% 0.3% 0.6% 0.3% 0.0% 1.0%
15.2% 9.6% 13.0% 6.9% 17.4% 24.1% 18.7% 25.5% 16.0%
ABSORPTION 2Q Absorption YTD
(143,867) 37,396 67,557 22,540 622,873 (161,138) (13,642) (187,077) 244,642
2009
2010
2011
$24.00
Vacancy Rates AVERAGE RENT & EXPENSES (FS) Rent NNN
(223,315) 100,020 46,809 26,692 910,699 (63,433) 27,668 (236,827) 588,313
$30.17 $31.70 $25.84 $36.00 $34.49 $28.70 $33.38 $24.51 $30.60
$9.45 $8.00 $8.25 $8.00 $9.45 $8.50 $8.50 $8.00 $8.52
Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE
2004
2005
2006
2007
2008
2009
2Q’10
3Q’10
4Q’10
1Q’11
2Q 2011
13.4% 5.4% 14.1% 11.2% 18.3% 13.9% 17.7% 9.9% 13.3%
12.5% 4.7% 12.0% 10.6% 16.1% 11.9% 15.9% 9.7% 11.9%
10.4% 3.4% 9.7% 7.3% 11.6% 8.7% 8.5% 12.7% 9.2%
10.4% 2.7% 9.2% 4.1% 5.7% 7.2% 7.6% 9.6% 8.6%
11.0% 12.6% 8.1% 4.3% 6.4% 12.4% 5.8% 10.0% 10.1%
15.9% 11.9% 16.4% 13.5% 8.2% 15.6% 15.6% 10.9% 16.4%
16.2% 14.5% 12.4% 8.6% 22.4% 18.4% 16.6% 18.6% 16.4%
15.3% 14.6% 13.1% 7.5% 22.3% 22.2% 16.4% 16.7% 16.3%
14.0% 14.4% 13.2% 7.2% 20.9% 22.4% 16.5% 15.9% 15.6%
14.5% 10.7% 13.6% 7.4% 25.7% 20.7% 18.2% 18.6% 16.2%
15.2% 9.6% 13.0% 6.9% 17.4% 24.1% 18.7% 25.5% 16.0%
Historical Rents (FS) Market Area
Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE
Historical Total Absorption
2007
2008
2009
2010
$35.37 $35.59 $29.25 $35.08 $32.52 $25.92 $25.81 $22.74 $30.29
$33.37 $31.10 $30.56 $31.05 $38.31 $28.97 $35.80 $22.95 $31.51
$29.49 $28.83 $26.16 $30.00 $31.29 $26.34 $21.55 $23.61 $27.16
$29.16 $28.06 $24.80 $29.53 $32.20 $25.69 $27.66 $23.25 $27.54
Market Area
Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE
2Q’10
3Q’10
4Q’10
2010
1Q’11
2Q 2011
(140,078) (16,787) 182,460 24,976 509,498 (3,664) (18,245) (2,512) 535,648
229,388 (2,393) (40,792) 30,320 144,692 (232,194) 4,559 53,491 187,071
320,815 78,031 (7,401) 22,719 98,069 (14,602) (1,035) 22,632 519,228
475,335 (4,847) 175,473 269,416 869,821 (170,228) (31,307) 49,242 1,632,905
(79,448) 62,624 (20,748) 4,152 287,826 97,705 41,310 (49,750) 343,671
(143,867) 37,396 67,557 22,540 622,873 (161,138) (13,642) (187,077) 244,642
Asking Lease Rates by Class Class A
Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE
$30.17 $31.70 $25.84 $36.00 $34.49 $28.70 $33.38 $24.51 $30.60
(4 2 5 ) 9 7 4- 4000
LEASE RATES (FULL SERVICE) Class B Class C
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$22.52 $24.50 $25.18 $28.93 $25.00 $22.36 $20.78 $21.50 $23.85
$17.38 $18.57 $19.39 $22.34 $16.56 $16.76 $19.68 $20.76 $18.93
Class A
$9.45 $8.00 $8.25 $8.00 $9.45 $8.50 $8.50 $8.00 $8.52
OPERATING EXPENSES* (PSF) Class B Class C
$8.45 $7.00 $7.25 $7.00 $8.45 $7.50 $7.50 $7.00 $7.52
$7.45 $6.00 $6.25 $6.00 $7.45 $6.50 $6.50 $6.00 $6.52
*Expenses are approximate
Market Area
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Prior years as of 4Q
Historical Total Vacancy Market Area