2018 was filled with big news and further growth as the greater Puget Sound region continues to absorb what is becoming the new reality – Big companies, High Wages, Strong employment, increased cost of living and traffic.
Here were the top 5 major drivers:
1) The Big Announcement that really wasn’t that big of an announcement… HQ2!
Amazon’s HQ2 was almost fake news. Seattle had run out of space for Amazon’s growth needs so it was less about deserting their home town and more about finding areas they could continue to expand.
The eventual announcement of two “HQ’s” made for a major dud of an announcement confirming rather than a second Headquarters, it was one of the greatest market research plays of all time, opening the books for every major city in the country as it related to company incentives. Couple that with Amazon leveraging the City of Seattle to decrease the head tax and Amazon came out the winner… again.
2) Google Doubles Down… Everywhere.
Google leases 50% more space in South Lake Union – now totaling almost 1 million square feet of new absorption. Recent rumors that Google remains in Fremont as well, furthers their commitment to Seattle.
Google also rumored as the buyer for Kirkland Urban – a new development in downtown Kirkland totaling over 800,000 feet.
3) Facebook and Oculus Expansion.
Oculus signed leases that pushed their total inventory to 700,000 Feet. Facebook took over shorter-term leases in Bellevue for 85,000 feet and although rumors of their leases at 333 Dexter and Dexter Yard were in the PSBJ, we have heard reports those have since fallen out and their focus is instead in Bellevue’s Spring District.
4) Expensive and Tight Market.
Vacancy in the region dropped from 10.3% to 8.2% over the past year and average rents went up 9% from $34/RSF to $37/RSF. Downtown rents were closer to a $45-$50/RSF average.
Furthermore, with 78% of under construction square footage already pre-leased, the supply coming online will not be sufficient to temper these escalating rental rates and demand will remain high.
5) WeWork the Driver for our Seattle office market?
Behind Amazon, WeWork is the largest occupier of space in Seattle. Considered a riskier tenant than a traditional user, so most institutional landlords cap their exposure at 20% occupancy of their buildings and typically charge them higher rental rates. These “Comps” push the average rental rate up in Seattle. WeWork’s demand for space seems unquenched – typically making a run at any creative block of space that comes available.
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