Vacancy Rate will drop below 4%. The lowest rate since the “.com bubble” in the late 90’s
Available space, especially good space, will become sparse
Companies over 50,000 feet will have very little leverage as options in this size range will be nearly nonexistent
Rental Rates will increase by another 10%
Seattle will become too expensive for many companies to operate
Wages and Office Rent are the highest overhead items on a company’s ledger. When rents jump by 40% and wages follow, a breaking point is in the offing.
Nonprofits, medical groups with revenue caps through insurance, and local professional service firms are especially burdened by Seattle’s rising costs.
These businesses will be forced to offset rising costs by finding space outside the core and/or becoming more efficient.
Historically “Cheap” Submarkets are no longer…
Areas such as Belltown, Queen Anne and areas as far south as Georgetown have traditionally offered rent relief. Because of recent demand, these “escapes” are now expensive and limited in supply.
How do businesses consider drifting further from the core when we know recruiting and retaining talent is difficult when they do so?
Real estate investors will flock to these secondary, tertiary markets for yield. They will create employee friendly submarkets that cater to affordable cost of living, cool amenities and retail with access to transit… What do we do in the interim?
This is the challenge we face over the next 5 years.
Office Sales will Slow - Buyers & Sellers are Disconnected
We project a slowing of sales as buyers and sellers adjust to a new interest rate climate. Continuous but incremental interest rate hikes in 2019 will temper sales volume through 2019.
Brick-and-Mortar Retail is not dead. But, it will be different.
We will see continued store closures in 2019.
It will be less about failure and more about adjusting or morphing to retail demand.
Example: Real time purchases, made-to-measure clothes & human experiences.
Look no further than Amazon Go, Amazon Books or Bonobos for examples of new Brick and Mortar.
Predictions from the Street – from Uber Drivers to CEO’s!
“The Market’s going to crash! We’ve been recovering for 10 years!”
We disagree!
This current economy will likely settle into a lengthy period of balanced, noninflationary growth, barring no black swan events such as trade war, currency crisis or cyber terrorism.
Despite the absence of obvious imbalances, companies will be nervous to make long-term decisions given how long we have been on this economics recovery.
The Puget Sound office market is especially guarded as the areas fundamentals remain solid with very strong, multi-faceted groups such as Amazon, Microsoft, Boeing, Starbucks, Google and Facebook/Oculus. And this does not account for the other billion-dollar companies occupying and growing in our backyard.
My Best Guess at a Bubble…
WeWork.
They have long-term obligations with short-term contracts. See Lehmann Brothers.
This will not happen in 2019 but it is a future projection nonetheless. Keep an eye on WeWork as the startup-funding environment cools and groups like Amazon move out of WeWork and into their newly built offices. WeWork is the second largest office user in Seattle (you read that right). That is a lot of space to keep leased…
Hope you enjoyed this read and well wishes to a successful and happy 2019! If you have any thoughts or comments- leave it below!
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