Seattle is an important business center, and its office space market can be affected by numerous factors – including an increase in vacancy, decreased net absorption, and slower construction.
This trend can be partially attributed to the layoffs of numerous tech employees. Furthermore, businesses have adjusted their workplace strategies in response to this new normality.
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1. Downtown
Downtown Seattle stands out as a leader when it comes to office vacancy. Since early 2022, its vacancy rate has decreased from its high point of 14% down to just over 9% in February of this year – far outperforming many of the city’s peer markets and signaling an ongoing workplace recovery process.
But even as office markets stabilize, leasing activity has declined significantly, and vacancy is increasing across some Class A buildings, particularly as tenants move out due to closing or right-sizing plans, according to Mark Barbieri from Colliers International.
Given the mass layoffs across tech sectors, as Colliers research manager Jacob Pavlik’s report detailed, it is no surprise that vacancy rates have spiked; however, these figures do not match what is evident when walking around downtown: employees have returned in more significant numbers this month.
One major worry among landlords is that prolonged high vacancy could strain their debt financing and even lead to default, though this seems unlikely. Employers seeking alternatives to traditional office space, like neighborhoods that provide amenities like restaurants and parks while being free from commute time, parking hassles, or security worries found downtown, have sought alternatives due to uncertainty.
In other cases, they’re taking advantage of market forces to negotiate cheaper leases for existing offices or join civic efforts to revitalize downtowns into places where more people want to spend their time. These strategies should be explored further – but should not be seen as solutions that can guarantee office worker recruitment.
2. Queen Anne/Magnolia
Office space may not have returned to pre-pandemic levels yet, but that doesn’t stop companies from evaluating their real estate needs and searching for suitable spaces to rent. Many are opting for hybrid work models where employees come into the office two to three days per week instead of all five, which helps save on overhead costs while creating a more flexible work environment for employees.
Colliers reported that the increase in office vacancies was driven by widespread employee layoffs in the tech sector, particularly before the pandemic. It ushered in an era of traditional in-office work policies.
Despite a shortage of office workers, construction remains in full force in Seattle and Bellevue. Projects underway will add nearly 6.5 million square feet to Seattle and Bellevue’s current inventory by 2024, increasing the total office supply by almost 8 percent.
Vacancy rates outside the downtown area remain low, particularly in neighborhoods like Northgate and Alderwood, which have high numbers of residents who can walk to their workplaces. There have also been an increasing number of old shopping centers being renovated into offices or apartments in these neighborhoods.
Suburbs also experience strong demand for commercial space that provides access to public transit options like light rail, bus system, and airport connections. Approximately one-fifth of available commercial office space exists within Seattle itself – higher than any national average figure; investors continue to show strong interest in purchasing commercial property for rent here despite any slowdown in office market performance.
3. Ballard/U District
The Ballard/U District office market remains active just north of downtown Seattle. Tenants often prefer this neighborhood due to its mix of restaurants and shopping that rival downtown living but at lower rents. Furthermore, its less congested nature allows employees to commute more conveniently from home.
Colliers estimate that Seattle will see over 5 million square feet added to its office inventory by Q1 2024 via this pipeline of new office buildings. Yet, many remain vacant due to market uncertainties over employee return rates preventing some companies from leasing space or renewing.
Colliers research manager Jacob Pavlik reports a rise in vacancy rates, which isn’t surprising given the layoffs of thousands of workers, primarily in tech. But these numbers don’t jibe with what has been witnessed in downtown office markets, where vacancies average around 20%.
Brokers report that the soft office market has not resulted in significant rental decreases so far, likely because companies are adapting to new work patterns – in many cases, this includes structured hybrid models where employees only need to come into the office two or three days per week.
The soft office market has led some tenants to explore options outside downtown, mainly suburban neighborhoods with similar amenities at more reasonable costs. For instance, Northlake Commons will eventually feature office and retail spaces alongside public space featuring views of Lake Union.
4. West Seattle
Seattle is known for its vibrant beer and restaurant scenes and an exceptional office space market. Tech firms are one of the primary drivers of local economies; hence why tech firms account for much of the demand in Seattle office space markets.
Though some tenants have already downsized during the pandemic, others await to see if market conditions improve before signing new lease agreements. Recent evidence of new projects and a strong tenant pipeline indicates that office leasing activity may resume its pace in 2023.
Seattle stands out among major metropolitan areas by boasting low vacancy rates outside its downtown core due to redevelopment projects at old suburban malls like Northgate and Alderwood into new office and apartment buildings. CoStar analyst Elliot Krivenko notes that these buildings attract tenants in sectors that do not require as much remote workspace – such as healthcare and technology.
Low vacancy rates mean rents remain relatively flat, helping landlords maintain healthy profit margins. Unfortunately, however, low vacancy rates have put a strain on construction activity; as there are less than 1 million square feet of new office construction underway for Seattle in 2018 (and even less scheduled in 2019), construction activity remains limited.
While some companies are considering redesigning their office spaces in response to the pandemic, others are taking this opportunity to upgrade with modern technologies and amenities, which should stimulate future office space demand in cities.
5. Renton
Seattle’s office space market has experienced a decline since the pandemic hit, with declining net absorption and increasing vacancies across submarkets, particularly Downtown, and neighborhoods to the north of the city. More businesses may move staffers home or establish headquarters elsewhere; this could significantly impact future demand.
As such, investors have continued to buy properties in Seattle despite an edgy recovery. According to CRE data service CommercialEdge, Seattle sold the highest total commercial real estate sales ($2.1 billion). Only two other markets managed to cross that threshold.
Speculative office buildings remain under construction, though some developers have scaled back on their plans, and tenants are opting to remain in existing spaces they already occupy. Groupon recently signed on for two floors at 1201 Third Ave in Union Station International District after previously operating from Chinatown International District nearby.
Modern low-rise buildings across Seattle also provide modern amenities and convenient locations, making them suitable for firms that wish to be close to their customers. Many such locations can be reached easily using public transit systems – making these buildings attractive options for firms wanting a closer relationship with them.
Suburban areas outside the urban core have seen vigorous leasing activity for office space. Rents tend to be lower and provide an affordable alternative to central business districts with more accessible parking and restaurants and shops nearby.
