The Downtown Seattle Class A vacancy rate is expected to dip to under 13% by the end of 2013. Leasing activity is anticipated to remain steady as Amazon, Zulily & Real Networks are expected to sign large leases. However, the overall impact on the market absorption will be somewhat tempered by the following space give backs: Dendreon – 90,000 SF at Russell Investments Center, Federal Home Loan Bank – 100,000 SF at Century Square. The limited supply of Class A view space will continue to cause increasing rents. In addition, the recent high sales prices of several significant Class A buildings will also put upwards pressure on rents as these new owners strive to hit their underwriting projections. However, there is still ample supply of commodity low and mid-rise space throughout the market for tenants looking for value space. Approximately 77% of the available full floors in the CBD are located on floors below floor 30.
The first quarter saw negative absorption and a slight bump in vacancy for the overall Eastside – triggered primarily by increased vacancy on I-90 and in Suburban Bellevue. Much of this vacancy wasn’t new space placed on the market. Instead it was space that was previously being marketed as available, but occupied. Whereas now those spaces are vacant and have negatively impacted the vacancy rate. Examples include the now vacant offices of T-Mobile/I-90 (142,000 sf) and City University/Bellevue Suburban (82,000 sf). This new vacancy coupled with tepid leasing in the first quarter (there were no new larger lease transactions) forced vacancy rates up slightly and caused minor negative absorption.
While the absorption for the quarter was negative, overall activity is beginning to pick up in most of the Eastside submarkets outside of downtown Bellevue. Both the lack of large blocks of space and the dramatic increase in rental rates of Bellevue CBD have resulted in tenants focusing on more cost effective options with free parking in the immediate areas surrounding downtown. Much of the activity has focused on smaller users, as there have been a very limited number of larger (20,000 sf+) tenants seeking office space.
Moving into the second quarter we continue to forecast slow and steady improvement in all sub-markets. Given the relative lack of large blocks of space (with I-90 the glaring exception) vacancy rates will get back on track to continue their gradual but continual descent. Rental rate increases will be modest and restricted from large spikes until tenant activity intensifies and vacancy rates drop further.
The Eastside market saw steady activity throughout the 4th quarter of 2012. Throughout the year, Class A properties in the close-in markets were the most active. Downtown Bellevue, for instance, saw its vacancy drop nearly 5% down to 9.4% (the first time it has been below 10% since 2007). While the entire Eastside market had a positive absorption of 518,357 square feet, the Bellevue CBD accounted for nearly 66% of this total.
Vacancy rates are down 1.5%, from 14.6% at end of year 2011 to 13.1% at end of year 2012.
The market saw positive net absorption of 168,820 square feet in the 4th quarter. Total net absorption for 2012 was positive at 518,357 square feet.
Asking rates increased on average to $28.92/SF, gross, up for the 4th consecutive quarter.
SaltWorks Inc., America’s leading provider of gourmet sea salts and bath salts, has leased 28,000 square feet at the Mackie I Building. The additional space will support their neighboring corporate facility.
Western Marine Electronics, a leading sonar design and manufacturing company, executed a 10 year sale/leaseback of their 82,300 SF facility in Woodinville, WA.
Tyler Slone, Paul Jerue and Chris Langer of Broderick Group, were retained by WesMar to execute the transaction. Working within a shortened timeline to secure the seller favorable tax benefits, Broderick Group was able to assist in marketing, negotiating and closing the sale within a matter of months.