Significant leases in Downtown Seattle for the Fourth Quarter included Federal Home Loan Bank’s 54,000 SF lease at Safeco Plaza, DNV Renewables’ 24,000 SF lease at Century Square, Zillow’s 22,000 SF lease expansion at Russell Investments Center.

 

The Downtown Seattle Class A market had positive absorption of 459,000 SF for the Fourth Quarter. The Class A market had positive net absorption of 1,490,000 square feet for 2012. The Class A market has absorbed over 3.6 million square feet since 2009.

 

The Downtown Seattle Class A vacancy rate is expected to dip to under 12% 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, Real Networks downsizing from 260,000 SF to approximately 85,000 SF, and Nordstrom – 86,000 SF give-back at Metropolitan Park North. 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 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.

 

There will be very little new construction in downtown Seattle before 2016 given the time required to permit, pre-lease and finance projects. Landlords will enjoy a steady increase in rental rates for at least the next three (3) years. Capstone announced they will start construction Q1 2013 on its 350,000 SF project called Dexter Station located in Lake Union. Skanska Development has also indicated they will break ground on 400 Fairview during Q1 2013. 400 Fairview is a 330,000 SF office project located in the heart of South Lake Union.

 

 

Downtown Bellevue continues to lead the way in leasing activity as large tech tenants seek the amenities and transit provided by the CBD. One Bellevue Center recorded the largest lease of the 4th quarter with 53,100 RSF leased to eBay who will be relocating from Redmond. Looking forward, Symetra is expected to renew its 250,000 RSF lease at Symetra Financial Center in the beginning of 2013.

 

The Eastside market had a positive absorption of 168,820 square feet for the fourth quarter 2012, thereby bringing the 2012 total to 518,357 square feet. From this total, 340,899 square feet (or 66% of all Eastside absorption) was in downtown Bellevue.

 

Downtown Bellevue will continue to be the market of choice for most tenants and there will be significant rental spikes for premium view space in 2013. Large tenants (70,000 RSF or larger) are out of options in the Bellevue CBD for now (although Key Bank will be vacating approximately 65,000 RSF in the first quarter of 2013). Therefore, larger tenants will be forced to consider I-90 and other suburban options. I-90 is the only market that will see a large jump in vacancy as Verizon and T-Mobile vacate approximately 280,000 RSF in early 2013. However, smaller, premium I-90 spaces will continue to get leased, allowing I-90 rental rates to increase modestly over the next 6 months.
Overall, leasing activity remains steady and supply is becoming more limited, yet large users such as Microsoft are not active in the market. Due to the lack of larger, 50,000+ RSF tenants, the extreme spike in rental rates typically seen at this stage of recovery have been absent. Instead, projected rental rates are gradually increasing. Expect rental rates to increase an average of 7.5% in 2013.

 

There will be very little new construction on the Eastside before 2016 given the time required to permit, pre-lease and finance projects. Landlords will enjoy a steady run in rental rates for at least the next three (3) years. However, a horse race for the new construction highrises is starting to develop in downtown Bellevue with Summit III in the lead (garage complete, 16 months to deliver), Beacon Capital’s NE 8th/Griffin in the second place position (the site is mostly entitled), and Kemper Development’s Lincoln Square currently in third (while mostly entitled, it has a longer construction duration). In the close-in suburban market, the Shorenstein-Wright Runstad Spring District (490,000 square feet in two buildings) could beat all projects to market, with the exception of Summit III, should it be built on a speculative basis.

 

 

Significant leases in Downtown Seattle for the Third Quarter included Amazon’s 116,000 SF lease at 202 Westlake and Attachmate’s 73,000 SF lease at 705 Union Station.

 

The Downtown Seattle Class A market had negative absorption of 175,000 SF for the Third Quarter, of which 122,000 SF was attributed to Philips Healthcare’s relocation. Year to date the Class A market has had a positive net absorption of 1,031,051 square feet.

 

Downtown Seattle Class A vacancy is expected to dip to 13% by year end 2012. Leasing activity will continue to remain strong through 2013 as Amazon is expected to lease approximately 150,000 SF at 1800 Ninth and possibly 140,000 SF at Metropolitan Park North. However the overall impact on vacant space will be minimal due to some anticipated space coming on the market. 1201 Third Avenue will have 81,000 SF come vacant as Perkins Coie transitions out of their swing space used for tenant improvements. Dendreon is rumored to put upwards of 100,000 SF of sublease space on the market at Russell Investments Center. The Federal Home Loan Bank of Seattle will be moving into 54,000 SF at Safeco Plaza and in the process will vacate approximately 100,000 SF at Century Square.

 

There will be very little new construction in downtown Seattle before 2016 given the time required to permit, pre-lease and finance projects. Landlords will enjoy a steady increase in rental rates for at least the next three (3) years.

 

Downtown Bellevue continues to lead the way in leasing activity as large tech tenants seek the amenities and transit of the CBD. However, Redmond recorded the largest leases of the quarter with the 51,000 RSF sublease from Microsoft to Intel and WDS Global’s 28,000 RSF lease at the Zetron Building.

The Eastside market had a positive absorption of 83,132 square feet for the current quarter which brings the 2012 total to 362,781 square feet.

Downtown Bellevue vacancy is expected to dip below 10% by year end 2012. There should be significant rental spikes for premium view space by year end. Large tenants (70,000 RSF or larger) will be out of options in the Bellevue CBD and will be forced to consider I-90 and other suburban options. I-90 is the only market that will see a large jump in vacancy as Verizon and T-Mobile vacate approximately 280,000 RSF in 2012 and early 2013. However, smaller, premium I-90 spaces continue to get leased, allowing I-90 rental rates to stay flat or increase modestly over the next six (6) months.

Leasing activity remains steady and supply is becoming more limited, yet large users such as Microsoft remain out of the market. Due to the lack of larger, 50,000+ RSF tenants, the extreme spike in rental rates typically seen at this stage of recovery has been prevented. Instead, projected rental rates are gradually increasing: in the 5% range for 2012, and 7.5% for 2013.

There will be very little new construction on the Eastside before 2016 given the time required to permit, pre-lease and finance projects. Landlords will enjoy a steady run in rental rates for at least the next three (3) years.

Downtown Bellevue continues to lead the way as large tech tenants seek the amenities and transit of the CBD. Recent lease signings that highlight this are: Concur (123,000 RSF at Key Center); Caradigm (71,000 RSF at City Center); and Apptio (61,000 RSF at Plaza East). Other Eastside submarkets (I-90, SR-520, Kirkland, Bothell and Redmond) are also seeing steady interest, however at a slower pace than downtown Bellevue.

The Eastside market had a positive absorption of 112,653 square feet for the current quarter which brings the 2012 total to 244,597 square feet.

Downtown Bellevue vacancy is expected to be below 10% by year end 2012. There should be some significant rental spikes for premium view space by year end. I-90 is the only market that will see a large jump
in vacancy as Verizon and T-Mobile vacate approximately 280,000 RSF in 2012. Smaller, premium I-90 spaces continue to get leased, causing I-90 rates to stay steady or even increase over the next 6 months. Large tenants (100,000 RSF or larger) will be out of options in the Bellevue CBD and will be forced to consider I-90, or the one option in Redmond (Marymoor Tech Center) that can accommodate that size.

Activity is very good, supply is extremely limited, and if it were not for the caution tenants exhibit over European market fears and/or the outcome of upcoming elections, the Eastside Office market would experience rental rate spikes reminiscent of the late 1990’s. Despite the caution, projected rental rate increases should be in the 5% range for 2012, and 7.5% for 2013, with even much higher rental increases for the premium Class “A” properties.

There will be very little new construction on the Eastside before 2016 given the time required to permit, pre-lease and finance projects. Landlords will enjoy a steady run in rental rates for at least the next three (3) years.