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July 03, 2018

If you rent office space in the Puget Sound region, expect to pay more

Puget Sound Business Journal

Marc Stiles Inc.'s expansion continues in Seattle as Microsoft and Facebook are growing on the Eastside. And WeWork has been on a leasing spree on both sides of Lake Washington.

These and other factors means tenants likely will see rents continue to climb until 2019 when job growth is forecast to taper off.

This is according to Kidder Mathews' second quarter report, which was released Monday. Across the region the office vacancy rate declined from 7.2 percent in Q1 to 6.8 percent. That's the lowest in 10 years. Rents increased 3 percent quarter-over-quarter in Seattle and 1.7 percent on the Eastside.

"These (rent) trends are expected to continue, however investors are starting to pull back on Class A rent increases due to the pace of office job creation," states the report by Kidder Senior Vice President Chris Berger, who based his analysis on data from CoStar and the Puget Sound Economic Forecaster.

The Forecaster said employment growth through 2018 is expected to be 2.4 percent, the lowest in three years. Plus, it's the construction, services and retail sectors along with tech that are hiring, not law firms and other traditional office space users.

Led by Amazon, tech companies have been filling up new space in Seattle at a robust clip. WeWork has leased a total of 295,000 square feet in three Seattle properties. All total, companies have absorbed nearly 1.45 million square feet of additional space in the first six months versus only 503,600 square feet all of last year. Annual asking rents in downtown Seattle increased from $42.77 per square foot in Q1 to $45.17 in Q2.

The Eastside's annual average asking rent in Q2 was $37.57 a foot, up from $36.96 in Q1. Downtown Bellevue ended Q2 ended with a vacancy rate of 5.5 percent, down from 7.1 percent. That is expected to fall further as no downtown office towers are under construction.

One Eastside submarket is lagging. Along Interstate 90 the vacancy rate is now 14.3 percent due to companies like Boeing vacating leased space and selling assets.

South King County is the only submarket with a double-digit vacancy rate at 10.3 percent, though that's down from 10.9 percent in Q1.

The Northend market saw the vacancy rate decline slightly to 6.5 percent as companies led by Premera Blue Cross expanded. Premera rented nearly 65,600 square feet in Bothell.

Pierce County saw a similar vacancy dip to 6.1 percent, though State Farm is pulling out of downtown Tacoma where it employs around 1,400 people.

For the full story, go to the Puget Sound Business Journal.

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