Strong Pre-Leasing Activity Leaves Few Large Office Options
As demand for large blocks of office space along with new and top-tier space continues, availability will be quickly chipped away but Savills predicts leasing activity will increase next quarter.
SEATTLE—Both availability and asking rents increased with the start of the new year with 3.4 million square feet of new office construction in the development pipeline, according to a first quarter report by Savills. As demand for large blocks along with new and top-tier space continues, availability will be quickly chipped away.
The addition of new space coupled with scarcity of large options is also placing upward pressure on asking rents. Overall office rents increased 17% year-over-year to $38.85 per square foot, while class-A asking rents increased 12.6% during the same period to $47.33 per square foot, says the report.
Total first quarter 2019 leasing activity stood at nearly 1.7 million square feet, down 27.3% and 5.9% versus one and two years ago, respectively. The most active submarkets were downtown, representing 53.8% of total leased square feet, and Bellevue/Eastside, representing 32.8% of total leased square feet.
“The 27% quarterly reduction is what happened, and the statement that large blocks will be chipped away quickly is forward looking. We expect next quarter that leasing activity will increase,” Eric Leland, senior managing director, Savills tells GlobeSt.com. “Leasing activity on a quarterly basis is a very short period of time to make any significant interpolation as to what is happening in the market, as leases take anywhere from six months to 18 months to complete. Sometimes this quarterly slowdown is simply a function of leases not getting signed due to lease negotiations, but should not be interpreted as a market slowdown. I think this was true this last quarter. We continue to have strong activity and believe 2019 will be very strong in all aspects of the data.”
Technology companies continue to drive demand across the market, along with notable activity from co-working providers. Facebook significantly expanded its presence in the market this quarter, leasing 337,996 square feet at 1227 124th Avenue NE, the Block 16 building underway at the Spring District project in Bellevue/Eastside. WeWork is also expanding its presence in the market, taking 49,232 square feet at 925 4th Avenue in the downtown submarket.
Breaking down the largest transactions, Savills found that 73.7% of those large transactions occurred in the Bellevue/Eastside submarket and technology/advertising, media and information/TAMI represented 54.8% of major transactions.
The top three deals in first quarter were Facebook’s aforementioned lease at 1227 124th Ave. NE in a new location in Bellevue/Eastside, T-Mobile’s 97,167-square-foot lease at 3255 160th Ave. SE in a new location in Bellevue/Eastside and Nordstrom’s 70,895-square-foot lease at 1001 4th Ave. in a new downtown location.