Office Lease Rates Stabilizing in Puget Sound

SEATTLE-Over the past 12-18 months, lease rates in downtown Seattle rocketed from an average of $35-38/sf fully serviced to $42-48/sf. Many real estate experts in the area are saying now that prices here are stabilizing. As evidence, they point to the recent abundance of sub-lease space coming to market as a result of the area’s dot-coms. Though most is absorbed nearly as quickly as it comes on line, sub-leases are going for the same prices as the original leases.

According to analysts at Colliers International, “Between Oct. 1 and 18, available sub-lease space in downtown swelled from less than 392,000 sf to more than 650,000 sf. However, in the weeks since, the trend has decelerated, and most new sub-lease spaces have been under 25,000 sf.”

Rob Aigner, Executive Managing Director, of Colliers International in Seattle says even as recently as six months ago property owners “could really push their rents.” In the last few months, though, the rate of increase has not been what it was, indicating a plateau, “especially for upper-end space,” says Aigner. While buildings such as Two Union Square, Columbia Seafirst Center and US Bank have hit the $55/sf mark the last several months, Aigner declared, “I haven’t seen $60/sf in Puget Sound yet.”

With at least 4 million sf of office space under construction in Seattle and the recent sub-lease flood, some speculators find themselves a bit nervous. Aigner referred to the period about ten years ago when more space was coming back onto the market than was being leased. Even worse, many of the agreements that were being signed were for sf prices below the break-even cost of development. “Those memories still come to mind,” says Aigner. When asked to predict what the Seattle leasing market might expect to see over the next 12-18 months, the Colliers executive says that even with all the new construction, “there will be a good level of demand. Prices may plateau—a stabilization of the market—but certainly not a decline.”