Q4 2022 Office Space Report: Seattle, WA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Home to Fortune 500 companies like Amazon, Costco, Microsoft, and Starbucks, Seattle, Washington is a significant US business hub.
The unemployment rate decreased quarter-over-quarter from 3.3% to 3%, below the national average of 3.5% in Q4 2022.
Its metro population has grown an average of 0.82% from 2019 to 2022.
By the end of 2022, the office space market in Seattle saw a significant rise in vacancy, a decline in net absorption, lower construction volume, and an increase in asking lease rates.
General Area Overview & Demographics
The city of Seattle, Washington, has a population of 733,919 people. The racial makeup is White (67.7%), Asian (13%), African American (7.5%), Native American (1.8%), and Hispanic or Latino people at 6%. The city is also home to many immigrants, with 16.2% of its population being foreign-born in 2018.
According to the U.S. Census Bureau, the average household income in Seattle, Washington, is over $101,000. This places it among the top 10 cities with the highest median household incomes in the United States and is significantly higher than the national average of around $60,000.
Seattle is home to a diverse population, with nearly 30% of its citizens falling within the age range of 18-34. This age group comprises the largest segment of Seattle’s population, followed by people aged 35-54 at 23%. Those aged 55-64 make up 15%, while those 65 and older make up 13%.
The University of Washington is the largest in the city and one of the top-ranked public universities in the country. Other notable universities in the area include Seattle Pacific University, Seattle University, and the Art Institute of Seattle.
Iconic attractions include the Space Needle, Seattle Aquarium, Pike Place Market, and outdoor excursions like kayaking on Lake Union.
The weather is mild, with average temperatures ranging from the mid-40s to the low-60s. However, the city sees a fair amount of rain, averaging around 37 inches annually. Snowfall is also common in winter, with an average of about 15 inches annually.
Summary of Seattle Office Space Performance in Q4 2022
The overall vacancy rate for office space in Seattle was 20.7% in the fourth quarter, a 0.7% increase from Q3.
Class B properties had the highest vacancy rate at 16.5%, followed by Class A at 15.1% and Class C at 5%.
Queen Anne/Magnolia was the only submarket with a total vacancy rate of over 20%.
The vacancy was lowest in the Ballard/U District submarket.
Despite a positive absorption of 174,000 square feet in Q4, 2022 ended with -2.16 million square feet absorbed.
Seattle’s CBD accounted for 1.8 million square feet of negative absorption.
What are office space rents like in Seattle?
Asking lease rates declined from $58.02 to $57.48 per square foot quarter-over-quarter, but Seattle still remains one of the most expensive cities to lease commercial real estate.
The Eastside increased from $39.50 per square foot in the third quarter to $40.30 in the fourth.
Seattle, Tacoma, Northend, and Southend all saw a quarterly drop in rental rates per square foot.
Seattle declined from $38.09 to $37.97, Tacoma from $27.68 to $27.13, Northend from $28.83 to $28.56, and Southend from $32.81 to $32.30.
Purchase & Leasing Activity
During the 4th quarter, total office sales volume was over $263 million across 85 transactions. Q3 saw over $405 million in deals.
The annual sales volume for 2022 was close to $3.7 billion. Seattle’s CBD had nearly 100 leasing deals totaling over 608,000 square feet.
Notable Office Space Deals in Seattle in Q4 2022
Several deals for Seattle’s office space properties took place in Q4.
- Greater Good purchased 13,200 square feet for $3 million.
- Kimley-Horn leased 46,500 square feet.
- Knotel leased 37,400 square feet.
- Ogden Murphy Wallace leased 26,900 square feet.
These are select examples among other activity.
New Office Space Development Activity in Seattle in Q4 2022
The construction pipeline had over 1.6 million square feet of product in production as 2022 closed.
Over 25% of the pipeline has been pre-leased, accounting for roughly 400,000 square feet.
Washington 100 is the largest property currently in development. The projected completion date for this 531,000-square-foot build is Q1 2024.
Developer Evolution Projects’ is set to complete a 109,000-square-foot property in Q2 2024. The entire build is already pre-leased.
Market Forecast for Seattle’s Office Space Market
With some companies opting to renew and others aiming to sublease portions of their existing premises, vacancy levels will likely stay relatively high.
Due to economic uncertainty and the rising cost of living in Seattle, companies have adopted a cautious approach since March 2020, opting for short-term contracts that span between 1 and 3 years to remain agile in the face of changing market conditions.
These businesses will need to decide what’s next as these contracts for office space continue to expire.
Takeaways for Office Space Investors
Seattle’s office space market leveled off in 2022. Observing this market for the upcoming quarters might be prudent to assess if this lull is temporary or indicates what will come.
Stay diligent and invest wisely.
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