The Puget Sound region's office market hasn't been this hot since before the recession.
Rents for top-of-the-line space are up 9.3 percent region-wide, and a whopping 28 percent around Seattle's Lake Union and nearly 21 percent in Kirkland. The only submarket where rental rates fell last year is SeaTac/Burien, according to a new report by brokerage JLL.
The vacancy for Class A and B space in the overall market is 10.2 percent, which is as low as the market has seen in the last 10 years. Seattle-Bellevue is the sixth tightest market in the country behind Salt Lake City, Nashville, San Francisco, Portland and New York City.
Such robust data is fueling a construction boom, and that's where the danger lies, especially as job growth is forecast to slow from 3.2 percent in 2015 to 2.3 percent this year and 1.5 percent in 2017, according to Conway Pedersen Economics of Seattle.
Construction of seven office buildings totaling more than 2.2 million square feet wrapped up last year, making 2015 the most active year for development since before the recession.
Meanwhile, additional developments totaling more than 5.9 million square feet are scheduled to be delivered in the next two years. Only 35 percent of this space has been pre-leased, though JLL reports demand should be strong because there is more than 8 million square feet of tenant demand in the market. Some of these tenants, however, may simply renew leases.
Another brokerage, Kidder Mathews, forecasts that the vacancy rate will continue downward regionally, though there are areas of concern, including on the Eastside, where new construction is occurring as Microsoft and Expedia give up leased space, and "where new leasing has been disappointing."
Perhaps the biggest cause for concern is Amazon.com's plans. According to Kidder, the rise in rents will continue but will be moderate as demand falls off with Amazon identifying most, "if not all, of their stabilized space requirement."
The Kidder report noted that over the last five years, Amazon was responsible for just over a third of the entire region's total net office demand.
"The effect of the removal of that tenant from the demand side is expected to be only partially offset by other tenants, and, considering the new inventory under construction and forecasted slower job growth starting in 2017, rent growth may be moderate in the Seattle submarket," Kidder's report states.
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