There are 21 office projects now underway, and 17 of them are in Seattle. The Seattle market now has about 4.2 million square feet under construction.
Kidder Mathews released its fourth-quarter report for the local office market, and the forecast is generally positive, with one note of caution for apartment developers.
Looking at King, Snohomish and Pierce counties, KM said the regional vacancy rate ticked up slightly to 7.73 percent. Net absorption of 3.5 million square feet was deemed "very strong," more than the first three quarters combined. Seattle accounted for three-quarters of that leasing activity. Rents are up between one and two percent in the region.
KM estimated that 8.45 million square feet are now under construction in the region. There are 21 office projects now underway, 17 of them in Seattle. Of the latter, said KM, 62 percent of that space is pre-leased.
In Seattle, the vacancy rate rose slightly from the third quarter to 7.1 percent. Year over year, however, that rate has been steadily shrinking from 10.68 percent at the end of 2012.
The Seattle market now has about 4.2 million square feet under construction, said KM, with 42 percent of it pre-leased. Two big buildings coming online this year, The Mark and Madison Centre, together have 1.25 million square feet. Both are in the financial core, and KM called their pre-leasing "slow."
The Seattle Central Business District's vacancy rate is considerably higher than in South Lake Union, rising a full point for the quarter to 10.6 percent. The Eastside vacancy rate rose to 7.86 percent. KM warned that figure may again increase, particularly in downtown Bellevue, with the loss of Expedia (which leases a half million square feet) and Microsoft's consolidation back to its Redmond campus. "This will likely result in some level of oversupply in the submarket during the next few years," said KM.
Citing companies like Apple, Cisco, eBay and Alibaba, KM also said that such newcomers are now competing with established tech companies, like Amazon, for big blocks of office space.
"This growth is currently bumping up against a shortage of large, tech-friendly spaces," said KM. "Even with all of the new space added in the past three years, and that under construction, the regional market has only 14 available spaces over 100,000 square feet in existing buildings, and only six of those are over 200,000 square feet. Limited options are on the way, with only seven buildings under construction that have remaining spaces over 100,000 square feet."
As a result, said KM, "This situation has prompted some developers with sites previously slotted for apartment projects to consider a shift to office use, especially in the hot tech micromarkets like South Lake Union and SoDo."
Besides The Mark and Madison Centre, KM also cited 333 Dexter (with 582,0000 square feet) as having large amounts of uncommitted space in Seattle.
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