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October 06, 2017

Rent hikes are still in the forecast despite all those new office buildings

Puget Sound Business Journal

Marc Stiles

It might appear that a glut of new office space is coming to the market, but that's not the case, according to forecast of how much more in rent tenants can expect to pay in the coming year.

A report from commercial real estate company Kidder Mathews notes that six major new buildings totaling 1.7 million opened in the Puget Sound region during the third quarter. About 96 percent of this space had been pre-leased to Amazon.com Inc., Tableau Software and other companies.

Meanwhile, 12 buildings with a whopping 6.2 million square feet of space are under construction, with 56 percent of this space already spoken for.

"Looking forward there still appears to be little potential of significant oversupply in the near term considering the limited amount of speculative space being built," Kidder senior vice presidents Richard Briscoe and Chris Berger write in the report.

The office market continues to perform well, with the vacancy rate ticking down during the quarter, from 7.7 percent to 7.3 percent. Meanwhile, the average rent increased everywhere except South King County. The overall year-over-year rent growth was 4 percent, with most coming the third quarter.

Kidder Mathews forecasts rent growth will come in at 3 to 5 percent annually, depending on the location and the quality of the office space.

There is no evidence that Amazon's search for a second North American headquarters will lead to a reduced Amazon presence here, the report says, but it cautions that the HQ2 plan sets the stage for Amazon to reduce or end its expansion locally.

If Amazon's HQ2 project moves forward as planned, the region may feel the effects in less than two years, according to the report.

Amazon occupies around 9.6 million square feet in the Seattle area. The company is building or has pre-leased another 3.1 million square feet, including the huge Rainier Square lease confirmed this week.

This adds up to 12.7 million square feet for Amazon, which Kidder's report states is rumored to be looking at leasing 300,000 square feet in an unnamed project.

"In reality, it would be difficult for the region to accommodate an HQ2-level expansion as the infrastructure of the Seattle central business district is already over capacity, and Bellevue and Redmond just do not have sufficient land for that much office space," the Kidder Mathews report said.

The report anticipates that the loss of the next phase of Amazon's growth will be offset by the growth of other tech companies, such as Facebook, Google, Tableau Software and Wave Broadband.

For the full story, visit: Puget Sound Business Journal

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