Total vacancy in Puget Sound offices is now 14.43%. The 79.9-million sf inventory breaks out with a direct vacancy of 9.69% and 3.8 million sf in need of sub-tenants. Sub-lease measures have shrunk from recent quarters' marks -- a turn created in-part by landlords taking back space to market it themselves.
More striking than its year-end office vacancy rate of nearly 13% is the velocity of Downtown Seattle's descent--when 2000 drew to a close, the rate was less than 3%. Across Lake Washington, the Bellevue central business district is eclipsed by vacancies—24% of its office buildings now stand in darkness like sentinels waiting to welcome a new market.
With the rising tide of vacancies, Colliers' report says, "…tenants and buyers control the leveraging power." The market shore is now awash in lease concessions such as more free rent, paid moving expenses, improvements, and more. With lease prices ebbing to a two-year low, the report advises "it is a good time for a tenant to lock in a long-term deal." According to Colliers, vacancy levels would need to drop by more than half for landlords to retain control.
The number of tenants shopping the Seattle market has spiked downward. Colliers says companies that had previously been eyeing 20,000-sf to 30,000-sf spaces for future expansion are now hunkering down in 5,000-sf to 10,000-sf.
Rob Aigner, executive managing director of the Seattle office of Colliers says, "Corporate America has exercised spending caution over the last 18 months and we are seeing the results of this throughout all markets. Re-trenching is as American as a traffic jam."
"We have the diversity, skills and experience to ride through this and recover," says Aigner, adding, "Just don't expect it to happen over the next 6 months." Historically, annual absorption in Seattle has hung around the half-million square foot mark—and at that rate it would take approximately 24 months to absorb just the sublease space now on the market.
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