The overall vacancy rate in the Seattle CBD fell 90 basis points for the third consecutive quarter and now stands at 12.4%, while the direct vacancy fell 110 basis points to 9.7%, the first time it has been below 10% in three years. In the much smaller Bellevue market, overall CBD vacancy fell 150 basis points to 8.2% while direct vacancy fell 230 basis points to 6.7%.
The weighted average class A asking lease rates in the Seattle CBD dipped $0.09 during the quarter to $26.96 per sf per year. Seattle CBD leasing specialist Wende Sauvage tells GlobeSt.com that while the stats show an insignificant decrease, the view space in top tier class A buildings is actually up between $2 and $5 per sf. Weighted average class A asking lease rates in the Bellevue CBD rose $0.14 in the third quarter to $25.63, and is up $2.64 since this time last year.
A big chunk of the leasing activity in the Seattle CBD is occurring in Equity Office Properties' portfolio. The situation is due mostly to the fact that they have the biggest chunks of space to lease. It has the big chunks of space because one of its biggest tenants is Washington Mutual, which will be vacating a goodly portion of its CBD space next year in favor of owned space it is developing in partnership with the Seattle Art Museum. Another big chunk of the leasing is occurring in the portfolio of Vulcan Inc., which is rapidly developing its 60 acres of ownership between Downtown and Lake Union.
As a result of the leasing activity, only a handful of 50,000-sf-plus spaces are available for lease. "When that product dries up, we may see some more new Downtown office development," says Sauvage. Martin Selig, Clise Properties and Schnitzer Northwest all have been hinting that they might move forward, but Sauvage says tenants will have to be willing to prelease space at full-service rates in the high $30s to mid-$40s per sf per year to make new construction pencil.
Meanwhile, over in Bellevue, new construction is already underway, with Kemper Freeman starting the office portion of Lincoln Square thanks to a major prelease commitment by Eddie Bauer at least a few more developers are all vying to land the next anchor tenant that will allow them to move forward, says Tom Bohman, C&W's director of Eastside leasing.
Bentall is going in for permits for the last phase of its Summit development. EOP is in for permits for City Center II, Hines and Washington Capital are working on restarting Tech Tower, and Schnitzer Northwest is looking get under way on its property adjacent Meydenbauer Center.
None are likely to break ground on a speculative basis, says Bohman, explaining that, like Seattle, rental rates aren't quite there in terms of new construction. "None will move forward without being between 30% and 50% preleased, which means they will need 100,000-sf of commitments," he says. "I think we'll hear announcements this year."
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