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After 9 Years Of Positive Office Market Absorption, Puget Sound Absorption Turns Negative

After 9 Years Of Positive Office Market Absorption, Puget Sound Absorption Turns Negative
The Troy Block in South Lake Union is fully leased by Amazon.

After nearly nine years of positive net absorption in Puget Sound, Q1 2019 recorded 280,246 SF of negative absorption, according to Colliers International’s Research & Forecast Report. Seattle had negative absorption of 199,556 SF, while Pierce’s County’s negative absorption sat at 304,427 SF. Vacancy rates jumped 30 basis points to 7.9%, with Queen Anne’s being the highest at 12.8%.

Major departures fueled this trend with Davis Wright Tremaine leaving 47,718 SF at 1201 Third Ave., which bumped the central business district vacancy rate to 9.5% for the quarter. Lake Union’s vacancy rate climbed slightly to 4.7% after Microsoft left its 93,996 SF space at Westlake Terry Avenue. In addition, Amazon’s announcement to abandon plans to occupy Rainier Tower casts a shadow over Seattle’s office market future.

Pioneer Square and the Waterfront district were the only neighborhoods to see a significant amount of positive absorption, due to WeWork and Avalara’s occupancy of nearly 73K SF at Hawk Tower.

The Eastside saw tech dominating leasing activity with Facebook committing to 338K SF at the Spring District Block 16. It will occupy that space in early 2020.

Ponte Gadea’s acquisition of the Troy Block brought the total sales volume to more than $2B for the quarter, which is an increase of 230%. This was the largest deal ever in Seattle by value. The Troy Block sold for $740M, or $912/SF.

Despite the dip in absorption, construction activity remains strong with 8.6M SF of office properties under construction across all submarkets, which is up 6.8% quarter over quarter and 21.7% year over year. There were 28 office sale transactions averaging $402 per SF in Q1 2019, which is up from 16 sales last quarter. Colliers’ report also notes that the market fundamentals remain solid with strong demand for office space and rising rental rates.