CBDs Show Upside: Job growth has western CBDs standing tall again

Seattle

Seattle’s CBD office vacancy rate falling below 10 percent for the first time since early 2001 has led to a construction boom.

With vacancy declining rapidly in the CBD and rents on the increase, downtown Seattle is finally seeing the office construction boom that is already in full swing in the suburban Bellevue market.

Seattle’s CBD vacancy rate has dropped below 10 percent for the first time since early 2001 and will continue to decline as job growth in the Puget Sound region remains strong. Class A and B asking rates have risen significantly in the past year; Class A asking rents are approaching $30 per square foot for the first time since mid-2002, and Class B rates are at a 5-year high. Net absorption in Seattle’s CBD at year-end 2006 totaled more than 1 million square feet for the first time since the waning days of the technology boom in 2000.

In early 2006, sweeping zoning changes in Seattle’s downtown core were adopted to encourage high-rise development. This, coupled with the improved health of the office market, encouraged development to kick off in earnest in late 2006. A number of major projects have begun construction or are planned to start in 2007. By the end of this year, more than 2 million square feet of new office space could be under construction.

Major projects include Touchstone Development’s West 8th (483,000 square feet), Vulcan’s 2201 Westlake (302,000 square feet), Group Health headquarters (278,000 square feet), Schnitzer Northwest’s 818 Stewart (230,000 square feet) and Martin Selig’s 333 Elliot (137,000 square feet). At this point, only the Group Health Headquarters and 333 Elliot projects are significantly pre-leased. It remains to be seen what tenants will take up the new space, but local developers are betting that demand will remain high and a number of large users waiting in the wings will absorb significant chunks.



— Nick Papa is the research manager in Grubb & Ellis Company’s Seattle office.