The Puget Sound region’s office market performed like a finely tuned engine this past fourth quarter, posting record space absorption and robust property sales and construction activity.
A total of 1.6 million square feet of office space was absorbed in the region during the quarter, by far the highest mark of the current century, reports Colliers International, which prepared the analysis. That record leasing activity resulted in a 7% overall office vacancy rate in the Puget Sound region for the quarter, the lowest since 2000.
“Amazon was a big reason for the surge, moving into 853,000 SF at its newly delivered Block 21 project in Seattle,” the Colliers report states. The vacancy rate for the city of Seattle was even lower, at 6.1%, down from 6.3% in the third quarter.
“Google and WeWork influenced Eastside absorption in the fourth quarter,” the Collier report adds, “moving into nearly 480,000 square feet of aggregate space in four buildings.”
In addition, a pending change in the Washington real estate excise tax (REET) slated to take effect in 2020 will significantly increase the tax rate on sales of more valuable properties, which helped to drive significant sales activity in the Puget Sound region in the fourth quarter. In fact, the office-property sales volume in the fourth quarter of this year was triple the prior quarter’s volume and six times more than fourth-quarter 2018 volume.
“The Puget Sound saw $3.3 billion in volume transacted in 32 [office] properties,” Colliers reports. “The Summit I, II and III properties in downtown Bellevue garnered the largest price tag of the quarter at $756 million. Both the high volume of transactions in this last quarter and the implementation of the REET are likely to impact future activity.”
New construction activity also bumped up considerably in the fourth quarter of last year. A total of 6.9 million square feet of office properties were under construction in the Puget Sound region as of the end of fourth-quarter 2019, up by 200,000 square feet from the prior quarter, driven largely by new construction projects launched in Seattle’s Lake Union neighborhood. The bulk of that new construction is also preleased ― 81% in Seattle and 87% on the Eastside ― an indication that plenty of demand exists for the new office projects.