The local office market has begun 2023 on a quieter note than the last few years. Much of this is due to employers trying to navigate a somewhat volatile market by taking their time with leasing decisions, rightsizing for their needs and allowing some leases to lapse. At the end of last quarter, reports indicated that the total vacancy for the region from Everett to DuPont had risen to 18.2 percent, up from 17.6 percent in Q3 and 16.5 percent in the last quarter of 2021.
After rampant development and pre-leasing by major employers, the Eastside office market is likely to see vacancies rise in the coming year. With new buildings coming online on its campus and many employees still working from home, Microsoft is not renewing a number of leases in downtown Bellevue and the I-90 corridor. Instead, it will vacate around 1.7 million square feet of office space between Bellevue and Issaquah by 2025. Meta is also pulling back on its previously aggressive Eastside office growth, instead choosing to sublease a building in Bellevue’s Spring District. Amazon has not announced any plans to let its existing leases lapse, but the company has paused development of its new offices in Bellevue. It will complete one office tower as planned and will complete 50% of another before delaying the start of any of its additional projects.
Despite these pullbacks from the Eastside office market, the total vacancy rate on the Eastside was a little bit lower than the region as a whole at the end of 2022. Comprising the Bellevue, Bothell, Issaquah, Kirkland, Redmond and Renton submarkets, the Eastside region saw a vacancy rate of 10.8 percent in Q4. That was up slightly from the third quarter, and up 10.4 percent from Q4 2021.
Because of the economic shifts causing some companies to rethink their office leasing needs, Eastside landlords are split on how to handle pricing. Some are increasing their asking rates to try and recoup their losses, while others may have been trying to maintain stability by keeping their rates comparable to previous quarters. The Eastside asking rate last quarter was $51.61 per square foot, which was up from $50.59 at the end of 2021.
The Seattle office market is experiencing some of the same trends. Meta is reportedly vacating one of their office buildings in the city. Instead of occupying their leased property at Arbor Block 333, Meta will sublease the office. Starbucks, meanwhile, has taken the opposite approach. After allowing its corporate employees to adopt a hybrid model during the pandemic, it asked workers to return to the office at least one to two days a week. Badge entry data shows that many employees were not meeting the minimum requirement, so in an effort to restore the company’s culture, employees will now be required to work in person three days a week.
It’s hard to guess where this next year will take the office market in our area. While the massive growth in local tech employment seen during the pandemic has recently reversed, the presence of so many strong local employers in the area means that commercial landlords will still have tenants leasing space. What their longer-term leasing plans look like remains to be seen.
Information for this post was sourced from GeekWire, 425Business and Puget Sound Business Journal.