Office-vacancy rates lower, dropping faster on Eastside
The office-vacancy rate is lower in downtown Bellevue, according to brokerage reports — yet developers are gearing up to build without signed tenants not there, but in downtown Seattle
Seattle Times business reporter
While the office-vacancy rate changed little in Seattle during the last quarter of 2012, it continued to fall on the Eastside — especially in downtown Bellevue, according to market reports from several brokerages.
So why are developers announcing plans to break ground on new buildings this year mostly on the west side of Lake Washington rather than the east?
Brokers cite several factors: The Bellevue market is much smaller. Its tenant base, dominated by tech companies, is not as broad.
That makes building there without a signed tenant riskier, said Paul Sweeney, a principal in Broderick Group’s Bellevue office: “Bellevue is a pretty immature market; our clients here are pretty young.”
And Seattle has Amazon.com, whose rapid growth has emboldened speculative developers, especially in the online retailer’s South Lake Union back yard.
“A lot of tenants want to be there,” said Dave Magee, managing broker at Cushman & Wakefield/Commerce’s Seattle office.
Brokerages use different methodologies to determine the vacancy rate and other market measures. But fourth-quarter reports from four — Broderick, Cushman, Colliers International and Kidder Mathews — agree Eastside landlords are faring somewhat better than their counterparts in Seattle.
The vacancy rates they calculated ranged from 10.7 to 16.5 percent for Seattle, compared with a low of 8.4 and a high of 13.1 for the Eastside.
All four also reported bigger declines in vacancies on the Eastside than in Seattle during the year’s last three months. Two, Cushman and Colliers, said Seattle’s vacancy rate actually ticked up slightly.
But those increases are insignificant, said Greg Inglin, a Colliers senior vice president: The statistics often don’t reflect space that tenants have leased, but haven’t yet moved into.
“There is some momentum already again in January,” Inglin said.
The quarter-over-quarter change isn’t as important as what happened during the entire year, said Cushman’s Magee. His firm calculated Seattle vacancies fell 3 full percentage points during 2012.
Amazon was responsible for about two-thirds of that, Magee said.
Developers of at least three big Seattle office projects — Dexter Station, 400 Fairview, and Fifth and Columbia — have announced plans to start construction this year on speculation, without signed tenants.
Bellevue developers, who also are teeing up projects, haven’t taken that leap.
That’s partly because Seattle’s overall tenant base isn’t as tech-heavy as Bellevue’s, said Richard Briscoe, a Kidder Mathews senior vice president: A downturn in that sector could leave a Bellevue developer with an empty building.
Briscoe said he expects vacancies on both sides of the lake will continue to decline this year, “but I don’t see any quantum steps.”
Broderick’s Sweeney foresees a similar trend, especially in Bellevue.
“Things are only going to get better for landlords,” he said, “because there’s no new product coming.
“It will eventually get so tight that someone will go spec.”
Eric Pryne: firstname.lastname@example.org or 206-464-2231