Empty office spaces soar in downtown
The downtown Seattle office vacancy rate topped 20 percent during the fourth quarter, according to one brokerage.
Seattle Times business reporter
Empty office space in downtown Seattle has climbed to levels not seen in decades.
The total vacancy rate hit 21.1 percent during the fourth quarter, according to statistics released Tuesday by brokerage Cushman & Wakefield. That's "a record vacancy for downtown Seattle," senior director Matt Christian said.
It hadn't topped 20 percent before in the 22 years the firm has been tracking the market.
There's nothing official about Cushman & Wakefield's numbers: Every brokerage calculates the vacancy rate differently. Grubb & Ellis pegged the fourth-quarter rate at 18.9 percent. Colliers International said it was 17.6 percent.
But all agreed that empty office space increased between 2 and 3 percentage points from the previous quarter. And all agreed the rate has nearly doubled over the past year, driving down what landlords are charging tenants for new leases.
The downtown vacancy rate probably will continue inching up in 2010, several real-estate professionals said — but it's likely close to its peak.
"We think the end is near," Christian said.
The vacancy rate has soared not only because demand for office space has declined, but because the supply of it has increased — "a devastating combination," said Patrick Mullen, research analyst with Grubb & Ellis.
During 2009, developers delivered 2.1 million square feet of new downtown office buildings that they started building before the crash. Most of that space remains unleased.
The amount of vacant downtown office space increased by 1.2 million square feet during the fourth quarter, according to Cushman & Wakefield. The mostly unleased new buildings delivered during the quarter accounted for most of that.
Now, however, the supply pipeline is about to run dry. "Pretty much all the supply that was going to come on the market has by now," Mullen said.
Just one 200,000-square-foot unleased office building will be completed this year, he said. Vulcan is building 1.3 million square feet in South Lake Union, but that's already spoken for, leased long-term to Amazon.com.
No more new buildings are expected to break ground anytime soon. That means the downtown vacancy rate will be dictated largely by changes in demand, Mullen said.
For now, landlords are trying to fill their buildings by requiring less from tenants: The average asking rent per square foot per year for Class A buildings downtown was $30.02, according to Cushman & Wakefield, down from $39.85 in the third quarter of 2008.
"The owners of the new buildings have dropped their rates so they're now in line with existing buildings," Christian said. They also are offering generous concessions to tenants, he said.
But most of the tenants who have signed up for space in the new buildings are moving from other downtown locations, Christian added.
On the Eastside, the total vacancy rate in downtown Bellevue actually edged down slightly during the fourth quarter, from 14.8 to 14.4 percent.
But Tom Bohman, of Cushman & Wakefield's Bellevue office, noted that vacancy rates on the rest of the Eastside increased, and speculated some tenants may be moving to downtown Bellevue because lease rates there have dropped.
The average asking rent per square foot per year in downtown Bellevue during the fourth quarter was $33.60, down from $35.25 in the third quarter.
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