Downtown Seattle's office market shows signs of recovery
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Downtown Seattle's battered office market is showing signs of life after years of declining occupancy, though full recovery likely remains a way off.
Why it matters: The gains offer a hopeful sign for one of Seattle's most troubled economic sectors, which has struggled to recover from the pandemic and remains a weak spot in the city's economy.
Driving the news: Downtown Seattle gained 300,000 square feet of occupied office space in the third quarter, its first quarterly increase since 2021, according to commercial real estate firm CBRE.
- The downtown vacancy rate dipped to 35.4%, down half a percentage point from the previous quarter.
- Across the Puget Sound region, occupied office space increased by 514,000 square feet, marking the fourth consecutive quarterly gain, per CBRE.
- New lease commitments in Seattle's traditional office core in the second quarter totaled more than 550,000 square feet, making it the strongest quarter for new leasing since 2018, according to Elliott Krivenko of CoStar.
Case in point: AI company Anthropic recently expanded its Seattle footprint to about 163,000 square feet.
Zoom in: Companies are gravitating toward high-end offices with amenities such as conference rooms, event spaces and fitness centers that can help attract employees back, Laura Ford, executive vice president at CBRE, told Axios.
- More than 80% of the region's third-quarter leasing activity involved Class A — or top tier — buildings, Ford said.
Yes, but: Despite the third-quarter gains, downtown Seattle still had 296,000 fewer square feet of occupied office space than at the start of the year, according to CBRE.
- Some major deals represent relocations rather than new demand, Krivenko told Axios.
Meanwhile: A wave of deeply discounted building sales reflects how far Seattle office property values have fallen since the pandemic, Krivenko said.
- Twenty of Seattle's most valuable buildings lost 53% of their taxable value between 2021 and 2026, according to a Downtown Seattle Association economic report.
- The 901 Fifth Avenue tower sold this month for $48.3 million, 84% below its 2019 price, while Plaza 600 sold for $12.5 million, an 87% discount from its 2019 price. Blackstone is reportedly selling U.S. Bank Center for $280 million, roughly 54% below its 2019 purchase price.
- Krivenko said bargain sales could help revive struggling buildings by allowing new owners to renovate or lower rents, but they could also add to the financial pressure on other property owners.
What's next: Ford expects rising rents and shrinking availability in premium buildings to eventually push more tenants toward less expensive offices.
- "The pace of deterioration has slowed, and some leading indicators have turned positive," Krivenko told Axios, but a full recovery could take years.