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2715 1st Avenue
Seattle, WA, 98121
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Q3 2019 Commercial Office Market Update

Eleanor Heyrich

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Colliers International recently released a report on Seattle and Bellevue’s commercial office markets, which showed steady growth in the Puget Sound region as a whole, but varying results in submarkets on the Eastside. As Puget Sound Business Journal outlines, Class A rents in Seattle averaged $52.17 per square foot, up nearly 6 percent from last year, while Bellevue saw double-digit growth of 15.2 percent—to $58.24—with higher net absorption year-to-date than seen in a decade.

Vacancy rates did increase on the Eastside, by roughly 5 percent, with Bellevue at a slightly higher rate of 5.7 percent. One result of the higher negative net absorption in Bellevue can be explained by the tenants that vacated the Bellevue Corporate Plaza, which was acquired by Amazon and is slated for redevelopment. The Colliers report notes that in Bellevue, there is a positive outlook as demand will continue to flow and planned buildings will be claimed before or shortly after delivery.

The Seattle market saw large occupancies in Q3, including Amazon overtaking a new tower on 7th Avenue (across from the iconic spheres) with 1.1 million square feet of office space, Google moving into 139,000 square feet at South Lake Union, and WeWork occupying 115,000 square feet of space at 1201 3rd Avenue. Other occupancies of note include Seattle Children’s, which moved into the new Building Cure building at Denny Triangle, which comprises 540,000 square feet.

As PSBJ reports, “the region has seen nearly 4 million square feet of net absorption this year, up 16.4 percent year over year.” This, despite absorption rates down slightly from Q2-2019.

For an outlook of the biggest players in office space occupancy, view the top 10 names on “The List of Largest Office Tenants,” released by PSBJ in July 2019.

1.       Amazon  |  14.01 million

2.       Microsoft  |  13.13 million

3.       Boeing  |  6.41 million

4.       Facebook  |  2.33 million

5.       Google  |  1.95 million

6.       WeWork  |  1.45 million

7.       Starbucks  |  1.35 million

8.       Nordstrom  |  1.20 million

9.       T-Mobile  |  921,466

10.   Expedia  |  875,000

Seattle Ranks Tenth for Overall Prospects in Emerging Trends in Real Estate Report

Eleanor Heyrich

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The Urban Land Institute recently published their annual Emerging Trends in Real Estate Report, and Seattle has returned to the top ten, after slipping from first in 2017 to sixteenth in 2018. The report offers a macro-view of economic fundamentals and has long-served as a trusted crystal ball for developers and investors.

As the Seattle Times reports, the Seattle-Bellevue area climbed back up the charts for “strong investor demand, development and redevelopment opportunities, job density, projected net migration and an overall strong economy.” To be sure, the latest figures reveal over 8 million square feet of office space currently under construction in Seattle, half of which his located at South Lake Union. Areas of concern include growing trade tensions with China, issues with the Boeing 737 MAX aircraft, and as the Times adds, the uncertainty of the next Seattle City Council.  

According to the report, confidence in the real estate industry remains high: “Property veterans see the internal conditions in the business as solid,” with one investment manager saying “real estate will continue to perform.”

Read the full report here >>

Local Mortgage Companies Cater to Amazon Employees

Eleanor Heyrich

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Local mortgage companies are turning to new mortgage solutions for Amazon employees, as Seattle Times reports that some mortgage loan originators will now consider potential earnings from restricted stock units as income to qualify for a loan. This is a vast change from historic practices, as lenders have generally avoided market-dependent unit values when determining qualification amounts.

According to the Times, all Amazon employees are capped at a salary of $160,000 (regardless of level or responsibility) and further compensation generally arrives in restricted stock units that vest over a four-year period. These new lending programs are particularly beneficial to new Amazon hires who have been compensated in stock option but have not yet received the returns.

Though many other tech companies in the region (like Microsoft, Google and Facebook) utilize restricted stock units as payment, the base salary at Amazon makes it a primary focus of these lending programs. The Times writes that “upcoming payouts from Amazon’s restricted stock units could cause a major influx of cash into the Seattle housing market. Companywide, Amazon has 16.2 million restricted stock units outstanding as of June 30, with a value of close to $1.3 billion, according to SEC filings.”

Seattle Condominium Demand Rises

Eleanor Heyrich

We’ve seen the headlines over the last 12 months—local experts claiming Seattle is experiencing a pause in the market. Yet, we remain the fastest-growing large city in the U.S. and have seen a growth in population by 89 percent since 2010. So how can this be?

President and CEO of Realogics Sotheby’s International Realty (RSIR) Dean Jones said, “With rising resale supply and new construction offerings, there was less urgency, and the headlines, in part, helped create a self-fulfilling prophecy about a slowing market. The market trajectory has since turned more positive—both pending and closed sales have grown each month in 2019 and both are now trending higher year-over-year. I think we’re witnessing an inflection point, and sales are rebounding.”

According to data from the Northwest Multiple Listing Services (NWMLS), resale and condominium values are recovering—resale by an increase of 39 percent. In addition to an increase in sales volume, the median home price in July 2018 was $650,000 compared to $617,500 in July 2019. While the values remained relatively level year-over-year, we are seeing an increase in sales at slightly lower price points.

After years of double-digit median home price increases, it’s unsurprising that in the context of 2018 prices and demand slowed. What we’ve seen in 2019, is the continued decrease of interest rates (at a two-year low), a booming stock market and increased consumer confidence which has led to an increase in sales.

 

Tech continues to invest in Seattle and the Eastside with companies such as Amazon, Facebook, Google, Apple and Expedia all occupying new campuses with tens of thousands of jobs waiting to be filled. This job growth will continue to spur housing demand—both rent and for sale. Matt Van Damm, Vice President of New Developments for RSIR, said,” More than 1,000 people a week are moving to the area and while most new residents will initially rent, thousand of recently delivered apartments act like incubators for future condominium buyers.”

Seattle currently has less than four months of resale supply technically making the market neutral; however, buyers are continually encouraged by sharp prices, low interest rates and more choices. The problem, is that new construction is not always well-represented in market data. More than 600 new condos have presold since September 2018 and only a fraction of the new units are listed on the NWMLS. “There’s a lot more going on than meets the eye, both domestically and internationally,” added Jones. “Seattle is viewed globally as the new West Coast gateway with a long runway for investments, especially when considering the 20 percent foreign buyer home taxes in Vancouver, BC and higher housing costs and state income taxes of California.”

Seattle continues to hold the title of having the most tower cranes than any other US city and experts don’t expect this to change anytime soon. By the end of 2018, $4.8 billion in construction projects were in progress with an additional 15 million square feet in the queue. “Looking ahead, new high-rise condominiums will need to fetch more than $1,200 per sq. ft. on average—easily 10-15 percent more than the current crop of units being built today,” said Brian O’Connor, Principal of O’Connor Consulting Group – a leading appraiser that specializes in urban development. “If the presales aren’t there, then the project will defer or won’t get built. If we don’t add more supply, then the market will be unbalanced and prices will rise until they do pencil.”

Coined by the Brookings Institution as one of four “superstar cities” in the US, Seattle displays some of the nation’s greatest job density and growth rates. With job opportunities and a relatively lower overall cost of living, in comparison to other major West Coast cities, Seattle has positioned itself as a valuable city that attracts new residents who will ultimately fuel the upward trajectory of homes and values into the next decade.

Featured on Curbed Seattle!

Eleanor Heyrich

Last week, Curbed writer Tom Trimbath, wrote about an intriguing property in an article entitled “Bulls, Blues, and a Buddha in Ballard”. The property, located at 6408 17th Ave NW in Ballard, is listed by our team!

The 1,880 square foot Cape Cod home, built in 1918, is filled with fine home décor, creating an attractive ambience within. From the bull head motif, to the John Coltrane posters, to the Buddha statue that sits at the entrance, this is truly a unique home; “The posters probably won’t stay, but these fans of the blues have filled this Ballard home with fine decor. Maybe a stager would go that far, but they probably wouldn’t have included the bulls head motif as well” remarks Trimbath.

The home has had modern updates without interfering with the historical attributes of the house including “hardwood floors, columnar room dividers, and linteled doorways. The ceilings are boxed by beams that cross creating a bit more interest above”. These classical arrangements are beautifully contrasted with modern improvements such as updated appliances and plumbing and details such as new cabinets and backsplash in the kitchen.

Another unique feature of this property is the detached building, about the size of an ADU, that has been converted to a media room which Trimbath says allows resident movie aficionados to “close the doors and curtains, crank the volume, and hopefully no one in the house or neighborhood will be disturbed by your movie night”.

Thanks for the fabulous feature, Curbed! 

To learn more about this inimitable property and read to full article, please visit: Curbed | 1918 Cape Cod in Ballard asking 650K