The Puget Sound region’s office market has not yet peaked, but it’s getting closer to doing so, according to a new report.
Fueled by robust job growth, especially in the tech sector, new buildings are getting leased up for now, according to the report, which commercial real estate services company JLL (NYSE: JLL) issued Monday. The result is falling vacancy rates and rising rents, though the rate of rent growth has slowed significantly.
Tenant demand is not yet slowing. Users are in the market for an additional 5.2 million square feet of space, enough to fill the 76-story Columbia Center three and a half times. The report states that the market will remain “solidly in favor of landlords.”
Any market’s key indicator is job growth, and the region is seeing plenty of that. The market added 49,700 jobs in 2016, and total employment reached a new peak with nearly 1.6 million people currently employed. JLL reported that Puget Sound region’s tech sector employment is up almost 78 percent since 2001, the fourth strongest growth in the country.
The report’s most impressive metric is “net absorption,” which measures the total square feet occupied minus the total space vacated during a specific period. Last year ended with nearly 2.5 million square feet of additional space occupied by companies. It was was the fourth straight year that the region has experienced more than 2 million square feet of positive net absorption, a fact JLL called “unprecedented.”
Year-over-year, the region’s office vacancy rate dropped a percentage point to 9.2 percent, making Seattle-Bellevue the nation’s fourth tightest market.
Rents over the last year rose 2.7 percent with landlords now asking an average $34.90 per square foot. In 2015, rents increased 7.5 percent.
JLL posits the market is still ascending, though it is edging toward the peak. The company’s report includes a “clock” with 12 o’clock representing the peak.
A year ago, Seattle was around 9:30 and Bellevue was a few ticks shy of 10. Now Seattle is at 10 and Bellevue is around 10:30. (See graphics with this post.)
Meanwhile, JLL reports that projects totaling 5.2 million square feet of new space are scheduled to open in the next 18 months, and only just over half of this space has been pre-leased.
The report warns landlords not to get complacent and recommends that they position their properties to capture tenant demand before these new projects come on line.
Marc Stiles covers real estate for the Puget Sound Business Journal.