Offices in Seattle will remain partly empty until 2024.
At least, that’s what commercial real estate company Broderick Group predicts in a market report for the second quarter of 2022, saying that economic pressures and the work-from-home movement will keep vacancy rates high in commercial spaces in the region throughout 2022 and 2023.
In a previous market assessment, Broderick was optimistic that organizations and employees would return to the office, citing the easing of pandemic-induced restrictions and rising levels of vaccinations. However, “with the most significant and serious impacts of the pandemic behind us, the anticipated wave of migration back to the physical workplace has failed to materialize,” this quarter’s report notes.
According to the report, the overall Seattle direct vacancy rate was 13.84% for the second quarter of 2022, while the sublease vacancy was 4.67%. That’s a total rate of 18.5%, up from 14.5% from the first quarter of last year.
Many tech companies are debating their back-to-office plans. Many employees became used to remote work during the pandemic and are now balking at the idea of going back to the office. Long commute times and high gas prices are among reasons why they prefer to continue to work from home.
While there has been a “notable bump” in occupancy during several days per week this year in Seattle’s offices — signaling at least some adoption of hybrid work — they are struggling to average beyond 40% occupancy, the report found.
Prior to the pandemic, Broderick calculated there was roughly 5.5 million square feet of active tenant demand. But, in the second quarter of this year, it found that number decreased to about 2.2 million.
Of that demand, tech is the biggest customer, accounting for 34% of total office space leased, or 3.2 million square feet. Other big players include medical, at 10.2% (973,000 square feet), followed by banking, insurance and real estate at 8.2% (786,000 square feet).
Despite diminishing demand for office space, the report notes that there were roughly 380,000 square feet of “significant leases” in Seattle in the quarter. It added that it is monitoring about 400,000 square feet worth of pending leases across the city that it expects to close by the end of the year.
Many of these new leases were in high-quality buildings, specifically selected to lure employees back to the office.
“Employers are leveraging transit, building amenities, and quality of space as a tool to enhance the office experience and therefore accommodate employee needs as they return to the office,” the report says.
According to the report, another reason for the slowdown in office space demand was a result of rising interest rates and inflationary pressures. These factors not only impacted the office space valuations but have also increased costs for companies.
Despite the slowdown, Seattle’s office space remains attractive. The report points to the leasing prices of the Madison Centre ($959.30 per square-foot) and 1101 Westlake ($985.64 per square-foot) as evidence that institutional investors remain bullish on the region.
The report adds, “as our national economy begins to shift out of a recession, we believe Seattle will be amongst the first major markets to recover and realize pre-pandemic levels of growth.”
