The state of Seattle Office Space in 2024 deserves attention. Seattle Commercial Real Estate professionals seeking to serve our clients are constantly looking for signals as to where our national and local real estate economies are heading. The latest warning sign is that $47 Billion of Commercial Backed Mortgage Securities are coming due in calendar 2024. Most of these mortgages are in Class A buildings and projects. The boom years in construction in the CBD of Seattle was the era of 2010 to 2020. Yet today, Seattle still ranks high nationally in constructing new office buildings with a total of 6.9 million square feet (#3 in the US) under construction. The latest published figures show only a 26% vacancy factor in office real estate. The real number may exceed 30% this year.
Seattle Office Space Leasing Trends
The volume of leasing is down 21% from its peak. Seattle’s absorption of office space in 2023 was a negative 1.9 million square feet and is projected to be negative 1.3 million in 2024. Bellevue’s absorption was 1.4 million square feet last year and will be negative in 2024 projected at 220,000 square feet. Companies are shedding square footage as they ramp up the return to the office (link 2024 First Look). Add another 2 million square feet of move-outs. These figures are generally for the Class A (Hi-Rise) buildings.
The Impact of Falling Rent
In looking at the office rental market there is a tremendous collateral effect in the class B and C buildings. With falling rents, a tenant can now keep the same level of rent in a lesser building and upgrade to a materially better building with the build-out paid by the landlord and no net effect on rent. This means that in addition to the risk of default in premium properties, the lower-end projects are not economically viable. A recent sale in Tacoma of a 36,000-square-foot building (B), was for $86 per square foot.
Seattle’s Central Business District’s Interconnectivity
National Bureau of Economic Research came up with 11% for the number of office buildings that could be converted to multifamily use nationally. In Seattle, five class A office projects totaling over 1.1 million square feet were identified for potential conversion to housing. The economics simply don’t work without a substantial reduction in current fair market values, subsidies, and tax abatements. Seattle Commercial Real Estate firmly believes that the start of the office market problem is right now. The CBD is the source of 65% of the revenue for the City of Seattle. Seattle Commercial Real Estate believes that all areas of commercial real estate are connected and the health of all will be impacted by the office market in the CBD.
