Washington State promotes itself as a pro-business state that encourages sustainable growth, job creation, and entrepreneurship. The state has a vibrant economy that relies on high-value industries such as biotechnology, software development, IT, aerospace, and medical research. In terms of economic growth, the Seattle-Tacoma metropolitan area has been expanding at faster rates than the national average. Job creation is particularly high in industry sectors traditionally associated with the real estate market, such as the business services sector (which grew by 4.2 per cent in 2014) and construction. These factors have had a direct impact on the commercial real estate market in Washington State.
A Cushman & Wakefield report on the Washington office market showed that during first quarter of 2015, the market was characterized by higher activity rates and stable rents. Leasing activity in the Seattle metropolitan area is 169 per cent higher on a year-on-year basis, and as a result vacancy rates have declined substantially, not only in the city but also in suburban markets. Current vacancy rates are 10 per cent in Seattle's financial district, 7.3 per cent in Pioneer Square, 3.3 per cent in Capitol Hill, 11.7 per cent in Tukwila and Renton, and 27.4 per cent in SeaTac. Outside of Seattle, office vacancy rates average 12.40 per cent in Pierce County and 14.90 per cent in South King County.
The highest direct asking prices are in the CBD ($36.91 / sq ft), South Seattle ($37.98), and Denny Regrade ($35.01), whereas the lowest average rents can be found in Kent /Auburn ($22.45), Renton ($23.71), and SeaTac ($23.80).
In a study of the Seattle-Puget Sound office market, Colliers International highlighted the high levels of positive absorption that have driven down vacancy rates to their current average of 9.8 per cent. The market dominated by companies in the technology sector, which are behind 90 per cent of all pre-lets in this part of Washington State. Important tenants include Google, Amazon, Facebook, Dropbox, Apple, and HBO. The report also draws attention to another important market in the Washington state, namely Bellevue, where rental rates for CBD offices can be even higher than in Seattle, averaging $37.80 / sq ft (3). The highest rates in the Bellevue CBD average $39.59 / sq ft in Kirkland and $33.04 in the 405 Corridor, whereas the lowest are in Woodinville ($29.10) and the 520 Corridor. Vacancy rates in this sub-market have gone down by 2.6 per cent and now average 10 per cent, and there are 1.2 million square feet under development in Kirkland and Bellevue CBD that are to be delivered by the end of 2016.
Click here for office space in Seattle, Bellevue and Bothell.
Rental values for retail floor space in Seattle increased by 6.7 per cent during the first quarter of 2015, and are over 24 per cent than in Q1 2014. The most significant increases have affected retail properties in the city center, where average asking prices are $224 / square foot. The Washington state average for Class A retail space is $134.61 / sq ft. The retail investment market remains limited due to low availability, as there are just over 40 retail properties for sale in Seattle's metropolitan area, where direct asking prices average $203 / sq ft.
There are 3.3 million square feet of industrial space currently under construction, mostly in the Kent Valley, the Fife/Milton district, and Sumner. While the vast majority of new industrial developments are speculative, some important contracts have already been signed, such as Amazon's lease of building 1 at the Stryker Business Center. Vacancy rates in this sub-market are down from 6.7 per cent last year to 5.9 per cent, and direct asking rents average $0.48 / square foot / month. The highest rental values can be found in Renton ($0.63/ sq ft) and SeaTac ($0.53), while the lowest in Sumner ($0.38) and Auburn ($0.42) (6).
Incentives and Programs
Washington State has one of the US top-ten best Tax Climate Indexes and supports new and established businesses with a range of tax breaks, incentive programs, and industry-specific exemption schemes. Some examples include:
Across the state:
- Community Capital Development
- Washington CASH
- New Markets Tax Credits
- Tax Exemption Program / Community Empowerment Zones
- Warehouse Tax Remittance (12), which applies to both industrial and retail properties
- High Technology Sales & Use Tax Deferral (12)
In the medium term, we can expect to see a significant decrease in availability in the main office markets in Washington state, as there is a limited number new developments planned for the next 2 years. This trend is expected to price some tenants out of the core markets and into secondary areas like the Southend and Kennydale.