The Seattle offices will remain partially empty through 2024.
At least, that’s what the commercial real estate company Broderick Group predicted 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 space in the region throughout 2022 and 2023.
In a previous market assessment, Broderick was optimistic about organizations and employees returning to the office, citing the easing of pandemic-induced restrictions and increased vaccination levels. However, “with the largest and most severe impacts of the pandemic behind us, the predicted wave of return to the physical workplace has not materialized,” this quarter’s report notes.
According to the report, Seattle’s overall direct vacancy rate was 13.84% for the second quarter of 2022, while sublease vacancy was 4.67%. This is a total rate of 18.5%, compared to 14.5% compared to the first quarter of last year.
Many tech companies are debating their plans to return to the office. Many employees got used to working remotely during the pandemic and are now balking at the idea of returning to the office. Long commute times and high gas prices are among the reasons they prefer to continue working from home.
Although there has been a “noticeable increase” in occupancy for several days a week this year in Seattle offices – signaling at least some adoption of hybrid working – they are struggling to exceed an average of 40% d occupation, according to the report.
Before the pandemic, Broderick calculated there was about 5.5 million square feet of active tenant demand. But, in the second quarter of this year, he found that number had dropped to around 2.2 million.
Of this demand, technology is the largest customer, accounting for 34% of total leased office space, or 3.2 million square feet. Other big players include medical at 10.2% (973,000 sq ft), followed by banking, insurance and real estate at 8.2% (786,000 sq ft).
Despite the decline in demand for office space, the report notes that there were approximately 380,000 square feet of “significant leases” in Seattle during the quarter. He added that he is monitoring about 400,000 square feet of pending leases across the city that he expects to complete by the end of the year.
Many of these new leases were in high-quality buildings, specially selected to entice employees back into the office.
“Employers are leveraging public transit, building amenities and quality of space as a tool to enhance the office work experience and therefore meet the needs of employees when they return to the office,” says the report.
According to the report, another reason for the slowdown in demand for office space was the result of rising interest rates and inflationary pressures. These factors have not only impacted office space valuations, but have also increased costs for businesses.
Despite the downturn, Seattle office space remains attractive. The report points to rental prices for Madison Center ($959.30 per square foot) and 1101 Westlake ($985.64 per square foot) as evidence that institutional investors remain bullish on the area.
The report adds, “As our national economy begins to emerge from a recession, we believe Seattle will be among the first major markets to recover and reach pre-pandemic growth levels.”