By 2024, offices in Seattle will be partially vacant.
At least, broderickgroup, a commercial real estate company, predicted in its market report for the second quarter of 2022 that economic pressure and the trend of working from home will keep the vacancy rate of commercial space in the region high during 2022 and 2023.
In a previous market assessment, Broderick was optimistic that the organization and employees would return to the office, citing the relaxation of restrictions caused by the pandemic and the improvement of vaccination levels. However, the quarterly report pointed out that “with the most significant and serious impact of the pandemic over, the expected wave of immigrants returning to the actual workplace has not been achieved.”.
According to the report, the direct vacancy rate in Seattle in the second quarter of 2022 was 13.84%, while the sublease vacancy rate was 4.67%. The total ratio was 18.5%, higher than 14.5% in the first quarter of last year.
Many technology companies are discussing their plans to return to the office. During the epidemic, many employees have been used to working remotely and are now hesitant to return to the office. Long commutes and high oil prices are one of the reasons why they prefer to continue working from home.
The report found that although the occupancy rate of offices in Seattle has “significantly increased” in a few days a week this year, indicating that at least some people have adopted mixed work, they are trying to increase the average occupancy rate to more than 40%.
Before the pandemic, Broderick calculated that there was about 5.5 million square feet of active tenant demand. However, in the second quarter of this year, it found that this figure fell to about 2.2 million.
In this demand, technology is the largest customer, accounting for 34% of the total office space leased, or 3.2 million square feet. Other large companies include healthcare, accounting for 10.2% (973000 square feet), followed by banking, insurance and real estate, accounting for 8.2% (786000 square feet).
Despite the declining demand for office space, the report noted that Seattle had about 380000 square feet of “major leases” in the quarter. It added that it was monitoring about 400000 square feet of rental housing in the city and was expected to close by the end of this year.
Many of these new leases are signed in high-quality buildings, especially to attract employees back to the office.
The report said: “employers are using transportation, building facilities and space quality as tools to improve the office experience, so as to meet the needs of employees to return to the office.”.
According to the report, another reason for the slowdown in office demand is rising interest rates and inflationary pressures. These factors not only affect the valuation of office space, but also increase the cost of the company.
Despite the economic slowdown, office space in Seattle remains attractive. The report points out that the rental prices of Madison Center (US $959.30 per square foot) and 1101 West Lake (US $985.64 per square foot) prove that institutional investors are still optimistic about the region.
The report added: “as China’s economy begins to emerge from recession, we believe Seattle will become one of the first major markets to recover and achieve pre pandemic growth.”