Downtown Seattle vacancies remain high as virus variant clouds real estate outlook

After a year of isolated living that emptied much of downtown Seattle, summer seemed to be bringing signs of return. Vaccination rates have increased, the Pike Place market filled with tourists and tech giants have expected at least some of their employees to return to their booths.

Not so fast.

As the delta variant of the coronavirus increases and public health officials recommend masks again, question marks are back in the forecast for the Seattle office acres.

Google and Apple, both in South Lake Union, have delayed their planned return to the office until October. So far, Amazon, the city’s largest private employer, has indicated plans to return to the office in September.

The latest uncertainty is once again shaking up plans to return to office work ahead of the pandemic, just as commercial real estate indicators have indicated the downtown office market is starting to rebound – or at least escape the worst of last year’s free fall.

Still, commercial real estate brokers say they expect a possible return to the office, even if a month or two later than expected.

“We expect the physical return to the office that was starting to pick up speed will slow down again until more is known about the Delta variant,” said Rod Kauffman, president of Building Owners and Managers Seattle King County Association.

An estimated 40,000 office workers regularly work downtown, up from about 170,000 before the pandemic, according to Placer.ai cell phone data released by the Downtown Seattle Association.

This number has remained relatively stable for more than a year, although the number of visitors and pedestrian traffic in the city center have increased. (DSA considers South Lake Union and other neighboring neighborhoods to be part of the downtown area.)

The office vacancy rate in Seattle’s central business district is around 15%, nearly double the rate at the start of 2020, according to data provided by commercial real estate company Kidder Mathews.

Including vacancies, upcoming vacancies and sublets, nearly 20% of downtown offices were available at the end of June, according to another firm, Savills.

“We expect the uptime rate to gradually decline over the next few years, but tenants should be in the driver’s seat for the foreseeable future,” Savills executive general manager Eric Lonergan said in an email. The company expects a “full turnaround” over time, he said.

Local brokers say interest in touring offices is increasing. Unless there are further closings, they expect more employees to work in the offices after the school year begins in the fall.

“We are very busy with tours,” said Greg Inglin, Seattle office agent and executive vice president of Colliers.

Some companies, especially tech companies, are adding space for new employees, Inglin said. Some who listed the space for subletting last year are now deciding to keep it, he said.

Office plans take shape months in advance, meaning employers are likely to move forward with negotiating leases even with the uncertainty of the delta variant, Inglin said.

After a year of delay, “there is an urgent need to determine their game plan,” he said.

The abundance of tech companies in Seattle could mean a weaker rebound in office demand than in other cities.

An index measuring office visits shows interest has started to climb back to pre-pandemic levels – although more slowly in cities like Seattle and San Francisco than in New York City, where some Wall Street companies are keen. strongly that the employees return to the office. fulltime.

The divide probably boils down to the share of “remote tailored jobs,” according to VTS, which provides commercial real estate rental software and generates the index. The company predicts that demand for office space in Seattle and San Francisco will lag behind New York City “well into the future.”

The first months of the pandemic decimated the Seattle office market. The number of vacant offices has skyrocketed. More recently, this trend has slowed down.

In the first half of last year, the number of office space available for sublet in Seattle more than doubled, according to commercial real estate company Colliers. During the same period this year, the number of spaces available for subletting increased by 5%.

Asking rents for Class A buildings in Seattle’s central business district rose 3.2% in the second quarter from the previous quarter, but were still down slightly from the same period a year earlier. according to Savills.

“A lot of companies are being cautious” about getting their employees back to the office while still conserving space, Kauffman said. “Senior executives, especially in technology, want to keep people coming back. “

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Most companies that stick to long-term remote work have a smaller number of employees, Lonergan said.

Floors of space are available for rent in some renowned downtown buildings such as Rainier Tower and 2 + U, according to Colliers. Several floors are also available at Safeco Plaza, the office tower that a Boston-based company recently agreed to buy for $ 465 million.

Although the level of remote work varies by company, “what our clients tell us is that they will always need and want office space,” said Steve Schwartz, broker at Seattle CBRE. “The office is going to be a place of collaboration and common work and probably less for one-on-one work. “