If the strength of Seattle’s office market could be chalked up to one company, it would be Amazon.
Last year, the online retailer was responsible for the city’s biggest deal, its largest lease and the purchase of the only large chunk of downtown land to come on the market in decades. Amazon bought its 1.8-million-square-foot headquarters last month from Vulcan Real Estate for $1.16 billion, the biggest office sale nationwide and a bold departure for a company that had been content to rent space until last year.
And it’s not done yet. Although Amazon leases or owns 2.7 million square feet of space in Seattle, the online retailer plans to more than double that figure when it breaks ground on three office towers of its own on the northern fringe of downtown this year.
Amazon’s flurry of activity has led to rent increases and a drop in office vacancy, and has inspired confidence in the market. Other companies, largely led by technology firms, have shaved the vacancy rate to 10.7 percent at the end of last year, from 12.4 percent in the fourth quarter of 2011, according to Kidder Mathews, a commercial real estate brokerage.
The biggest vacancy decrease has been in South Lake Union, an area north of downtown where Amazon’s stake in the neighborhood has drawn other companies looking for large floorplates and new buildings. In the last three years, about half of Seattle’s net absorption, or the amount of space companies leased and occupied, was in South Lake Union, where the vacancy rate fell to 5.4 percent from 9.3 percent, according to CBRE, a commercial real estate brokerage.
“We’re seeing a lot of companies that want to be closer to Amazon and that synergy, whether they do business with Amazon or not," said Jesse Ottele, a senior vice president at CBRE in Seattle.
A tighter commercial real estate market has pushed up rents across the city. The average rent rose to $29.19 a square foot at the end of last year, from $27.80 in the fourth quarter of 2011, according to Kidder Mathews. With few large blocks of Class A office space available and little new space expected to reach the market soon, brokers expect rents to go even higher this year.
Developers are now talking about building again — even without a tenant. Eight million square feet of office space are in the works across the city, with more than half planned or under construction in South Lake Union, according to CBRE.
Residential developers will also open 5,800 units this year, the most in decades, according to Dupre & Scott Apartment Advisors, a research firm.
Vulcan Real Estate is betting more companies will want to move to South Lake Union. This year, the developer, which owns 30 percent of the land there, is breaking ground on two office buildings leased to Amazon and a life-sciences research building. If the City Council raises height limits in the neighborhood this spring, Vulcan may move ahead with plans for two more office buildings and three 24-story residential towers.
“We’re now looking to position ourselves for a recovering economy and teeing up speculative buildings," said Ada Healey, a vice president at Vulcan Real Estate. “We want to be in a situation to take advantage of 2013."
Seattle appears to be at the top of many investors’ shopping lists. The Urban Land Institute ranked the city as fourth best in the country for office buildings thanks to its projected job growth of 1.2 percent and its roster of expanding brand-name companies like Starbucks, Nordstrom and Boeing. Real estate investors, who are looking for steady returns, have flocked to Seattle for its stable and growing companies.