In an apparent bet on office work, a Los Angeles-based real estate firm has purchased a 28-story office tower in Seattle’s Denny Triangle for $490 million.
Amazon currently occupies most of the building, known as West 8th, with Seattle Children’s Research Institute among the other tenants.
Kilroy Realty bought the building from a Deutsche Bank-affiliated real estate fund, according to documents filed Monday with King County. The building was built in 2009 and last sold in 2016 for $370 million.
For the new owners, the site comes with “the potential to increase below-market rents,” Kilroy said in a news release. Amazon leases about 70% of the space “through April 2023 at rents significantly below market,” the company said.
“We believe the Denny Regrade submarket continues to be extremely well positioned for strong rental growth over the coming years and West 8th, which offers an unrivaled location, will help deliver solid earnings growth and value creation for our shareholders,” CEO John Kilroy said in a statement.
Seattle’s office market — and the cafes and shops that relied on office workers — continues to lag because of the pandemic. Downtown office vacancy rates are on the rise and rents are basically flat, according to Colliers. Office sales have been sluggish in Seattle this year, according to another firm, Kidder Mathews.
The sale price amounts to roughly $909 per square foot, higher than several other recent high-profile sales such as the Amazon-occupied downtown Macy’s building, which sold for about $758 per square foot, and the Boren Lofts, a South Lake Union office building set to be turned into life-science labs that sold for $874 per square foot, according to a recent report from the commercial real estate brokerage Colliers.
But the deal doesn’t quite match one of the priciest buys of the last year: The office tower on Second Avenue known as 2+U sold late last year for $704 million, or roughly $998 per square foot, according to county documents. A South Korean investment group bought a 95% stake in that project, with developer Skanska holding the remaining 5% as it continued leasing out retail space in the building.
Elsewhere in the country, tech firms are continuing to bet on office space. Google announced this week it would pay $2.1 billion for a Manhattan office building.
A recent survey of about 500 Seattle-area tech workers found the vast majority of them expect to work from home at least two days a week in the future.
Amid the latest wave of coronavirus infections, Amazon said last month it planned to delay reopening its offices until Jan. 3 after originally planning to bring employees back in September.
The delay set off another round of speculation about when Seattle’s once-bustling South Lake Union and downtown office buildings will again fill with workers.
After more than a year of remote work for its white-collar employees, Amazon at one point said it planned to “return to an office-centric culture” but later relaxed that stance to say employees would work in person three days a week.
With tech companies expanding on the Eastside, office vacancy rates are slightly lower there than in downtown Seattle, according to the firm JLL. In Bellevue’s central business district, for example, average office rents are about $2.40 per square foot higher and the vacancy rate is about 4% lower than in Seattle’s central business district.
Microsoft announced this month it was postponing its return to the office indefinitely.