Island-lifestyle retailer Tommy Bahama has leased more than one-third of a 13-story Seattle tower that broke ground Wednesday, with executives gripping brightly colored beach shovels filled with sand and sipping coffee from cups with umbrellas.
Skanska USA Commercial Development broke ground on 400 Fairview, the first project to do so in the neighborhood since higher height limits for office towers went into effect.
The tower, located just east of Amazon.com’s campus, comes at a time of high demand for office space in the Seattle metro area, but especially South Lake Union. Slated for completion in 2015, 400 Fairview will offer 320,000 square feet of office space and 17,000 square feet of retail on the ground floor.
Nationwide, the Seattle-Bellevue market ranked second, behind only Houston, in the amount of office space leased up this year through the third quarter, according to commercial real-estate brokerage Jones Lang LaSalle (JLL). And Seattle-Bellevue ranked fourth in the country for the lowest office-vacancy rate, behind San Francisco, Portland and New York.
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“It’s going to mean more new development,” said Patricia Raicht, JLL’s vice president of research for the Pacific Northwest.
Office vacancy in the Seattle metro area fell in the third quarter to 12.7 percent from 15.1 percent a year ago, according to JLL. Seattle and the Eastside both saw their vacancy rates drop to 11.8 percent and 11.2 percent, respectively, their lowest rates since the end of 2008.
Large blocks of office space are getting harder to find, brokers say. Even south of Seneca Street in Seattle’s central business district, where vacancies are higher and rents tend to be lower than in South Lake Union, tenants are leasing big chunks of space in Columbia Center and Millennium Tower.
Today, just six buildings in Seattle have 100,000 square feet or more vacant, and two of those have pending leases, said Greg Inglin, senior vice president for Colliers International in Seattle. At the height of the last recession in 2010, there were 20 such buildings.
For growing companies hunting for bigger space, “Their options are limited, so that leads to more development typically,” Inglin said.
At least two spec office-construction projects are under way:
• Seattle developer Touchstone Corp.’s Hill 7 project on Boren Avenue between Stewart and Howell streets plans to deliver 300,000 square feet of office, a 222-room hotel and more than 300 underground-parking spaces, according to city records. Touchstone’s partner is Des Moines, Iowa-based Principal Financial Group.
• Construction began in February on a 350,000-square-foot office/life-science building on Dexter Avenue that’s slated for completion in early 2015. Seattle-based Capstone Partners and Stockbridge Capital Group in San Francisco have teamed up on the project, called Dexter Station.
South Lake Union’s average full-service rent rate in the third quarter was just over $37 a square foot, the highest rate in the Seattle metro area and up almost 31 percent over the year, according to JLL.
The vacancy rate in South Lake Union for Class A office space was just 3.9 percent, even though a new 135,000- square-foot office building — 202 Westlake — was completed recently, fully leased to Amazon.
Parts of South Seattle and on the Eastside along the Interstate 90 corridor still have high vacancy rates.
At least four office projects are in the pipeline in downtown Bellevue.
“We’re at that inflection point now where many of these developers are circling and the question is ‘Who’s going to get out of the ground first?’ ” said Tom Bohman, a CBRE senior vice president in Bellevue.
While Amazon drove the local real-estate market last year, a broader array of tech companies have helped drive the vacancy rate down this year, said JLL’s Raicht.
• Moz, a Web-analytics company, leased 50,000 square feet at Second and Spring in downtown Seattle.
• Zulily, an online retailer focused on moms and kids, leased 236,000 square feet at 2601 Elliott.
• Microchip giant Intel took about 50,000 square feet at 705 Union Station in Pioneer Square.
• Market Leader, which was acquired in August by real-estate website Trulia, leased about 72,000 square feet at 110 Atrium in downtown Bellevue.
Skanska’s first signed tenant for 400 Fairview isn’t a tech firm: Tommy Bahama, the Seattle-based purveyor of clothes, beach gear and the island lifestyle, has signed a 10-year lease for 120,000 square feet.
When Tommy Bahama moved into the neighborhood in 2005, it had fewer than 200 employees there. Today it has about 350 employees in the neighborhood, in addition to a warehouse in Auburn and a call center in Federal Way.
The company looked at space all over town, CEO Terry Pillow said Wednesday at the groundbreaking, but ultimately decided to stay in the neighborhood.
“There’s a lot of great energy here,” Pillow said. “To be in a high-rise doesn’t really fit for us.”
Sanjay Bhatt: 206-464-3103 or firstname.lastname@example.org On Twitter @sbhatt