While the “end” of the coronavirus pandemic seems more palpable than last year, it is clear that the ensuing return to “normalcy” will remain challenging for many industries. Commercial real estate is no exception.
Real estate firms Colliers International and Kidder Mathews recently released new reports detailing their respective first quarter results – updates that also mark the anniversary of the outbreak of the pandemic.
Both companies noted in their reports that while there is some renewed optimism, driven in part by the wider availability of vaccines, instability in the region’s commercial sector is to be expected in the near future.
“There is a light at the end of the tunnel and three COVID-19 vaccines are making their way through Washington state,” the Colliers report said. “This confidence has led to a significant increase in tourist activity and discussions on rentals, although these deals are unlikely to lead to a positive takeover in the near future, since the deals made now may take place only at the beginning of next year.”
Kidder Matthews’ optimism was also accompanied by a slip of the tongue.
“While the labor market has seen a gradual improvement, until we fully immunize the critical mass, the regional office market will remain volatile,” the report says.
According to Colliers International, about 3 million square feet of new office space will be built in the Puget Sound area in 2021, down 32 percent from 2020.
Turning to the Eastside, Kidder Matthews found that the area outside Seattle has seen the most significant job growth, which jumped 92 basis points to climb from 5.62 percent in the fourth quarter to a recent 6.54 percent. The Eastside also has the highest rents of any region, including Puget Sound, at $ 41.11 per square foot per year.
Both reports say the bulk of the new construction is taking place in Seattle or the Eastside. At the end of Q1, 19 large office projects were under development, all in these two regions. Seventy-six percent of these were prepaid. In Bellevue, the largest projects under development are the 555 Tower and West Main on Vulcan, which are fully leased to Amazon.
There were also four significant shipments this quarter. These include Alaska Airlines’ new SeaTac headquarters, Boren Office lofts, Amazon Block 18 and Fremont Crossing, according to Kidder Matthews. Botella saw two major Eastside sales: North Creek Parkway Center and 22422 29th Avenue.
Colliers International emphasized that individual companies are using hybrid models in which employees can work both in the office and remotely, as potentially efficient.
“Seattle’s growth momentum is the same as it was before the pandemic: large employers, high quality of life and diverse industries across the region,” the Colliers report said.
Colliers also cited Amazon’s recent announcement that its employees will be returning to the office in the fall as having widespread impact. According to the report, the move could affect 65,000 employees in the region and could spur a recovery in the Puget Sound office market and is likely to have various repercussions in the region.
The Kidder Matthews report notes that while the rise in unemployment has encouraged him, other COVID-19-related impacts on the Puget Sound office market are still showing.
Some of these effects include higher vacancy rates, lower sales and leases, and negative net takeover of office space in most markets in the region. Nonetheless, Kidder Matthews has declined to state what we should expect in the coming year.
“It remains to be seen,” the report says, “how 2021 will end.”