Capital Markets: 2019 in Review

Kinzer Partners’ Capital Markets team looks at 2019 in review to break down the headline statistics from a record-breaking year in Seattle Commercial Real Estate. The below figures are for the Seattle-Bellevue-Tacoma MSA, which includes King, Pierce and Snohomish counties.

Net Absorption: 3.4M SF

Net Absorption in Seattle was third in the U.S. in 2019, behind only New York and Dallas-Fort Worth markets.

Net absorption in 2019 was driven by the growth of big tech firms, such as Amazon (2.10M SF), Facebook (498k SF) and Google (608k SF). Other notable tenants growing in the region include Seattle Children’s (540k SF). With a market size of 208M SF, this represents an increase in occupancy of 1.6%.

Rent Growth: 4.9%

The growth rate for rents in 2019 was 5th in the country – not surprising given Seattle is the 2nd tightest market behind San Francisco. Major tech firms not only drive leasing activity but tend to be less concerned with rental rates and more concerned with quality of the buildings they occupy.

Sale Price per SF: $1,067

We had been predicting a record-breaking $1,000/SF sale for the last 3 years, and we have been close with several sales over $975/SF, such as 400 Fairview ($990/SF) and 202 Westlake ($991/SF). Seattle finally broke the $1,000 threshold with the sale of Arbor Blocks by Vulcan (100% leased by Facebook) to Ponte Gadea at a 4.25% cap rate.

Sales Volume: $9.8B

Seattle’s sales volume set local records in 2019 and put us #2 in the country behind New York City. Two words, namely “excise tax,” come to mind. Washington State passed legislation increasing the state excise tax on sales from a flat 1.28% to a graduated scale that tops out at 3.00% starting January 1, 2020. Many jurisdictions also collect a half percent REET, so the overall rate effectively rose from 1.78 percent to 3.5 percent.

Another contributor was the push to receive the full benefits of the Opportunity Zone program by closing in 2019.

International Buyers: 19.2%

Spain-based Ponte Gadea purchased Arbor Blocks in South Lake Union for $415M, at a Seattle record-breaking $1,067 per SF.

This cycle, Seattle has gone from a top-15 market to a top-5 market and this has drawn a significant amount of international capital. The 19.2% share of sales by international buyers is the second-lowest in terms of percentage for the last 5 years, but was the largest amount in total dollars for that time period.

The most active international buyer in 2019 was Ponte Gadea. The company, which is based in Spain, spent a total of $1.154 billion acquiring Troy Block and Arbor Blocks.