Kinzer Market Observations: Lake Union

This is the third in a series of in-depth analyses of submarket-level trends that we’ve observed in recent years.
By: Capital Markets Team

Then and Now

Some of us remember when the big tenants in “sleepy” Lake Union were Washington Natural Gas, PEMCO and the Seattle Times. Many of us were crushed when voters rejected the Seattle Commons project to bring a 61-acre park to the area and stimulate growth.

Clearly the growth has been substantial despite the lack of a major park. Lake Union’s office inventory has doubled since 2010 and vacancy has steadily declined in that period.

Big Tenants Dominate

There are 12 tenants in the submarket who are over 100,000 SF. These tenants collectively occupy 9.9M SF of space (63% of the market).

Amazon occupies half of the space, which is 4.8M SF. Yes, Amazon does have over 13M SF of space in downtown Seattle, but most of it isn’t in Lake Union, even though we all think of this being their primary location.

Of the 12 tenants, six are life science of medial companies, five are technology companies, and one is the aforementioned Seattle Times, although the long-time tenant occupies a much smaller footprint than it did 20 years ago.

Five of the companies are over 500,000 SF, and with the exception of Fred Hutch, none of them had space in the Lake Union area 15 years ago.

Bright Future

We expect this submarket to continue to outperform the rest of downtown Seattle in terms of vacancy, rent growth and absorption. We also anticipate large tenants continuing to grow at a faster pace than the rest of the market. While no one really knows what the post-Covid-19 world is going to look like for commercial real estate, we do expect companies that are tied to online retail, the cloud, and life sciences, will be the growth leaders in the future.

On the construction front, while only 10% of the 1.1M SF has been leased, none of the projects that haven’t been leased come online for a year and a half.

The one major project that’s under construction and hasn’t been leased is Dexter Yard, but we would expect it will be leased by one of the large tenants in the submarket before its completion, which is anticipated to be 2021.