A new Q1 report from Kidder Mathews shows regional vacancy rates in the Seattle area rising to 15.1%, up from 13.9% at the end of 2023, the ninth consecutive quarterly increase.
It also marked the ninth straight quarter of negative net office absorption, which is calculated by the total amount of space occupied (moved into) minus the total space vacated (moved out) in a given quarter.
“Looking forward, tepid office demand coupled with historically high availability rates and negative net absorption present concern,” the report noted.
Before the pandemic, vacancy rates in the Seattle region were around 6%.
Companies are reducing real estate footprints with the adoption of hybrid work policies. Some tech firms are bringing employees back to the office, but many offer remote-friendly options.
At the same time, the tech downturn that began in 2022 caused many companies to trim expenses and lay off workers, reducing the need for office space.
It’s a stark contrast from the decade prior, when tech companies gobbled up real estate across Seattle to house their rapidly growing workforces.
In Seattle, vacancy rates increased from 16.6% in the fourth quarter of last year to 18.35% currently.
Downtown Seattle is near the bottom of a list ranking U.S. cities on downtown recovery, as measured by comparing pre-pandemic smartphone location data in 2019 to current levels.
In February, there were more than 85,000 daily workers on average in downtown Seattle — a 16% increase from the same period last year, according to the Downtown Seattle Association. But that’s just around half of pre-pandemic levels.
These trends are driven in part by Seattle’s strength as a technology hub, where many companies headquartered downtown — like F5, Zillow, DocuSign, Qualtrics and others — can more easily rely on remote work.
A struggling office market could have implications for the city’s tax revenue, especially with a budget shortfall. Seattle Mayor Bruce Harrell recently proposed legislation to help developers convert office space for residential use.
There are 13 major office projects under construction in the Seattle region, according to Kidder Mathews, and two tech offices were completed in the first quarter: Meta’s Block 13 in the Spring District in Bellevue, and Google’s South building at Kirkland Urban.
However, a report from Broderick Group this week revealed that Google has not built out space at the South building, and has paused plans to build the fourth building at Kirkland Urban.
“Although there remain a number of proposed office projects in both Seattle and Bellevue, developers have out the brakes on any new construction indefinitely,” Kidder Mathews noted in its report.
Amazon said Thursday that it is restarting construction on a 42-story office tower in Bellevue. The company, which is expanding in Bellevue, previously paused construction to assess the impact of hybrid work.
