Seattle a ‘Must Have’ on Institutional Investors’ Shopping Lists
National investment sales volume across all property types totaled $570.6 billion in 2019, a drop of 1.6% year-over-year, according to NKF’s latest Capital Markets report. Yet, the Seattle market continued to remain among the most desirable for investors. Seattle attracted a record $25.7 billion of investment in 2019. Seattle’s office market has become the second largest in the country, with in excess of $11 billion in sales volume in 2019, notes NKF.
Sales volume by market for the year reflects a division between primary and secondary markets that is becoming less defined as the cycle progresses with markets such as Seattle, Dallas, Phoenix, Denver and Austin all attracting far greater institutional capital, compared with the previous cycle. Higher costs of living and doing business in the coastal gateway markets have helped fuel population and employment growth in these markets, providing a boon to multifamily, office, and e-commerce related industrial product.
NKF Co-Head of U.S. Capital Markets, Kevin Shannon, broke down the investment activity for Connect Media. He says, “The Puget Sound has emerged as arguably the best office market in the country over the last few years. It is clearly one of the four healthiest global gateway office markets in the United States, along with the San Francisco Bay area, West Los Angeles and Boston.”
Shannon notes the key factors driving activity include, “The combination of existing powerful growth engines like Microsoft and Amazon in conjunction with other FAANG tenants replicating their Silicon Valley footprint in Seattle has led to incredible absorption and rent growth. Bellevue with Azure and AWS is the defacto home for the cloud and Bellevue essentially replaced Brooklyn as Amazon’s second H2Q along with Washington D.C.”
As a result, Seattle’s office markets have tightened. Shannon says, “The office market currently has very little space for lease, with vacancy rates sub 4% in the most attractive markets like South Lake Union, the CBD and the Eastside. Double digit rent growth is forecasted to be probable again in 2020 in these markets because of these favorable supply/demand dynamics heavily favoring landlords.”
Those conditions haven’t escaped the eye of investors, either. “Investment capital globally has noticed these positive trends and Seattle is now on nearly every institutional investor’s shopping list. Foreign capital has increasingly recognized the market as one of the best global gateway office markets in the last few years. The new excise sales tax which went into effect in January provided an artificial stimulus that accelerated office sales in 2019 to an all-time record of over $11 billion. This cleared out much of the future sale pipeline heading into 2020. There is, however, even more capital in 2020 that wants to buy in Seattle. The combination of an incredible debt market, strong fundamentals and a global appetite for more product has created an extremely robust capital markets environment for the Puget Sound for 2020.”
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