Foreign investors are flocking to Seattle as strong corporate expansion, driven by a growing cohort of tech firms expanding into the city, continues to serve as a magnet for domestic and foreign money as well as institutional and private capital.
“Seattle is one of the most dynamic and rapidly changing cities in the world today due to the ubiquity of tech throughout its economy,” says Lori Hill, Managing Director, JLL Seattle. Hill points to the growth of Seattle’s homegrown firms as well as the more than 80 companies – many with headquarters in Silicon Valley – that have opened offices in the city in the last few years, specifically to tap engineering talent. Population growth in Seattle has outstripped all other major U.S. gateway cities in the last three years. This has led offshore capital, particularly Asian and German investors, to take notice.
As a result, the Seattle real estate market has seen some of the strongest growth in appeal among foreign investors. Between 2013 and 2016, investment sales activity by foreign investors in Seattle’s broader commercial real estate market grew nearly four-fold compared to the prior cycle, between 2004 and 2007. In the office sector, offshore investment was even more marked cycle-to-cycle, growing nearly nine-fold to reach 23 percent of Seattle office acquisitions since 2013.
Offices fill up
The downtown office market in Seattle is leading the charge. In the first quarter of the year, Seattle saw the second highest price ever paid for an office building (per square foot) when the almost 300,000-square-foot Urban Union building sold for US$925 per square foot. The US$938 per square foot sale of KOMO Plaza in December 2016 remains the biggest transaction to date.
According to Stuart Williams, Managing Director, JLL, Seattle’s strong attraction among tech firms has pushed cap rates for Seattle office buildings into territory previously reserved for major markets such as Boston, Los Angeles, New York, San Francisco, Washington, DC, and tech havens like Austin.
Williams says current trends indicate 2017 is likely to be the fifth straight year in which Seattle posts more than two million square feet of office take-up. “In fact, the city posted 1.8 million square feet just in the first quarter of this year alone, and that’s more than every other major market on the West Coast combined,” he says.
Seattle’s population growth and a strong economy are also helping other sectors. Multifamily sales hit a new peak of US$5.13 billion in 2016. Rising prices in Seattle and Bellevue are leading more renters to far-flung suburbs in search of lower rents, more amenities and easy access to both work and leisure locations. Investors are following suit. More than 9,000 new units came on to the market in 2016 and vacancy stood at just 3.6 percent at year-end with 12-month rental growth reaching a healthy 7.5 percent.
The Millennial appetite for shopping is also driving Seattle’s industrial sector to new heights. Literally. At least one logistics developer is planning to build a multi-story warehouse-distribution center in the region and more may soon follow. At the end of last year, vacancy rates sat at just 2.7 percent despite more than 6.4 million square feet of space entering the market – higher than any year on record investors are drawn to these numbers, with nearly 10 million square feet of industrial space changing hands in 2016.
Managing Director, JLL Capital Markets