Editor's note: This is part of a series on the state of the commercial real estate industry.
A January survey of big global foreign institutional real estate investors by a trade group called AFIRE put Seattle third on the list of where buyers wanted to increase their real estate exposure.
Conditions since then have become even rosier for the Puget Sound region’s office investment market, where demand for leased space is off the charts.
This is attracting a near record level of capital to the Seattle area.
Investors this year have paid $4.3 billion for office buildings, highlighted by the more than $1.2 billion EQ Office/Blackstone paid last month for three Seattle towers and the $740 million Spanish billionaire Amancio Ortega spent acquiring an Amazon-leased campus.
CBRE Senior Vice President Tom Pehl said he expects Seattle in 2019 will log the highest sale volume in dollars since 2007, when office investors pumped nearly $9.6 billion into the region.
How long will the cycle last? For now there’s no end in sight, said Pehl, who pointed to strong demand for development sites.
“That tells us there’s very, very strong enthusiasm among the development and capital universe to see continued growth in Seattle,” he said.
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Mainland China has clamped down on how much money it allows investors to take out of the country. This has had a material impact on the United States market as a whole. But in terms of sales of finished, leased-up assets, China has not consistently been a significant part of the buyer pool in Seattle compared to New York, Pehl said.
However, on the sale of development sites to buyers from China, there has been a big impact in Seattle.
“If it’s (money from) Hong Kong or outside the mainland, that’s different,” Pehl said.
With only a small amount of office, this one made the list because it's so dang cool. RailSpur is a $180 million mixed-use Seattle redevelopment on most of the Pioneer Square block between South Jackson and King streets and First and Occidental avenues South. The goal of Denver Developer Urban Villages Inc. is to create a 24-hour neighborhood by recasting three historic buildings. Among other things, RailSpur will have a boutique hotel, restaurants and bars, micro retail, 63,000 square feet of office, a market food hall in the space where FX McCory's bar and restaurant operated and 26 efficiency apartments. The phased opening is scheduled to begin in late 2020 and last into 2023.
A good example is condominium developer Da-Li Development USA, a subsidiary of Taiwan-headquartered Da-Li International. The company acquired two sites in Seattle this spring.
“These will be the first and second of many projects we want to develop in Seattle,” Da-Li Chairman James Hsieh said last year.
Pehl said foreign and domestic office investors are targeting a wide range of product types regionally — urban and suburban, stabilized assets that generate a solid income stream and buildings with below-market leases that will expire soon.
If there were warning signs, Pehl thinks they’d be geopolitical and economic ones.
“Those are considerations that big institutional investors are acutely aware of when making investment decisions and strategies. Relatively speaking if they’re looking for places to make strategic, long-term safe bets, fundamentally, Seattle is at or near the top of that list,” Pehl said.
