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June 28, 2018

Office: Vacancy rates down, rents rising

  • Medical buildings are the strongest and safest bet in Tacoma.
    Kidder Mathews

    Will Frame

    Drew Frame

    The Tacoma office market has seen positive growth for over two and a half years, with market demand focused on the central business district, suburbs and medical offices.

    Tacoma CBD

    Downtown Tacoma has experienced decreasing vacancy rates (6.5 percent) and increasing rental rates (averaging $22-$29 per square foot, full service) for the last couple years.

    This trend will continue due to the following: Low vacancy in Class A buildings (about 4 percent), development of multifamily, office and retail (over $1 billion in current investments), and an alternative for companies relocating or expanding from the Seattle/Bellevue markets.

    The strength of the Class A market has prompted private owners of Class B and C office buildings to renovate their buildings to land strong credit tenants that have limited Class A options. This strategy has worked as Class B office buildings have seen the most absorption over the last several quarters.

    Development in the downtown core, mostly multifamily, has brought a new energy and focus to the CBD.

    CBD office redevelopment has been a vibrant investment as Class B/C buildings have been acquired by value-added investors looking to completely renovate the asset and push rents into the mid-$20s per square foot, full service.

    The first speculative office building since the Great Recession will take place at the Brewery Blocks — a complete renovation of office, multifamily and retail. Brewery Blocks will incorporate a spec 75,000-square-foot office building to be completed in 2020.

    Success in value-added redevelopment and soon-to-be spec office will continue the growth of the CBD office market.

    Medical office

    The Tacoma medical office market has been the strongest market in Pierce County for the last several years. Currently the vacancy rate is about 2.5 percent, with rental rates increasing by over 10 percent within the last year.

    Current rental rates are running $17-$32 per square foot, triple net. The wide range is predominately based on location and quality of asset, as the on-campus Class A medical office buildings can surpass the $30 threshold.

    Development in the medical market has been popular, as high rents and stable tenancy have warranted spec medical office for the last couple years. This has helped the investment market as national REITs are entering the Tacoma market with authority, acquiring investments for 6-7 percent cap rates.

    As the healthcare market continues to flourish, and development continues to take place, we expect the medical market to hold its reign as the strongest and safest investment in Tacoma office product.

    Drew Frame and Will Frame have put together a team covering all facets of commercial office space in the South King County and Pierce County markets. They specialize in both sales and leasing with an emphasis on landlord and tenant representation.

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