Year in Review | 2024

Looking back at 2024 Projections!

1. Negative Absorption will be 2x better than it was in 2023.

CORRECT

In 2023, the Puget Sound office market experienced negative net absorption of approximately 3.8 million square feet. In 2024, this improved to a negative 1.7 million square feet. While still trending negative, these figures indicate that we may have reached the market bottom. Additionally, the recent uptick in office space demand and Amazon's return-to-office initiative suggests a shift toward a more positive office environment in the region.

2. Amazon will announce a return-to-work protocol of 4 days a week or more.

CORRECT

Of all the projections, this one significantly impacts our city. Amazon’s large employee base not only sets trends in how companies operate but also provides essential support to downtown's small businesses. A thriving retail and restaurant scene contributes to a stable and enjoyable downtown environment, thriving only when employees are present to support them daily. The return of Amazon employees to the office can invigorate the local economy, fostering a vibrant atmosphere that benefits both businesses and the community at large.

3. 2024 will be the year of office defaults – I estimate 10M feet in debt restricting or defaults.

CORRECT

My projections were accurate but well short. A quick count reveals twenty-seven buildings with restructured debt or for sale in 2024, with at least three currently in process. The newly established basis for these buildings is significantly below previous values, enabling lower rental rates and improved cash flow for structuring leases. Although this situation is challenging for property owners and debt partners, the reset in basis should lead to a more affordable downtown environment. This adjustment, ideally, will align with a potential uptick in demand for office space moving forward.

4. Rental rates in the Seattle CBD will drop 10% year over year.

INCORRECT

Rents present a more complex picture, as our research team tracks average asking rents weighted by availability, often creating a more optimistic outlook than reality. Recent statistics indicate that asking rates have dropped approximately 3%. In response, we are initiating a project to track strike prices in comparison to asking rents. This analysis will provide a clearer understanding of the rental landscape and will be included in our future reports for more accurate insights into market trends.

5. Office sales volume will be 2x greater than it was in 2024.

CORRECT

Again, a very low estimate. Volume was almost 10X greater in 2024 than 2023. Much of that volume is outlined in projection #3 above.

6. One major commercial real estate firm will go bankrupt or be acquired.

INCORRECT

I’m pleased to report that my previous projection was incorrect. In 2024, there has been a modest but steady increase in activity for brokerage firms. Liquidation, debt activity, and heightened office demand, alongside growth in the industrial sector, have helped firms recover as we emerge from the bottom of the market. Furthermore, recent stock price increases among major brokerage firms, coinciding with a decline in interest rates, suggest that the market anticipates this positive trend to persist into the coming year.