Seattle leads nation in office rent price increases, despite pandemic-fueled remote work changes

In spite of work-from-home changes within the tech workspace, the greater Seattle region led all markets nationally with a 15% increase in office rent prices over the past two years.

The unexpectedly strong commercial rental market, according to CBRE’s annual Tech-30 report, comes in sharp contrast to what economists had predicted for office space occupation given the pandemic’s impact on remote work and retail space.

Brian Biege, a senior vice president with CBRE in Seattle, said hybrid work did not mean permanently vacant buildings.

“Many Puget Sound tech companies have grown their business during the pandemic,” Biege said. “While most are embracing a hybrid work format, they are also investing in office space as part of their plans for future growth.”

According to CBRE, the tech industry helped drive the rebound in U.S. office-leasing activity in 2022. Hiring was up — U.S. tech employment now exceeds its pre-crisis level by 3.3% — and even though many of these new hires didn’t immediately head into an office, many companies planned as if they would.

In fact, office leasing activity by tech companies nationally increased by 122% on average in the second and third quarters, compared to early 2022.

“Their demand for modern, collaborative office space is rooted in fostering innovation; it is pushing rents to historically high levels,” Biege said.

The chart below from CBRE shows office rent growth from Q2 2019 to Q2 2022 across cities in North America.

In Seattle, while leases appear to be up, many offices remain largely empty as companies adopt to hybrid or fully remote work policies.

Amazon, for example, originally set a “baseline” of three days a week in the office, and two days working remotely, as part of its preference for an “office-centric” culture. But last month the tech giant said it will instead leave the remote work decisions to individual team leaders at the director level, taking an approach that signals greater flexibility.

Zillow Group, which pre-pandemic had 2,700 office workers in a downtown building, is taking a hybrid approach with some workers coming back only some of the time.

While the office space numbers look surprisingly good, CBRE data does reveal some possible storm clouds on the horizon: sublease space. These numbers might be an indication of what’s to come.

Office space listed for sublease by tech companies in the Tech-30 markets including the Seattle area nearly doubled from last year’s first quarter to this year’s third quarter. Additionally, in those markets tech companies account for 23% of the space put back on the market as sublease.

This means that while the lease market numbers may appear good currently, the volume of subleasing might provide an indication of long-term plans to eventually vacate surplus space.

This was true with Seattle’s Tagboard, for example. Josh Decker, CEO of the Seattle-area tech startup, said when the company switched to a remote work model, it needed to vacate its space and sublease to save expense.

“When we weighed the uncertainty of the economy, the overhead cost of the lease and amenities, plus the circumstantial lack of clarity as to when we would ever be able to use the space again, we knew it was in the best interest of our team to take action,” Decker said last year.