Seattle Office Tower Trades for $730M
The blockbuster office deal marks the largest multi-tenant transaction in the sector so far this year.
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Madison Centre. Image courtesy of Barings.
A joint venture between Barings and developer Schnitzer West has sold Madison Centre, a 760,971-square-foot Class A office high-rise in downtown Seattle. Boston Properties purchased the asset for $730 million. The buyer did not source acquisition financing, according to public records. Newmark brokered the transaction.
The tower, located at 505 Madison St., was delivered in September 2017. The LEED Platinum-certified property houses 36 stories of office space — 93% of which was leased at the time of the sale — above 7,400 square feet of ground-floor retail, partially occupied by a coffee shop. The asset has a wide range of amenities, from a rooftop deck to an executive conference center on the second floor. The building also includes a fitness and wellness center operated by the Washington Athletic Club.
A Big Deal
Newmark’s team noted that the sale was the largest multi-tenant office transaction so far this year nationwide. A May report from CommercialEdge indicated Seattle’s office sales volume neared $1.3 billion year-to-date through April, with this deal bringing volume north of the $2 billion mark. Nationally, the report identified $26.7 billion in office transactions during the first four months of the year, a slight increase compared to the same time in 2021.
Interior of Madison Centre. Image courtesy of Barings.
While the office sector appears to be making up for ground lost during the pandemic, it’s still unknown how the asset class will fare in the face of sustained trends in remote and hybrid work environments. It will likely be a mixed bag: Some companies are already mandating companywide returns to the office, while many others are implementing remote work policies as a means of capturing talent in motion as part of the Great Resignation.
Either way, top-tier trophy office assets in major markets like Seattle are likely to see consistent demand, particularly as major employers like Amazon, Google, and Apple, begin to bring their workforces back into physical office space.
What is the current market value of office towers in Seattle?
The current market value of office towers in Seattle is difficult to determine, as it depends on a variety of factors such as location, condition, and amenities. According to a May report from CommercialEdge, Seattle’s office sales volume neared $1.3 billion year-to-date through April. Additionally, a Yardi Matrix report showed that investors have tended to target Class A assets in Seattle, with prices for dated assets in high-demand areas like the Denny Triangle commanding prices unheard of in most smaller markets.
What are the most recent office tower transactions in Seattle?
According to a May report from CommercialEdge, the most recent office tower transaction in Seattle was the sale of a multi-tenant office for $730M. This was the largest multi-tenant office transaction so far this year nationwide. Additionally, according to a Yardi Matrix report, transactions year-to-date through April totaled $1.3 billion. Investors have tended to target Class A assets or value-add opportunities in an effort to flip lower-end buildings into Class A assets.
What factors are driving the high demand for office towers in Seattle?
The high demand for office towers in Seattle is driven by a few factors. First, investors have tended to target Class A assets — or value-add opportunities in an effort to flip lower-end buildings into Class A assets. This means that even dated assets in a high-demand area like the Denny Triangle can command prices unheard of in most smaller markets. Location is key, as always.
Second, Seattle is a go-to destination for recent graduates and young professionals looking for employment in office-using sectors. According to a survey by Axios, Seattle was the number one city that college students want to move to. If this comes to fruition, the city would maintain a competitive advantage in attracting talent, and employers seeking to add this talent would necessarily need to size up their office footprints as well, easing pressure on vacancies.
Finally, investors seem to have great confidence in Seattle’s sustained recovery. Transactions year-to-date through April totaled $1.3 billion, the Yardi Matrix report showed, landing right alongside other vibrant office economies like Dallas-Fort Worth and the Bay Area.
What are the benefits of investing in Seattle office towers?
Investing in Seattle office towers can provide investors with a number of benefits. According to a May report from CommercialEdge, Seattle’s office sales volume neared $1.3 billion year-to-date through April. This indicates that there is a high demand for office space in the area, which can provide investors with a steady stream of income. Additionally, the report noted that the sale of a Seattle office tower for $730 million was the largest multi-tenant office transaction so far this year nationwide. This shows that investors can expect to receive a high return on their investments in Seattle office towers.
What are the risks associated with investing in Seattle office towers?
Investing in Seattle office towers carries a few risks. Vacancy rates in the Seattle office market are currently higher than the national average, according to JLL's first-quarter Seattle report, which pegged vacancy for the metro at 18.1%. Yardi Matrix’s report offered a more optimistic figure of 15.7%, but still indicated that vacancy has jumped upward a full percentage point in the past year. This could mean that there is more office space available than there is demand for it, making it difficult to fill the space.
Additionally, Seattle's housing prices may be a deterrent for potential tenants. Colliers' report notes that Seattle was the number one city that college students want to move to, citing an Axios survey. However, many students may be put off by the city's high housing prices, which could reduce the number of potential tenants.
Finally, investors should be aware that office construction is continuing at a slightly more than tepid pace, adding properties that may or may not be in demand to markets that may or may not already have plenty of comparable assets on offer. This could lead to an oversupply of office space, making it difficult to fill the space.