Vulcan Real Estate, the development company owned by Microsoft co-founder Paul Allen, began work Monday on a speculative office tower in downtown Seattle, betting that the local economy will remain strong for at least the next few years.
The tower is part of Vulcan's new 2201 Westlake project, which includes 300,000 square feet of offices, as well as 135 condominiums and 25,000 square feet of retail shops in South Lake Union. Its speculative nature means that Vulcan is building without lining up any businesses to fill the space — a risky proposition known in development circles as building on spec.
It's a risk Vulcan is willing to take because of solid job growth in the Seattle area and favorable office-market conditions, namely falling vacancy rates and rising rents, said Ada Healey, a vice president at the development company.
"We see the economy continuing to create new jobs," Healey said. "And if you look across the Seattle market, there are many options for small users — less than 10,000 or 15,000 square feet — but few options for large users."
2201 Westlake is expected to open in early 2009 with a 12-story office tower and a 19-story condominium tower. It's set to rise at the southwest corner of Westlake Avenue North and Denny Way in South Lake Union, across from Vulcan's new 2200 project, featuring a Whole Foods grocery and Pan Pacific hotel.
It's believed to be the first major office project built on spec in downtown Seattle in the past six years. The last were One Convention Place and Millennium Tower, which began construction just before the height of the dot-com boom in the late 1990s, said Michael Dash, an executive director at Cushman & Wakefield in Seattle. By the time they opened in 2000, more than 85 percent of their space was taken, Dash said.
Speculative developments are more common in downtown Bellevue. Of four major projects being built there, only one — Kemper Development's Lincoln Square — has announced leased tenants. The three other office projects plan to introduce a total of about 1.7 million square feet over the next two years.
"The developers seem confident that the tenants will materialize," said Patrick Bannon, spokesman for the Bellevue Downtown Association.
Vulcan's launch of 2201 Westlake comes a month after the release of a survey by the Urban Land Institute, a Washington, D.C., nonprofit, ranking the Seattle area No. 1 nationally as a place to own office property.
The office vacancy rate in the Seattle central business district is about 10 percent, down from 16 percent three years ago, and the average asking annual rent is $26.19, up from $24.71, according to Cushman & Wakefield.
In January, developer Schnitzer Northwest also plans to begin construction on a speculative office project at Ninth Avenue and Stewart Street in downtown Seattle. Schnitzer expects to open the building in April 2008 with 235,000 square feet of space.
"We believe demand is more than robust enough to support multiple new buildings," said Mike Nelson, senior investment director at Schnitzer.
Amy Martinez: 206-464-2923 or email@example.com