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Amazon-Occupied Office Buildings Continue to Set Seattle Sales Records

CoStar Market Insights: Landlords That Rent Space to the E-Commerce Giant in Good Position to Get Top Dollar When They Sell
June 21, 2018
Amazon's Roxanne Building set a Seattle sales record for pricing when it was acquired by LaSalle Investment Management for $992 per square foot in May.

One unique aspect of the Seattle office market is the outsize influence on pricing that a single tenant can have. Not surprisingly, in this market's case that tenant is Amazon.

For prospective buyers, office properties in the area are already hard to come by, especially in areas like downtown and South Lake Union where Amazon occupies nearly 20 percent of all office space. Since 2010, prices in the market have gone up by more than 50 percent and cap rates have compressed by more than 200 basis points.

Many potential buyers, including high-end institutional investors, have been priced out of Amazon-dominated submarkets. Foreign investors and core institutional investors seem to be more willing to pay the high premium required to acquire the best office properties in a white-hot market like Seattle.

Four recent building sales highlight this trend, which ramped up beginning in 2015. Union Investment paid $330 million ($884 per square foot) at a 4.4 percent cap rate to purchase Midtown 21 at 1007 Stewart St. in June 2017 from a Metlife and Trammell Crow partnership. The trophy asset is located in Seattle's Denny Triangle and is fully occupied by Amazon. This deal represents the largest office sale in the Seattle market in 2017 and one of the highest prices paid per square foot for the year.

The only other 2017 office sales to exceed that one were two other Amazon-occupied buildings: Urban Union at 501 Fairview Ave. North that Schnitzer West sold for $268.9 million or $924 per square foot to New York-based Tristar Capital and RFR Realty; and Tilt49 at 1812 Boren Ave., which sold to Japanese firm Takenaka for $268.5 million or $924 per square foot.

While sales volume in 2018 is off to a much slower start than the previous two years, pricing remains high in the urban core. To date, a single sale accounts for a large chunk of the total volume.

LaSalle Investment Management paid $130 million ($992 per square foot) at a 4.5 percent capitalization rate to purchase The Roxanne Building at 202 Westlake in May. This represents the highest price per square foot ever paid for a Seattle office property.

With buildings continuing to command prices like that, there appears to be plenty of interest by current owners to cash out in a hot seller’s market. According to a recent Colliers International report, three more Amazon office landlords are actively marketing their buildings and expected to sell this year. If these transactions go through, expect pricing to follow recent trends and maybe even set new records for Seattle.

Jared Kadry, Market Analyst  CoStar Group   

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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