Webinar Recap: What’s Ahead for Seattle’s Office Market and Office Leasing?
As we approach the final quarter of 2020, commercial tenants, property managers and landlords continue to monitor government orders, economic trends and financial realities. In our latest webinar, we took a look at what’s ahead for Seattle’s office market and office leasing.
Government Orders Update
Individual cities and counties have their own rules, which are changing as the pandemic rolls on. Check with your attorney to make sure you’re compliant with your jurisdiction before moving forward on any enforcement.
Evictions: The Seattle moratorium on commercial evictions was extended to October 15th.* To create a strong defense to eviction, landlords and property managers need to make sure to establish a reasonable payment plan to all commercial tenants in writing. “Reasonableness” is based on the financial health and individual circumstances of each individual tenant. If you haven’t already established a payment plan with at-risk tenants, do so now to ensure you have a strong case and can move quickly when the time comes.
Payment: In July, Seattle City Council approved Ordinance 126116, which prohibits landlords from holding certain small business and nonprofit tenants and individual guarantors personally liable for rent and other expenses. The policy is effective retroactively to March 1, 2020, and extends 6 months after the moratorium is lifted.
Key Takeaways: Notify tenants in writing that they are in violation or of expiration. Determine if your organization or tenants are covered by the ordinance.
Office Lease Considerations
It’s been a tenants’ market for several quarters in the Puget Sound region. Availability was on the rise and rental rates were falling before COVID-19 entered the picture. As pandemic-related restrictions continue and the presidential election approaches, landlords are feeling an additional squeeze.
Rental Rates: With more space becoming unoccupied as some businesses shutter, extend work-from-home, or consolidate operations, tenants have more leverage to request rent reductions to stay in place. Key Takeaway: Stay on top of rents in comparable properties and locations, whether you’re a landlord or tenant, so you can negotiate reasonably and from an informed position.
Amendments: Property managers and landlords generally want to keep tenants in place, and many are making one-page simplified amendments for month-to-month extensions at the same rent, etc. Key Takeaway: Formalize even simple agreements; a hand-shake isn’t sufficient evidence in a court of law.
Renewal Clauses: Tenants with renewals approaching may be considering whether or not to exercise the clause under so much uncertainty and available direct and sublease space increasing daily. Some may elect to let it lapse, but that creates exposure if the landlord has an interested tenant. Key Takeaway: Communicate with your landlord about getting more time added to the clause and/or what you need in terms of improvements and rental rate.
Force Majeure: Discussions about COVID-19 and force majeure continue. More landlords are clarifying what constitutes force majeure pre-lease to acknowledge things outside of tenants’ control like contractors not being able to work or delays in the permitting process. Post-lease, the typical force majeure language prevails. Key Takeaway: Consult your attorney to update and ensure your language is commercially reasonable for the use and tenant.
The Look Ahead
Derek Hermsen, of Union Street Corporate Real Estate, notes that Vacancy appears to be increasing as space that’s currently sublet is vacated, which seems likely to push market rent per square foot further down, likely below $40 per-square-foot citywide. That said, given landlords in the area have financing that prohibits discounting rent rates too far. That will motivate them to negotiate tenant improvements and lease length – with the hope that they can claw back the shortfall when the market recovers.
For more details on any of these factors, watch the full session below or contact us. Our next webinar will take place on Oct. 22 at 1:00 p.m., we hope to see you then.
