Over the first half of 2025, the Puget Sound office market has produced mixed results. There has been positive market trends including an increase in tenant demand and a notable shift in return-to-office trends – which is expected to bolster office market fundamentals. However, there has also been negative net absorption and elevated vacancy – although the rate of vacancy increases have been slowing compared to the rise seen between 2020 and 2023.Overall, the general feeling surrounding the office market is optimistic as the market feels slightly more stable than it did just 12 months ago.
Although leasing activity remains below pre-pandemic levels, 2024 recorded the highest level of activity since 2021 by averaging 2.1M SF per quarter (which includes new leases and renewals). During the first half of 2025, similar trends persist, averaging 2.0M SF during the first two quarters of the year. However, market-wide net absorption was negative for the quarter at -871K SF, bringing the year-to-date total to -1.3M SF. One reason for the gap between leasing activity and net absorption is because of the high volume of renewals during the first half of the year.
Overall, market fundamentals have slowly been returning to the Puget Sound office market as recent indicators suggest tenant demand is gradually increasing. Tenant demand for quality space has been improving as several premier Class A+ buildings in downtown Seattle have been outperforming the market in recent quarters thanks to the “flight to quality” phenomenon.
Tenants are also starting to make long-term real estate commitment, after a handful of post-covid years of indecision. Buildings with modern amenities in vibrant and perceived “safe” locations are helping to draw employees back. Return to office mandates are also beginning to have a positive impact on revitalizing areas like Seattle’s urban core. As employers continue to place more value on the culture-building aspects and collaboration benefits that come with being in the office, the increased foot traffic will have a positive trickle-down effect on other aspects of the community like public safety and retail growth. There has also been a “flight to value” with opportunities to purchase quality assets at discounted pricing.
Tenants are also starting to make long-term real estate commitments, after a handful of post-covid years of indecision. Buildings with modern amenities in vibrant and perceived “safe” locations are helping to draw employees back. While change has been slow, return to office mandates are beginning to have a positive impact on revitalizing areas like Seattle’s urban core. As employers continue to place more value on the culture-building aspects and collaboration benefits that come with being in the office, the increased foot traffic will have a positive trickle-down effect on other aspects of the community like public safety and retail growth.
VACANCY TRENDS
Overall, there has been a slight downsizing in square footage but upgrading in location and building quality. Companies are leaning into hybrid work models with three times per week in office being the most common solution. As tenants continue to right-size their space plans, we have seen an uptick in the vacancy rate. At the end of 2Q 2025, the regional office market vacancy rate for multi-tenant office properties over 10,000 SF (excluding owner-user buildings) increased by 70 basis points to 22.5%. This was the 14th straight quarterly increase since 4Q 2021 when the rate was 12.1%. Seattle ended the quarter with the highest total vacancy rate in the region at 27.2%, followed by East King County at 20.7% and South King County at 19.8%. On the positive side, total sublease availability across the region declined from 7.0M SF in 2024 to 6.3M SF this quarter, representing a year-over-year decline of -10%. Sublease available space currently represents 14.8% of the total available space on the market, down from 15.0% last quarter and 17.1% at the same time last year. Overall, the vacancy rate is expected to remain elevated in 2025 with cautious optimism for stabilization in the near term.
RENT TRENDS
The average asking lease rate ended the quarter at $34.31 PSF, a slight increase compared to last quarter but a decrease of -2.7% compared to the same time last year and -5.8% since the most recent high in early 2023. While the rate of decline may be decelerating compared to the first half of 2024 and 2023, this trend will likely continue in the near term until stabilization occurs. The bulk of the decline over the past five years has been driven by Seattle (-15%) and East King County (-5%). The most expensive submarket remains the Eastside, with an average of $41.23 PSF, followed by Seattle at $36.38 PSF.
NEW CONSTRUCTION
Due to the recent surge in new deliveries over the past few years, the development pipeline fell by 72% compared to last year and by 90% compared to 2023 when the under construction total was just below 7.5 MSF. The total of under construction projects (excluding owner-user projects) was 888,633 SF at the end of 2Q 2025. These construction figures exclude two owner-user projects: Microsoft’s nearly complete 3.0 MSF campus expansion in Redmond and Amazon’s 1.0 MSF owner-user build-to-suit in Downtown Bellevue (Bellevue 600). Of the multi-tenant projects under construction, the largest includes Four106 totaling 485,000 SF in the Bellevue CBD, followed by 701 Dexter totaling 266,898 SF in Lake Union. No notable new office projects began construction or were delivered this quarter.
INVESTMENT MARKET
Overall, investment volume has been improving over the past couple years with total transactions over $1M increasing by 15% in 2025 compared to the first half of 2024 and increasing 40% compared to the first half of 2023. Year-to-date a total of 70 transactions took place totaling more than $785M in total sales volume. This compares favorably to last year when the first half of 2024 only totaled $425M. Spring District Block 13 located at 1325 123rd Ave NE in Bellevue was the largest sale of the quarter. The project is 212,128 SF and sold to Drawbridge Realty for $192M ($908 PSF). While most sales continue to produce unpublished cap rates, the average cap rate in 2Q 2025 was 6.3%. Headwinds will persist with a difficult lending environment, increased assets in distress, upcoming loan maturities and pricing volatility. However, willing buyers are on the sidelines waiting for opportunities and as a result, investment volume will likely continue to gain momentum.
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