Realty News

Seattle and Washington D.C. have seen a significant increase in secondary market submarkets.

Aug 18, 2022

Central Business Districts submarkets (CBD) have long been a desirable office and retail asset marketplace for local and foreign businesses. Business owners are encouraged to relocate to take advantage of clustering or agglomeration economies because of the submarket's high concentration of commercial activity, people, as well as its accessibility. CBDs are often considered to be the financial or business district of a municipality. This makes them a place of prime importance and drives high office, retail, residential and rent prices compared with other submarkets. [i]

Recent reports have shown that secondary market offices are seeing significant growth in office inventory, and sales volume. These numbers will likely outpace CBD submarkets. The secondary submarkets are areas of a city or market that are more suburban than CBD. They have smaller residential communities and less density. The demand for office space in secondary markets was on the rise, causing office rents to match that of traditional metropolitan offices. This nationwide shift was noted as early 2011 and accelerated during COVID-19, speculatively due tenant preference changes. This article analyzes the historical trends in office real estate leasing, transaction trends in secondary submarkets, as well as potential drivers of this shift.

Figure 1: Downtown Seattle Figure 2, Belltown/Denny Regrade [ii]

Seattle, Washington

Key Indicators for the Seattle Office Market CBD [iii] [iv] [v] Regrade Belltown/Denny [vi] (vii) Current Market Rent Class A $47.70

$45.07 Year-over-Year (YOY) Rent Growth 0.2%

Historical Rent Growth 1.3%

1.0% Forecasted Average Rent Growth 2.6%


2.6% Historical Vacancy (YOY) 10.8%

8.7% Forecasted Average Vacancy (YOY) 16.7%

10.1% Total Asset value $23.6 B

Market Cap Rate 5.1% - $7.8 billion

5.3% Sale Volume (12 Month) $2.2B

$302M Delivered Per Square Feet (Past8Q) 1,059 6,657


Table 1: Seattle CBD Belltown/Denny Regrade Office Marketplace Key Indicators

The office sales volume in Seattle CBD reached its highest level in 2019, with the rest of the area following suit in Q1 2020. [viii] Seattle saw a decrease in its overall cap rate, and there was a lot of development in all the submarkets. Belltown/Denny Regrade is one of the most successful submarkets in Seattle, aside from the CBD. Belltown/Denny Regrade, located north of the CBD, is a culturally important and fashionable district. It is home of affluent residents, high-end restaurants, art galleries and nightclubs. In the last few years, the submarket has seen a significant increase in sales volume. Amazon's active presence within the submarket, as evidenced by their extensive office space presence and their development activity to expand or relocate their offices. With 5,000,000 square feet of office area, Amazon dominates the submarket and has encouraged other businesses to move in.

However, the COVID-19 pandemic had a long-lasting and lingering effect on the city's office market, which quickly slowed down the city’s growth. The previously healthy real estate market was left in a distressed condition for the rest of 2020, with a large oversupply of office space and much more under construction. There are signs that the market will rebound in 2021, 2022 but the recovery is slow due to the oversupply of office space inventory, particularly for the Seattle CBD submarket. Belltown/Denny Regrade was also heavily impacted by the pandemic, declining the YOY rent growth to 0.1%, down from the 10-year average of 4.3%. This market is still expected to experience a 2.6% YOY rent rise in 2022, much like Seattle CBD. This secondary office submarket will also have an average vacancy ratio of 10.1%. It is 6.6% lower that the CBD projected.

The expected steady recovery in the submarket is partly due to the preference of companies to be near Amazon as well rising demand for urban spaces closer to high quality apartments. As they seek a hybrid work-life balance, the increase in demand is due to the migration of younger workers to high-end mixed-use residential areas. To attract more highly-skilled employees, companies can be incentivized now to move closer. Relocating also has the added benefit of enjoying lower rents in newer and well-amenitized office properties.

Figure 3 - Downtown Washington D.C. Figure 4: NoMa

Washington D.C.

Washington D.C. Office Market Key Indicators CBD[xiii] [xiv] NoMa[xv] [xvi] Current Market Rent Class A $54.81

$49.87 YoY Rent Growth –0.2%

-1.4% Historical Rent Growth 2.2%


2.2% Expected Average Rent Growth 2.7%

2.8% Historical Vacancy (YOY 9.1%

14.3% Forecasted Average Vacancy (YOY) 16.0%

6.6% Total Asset Valuation $26.6 B

Market Cap Rate 5.8%

6.1% Sale Volume (12 Month) $484.2M


Table 2 - Washington D.C. CBD NoMa Market Key Indicators

Washington D.C.'s CBD is a highly sought-after office space. It boasts approximately 50 million SF and a total asset worth $26.6 billion. This submarket has been known for its high-quality office rents and affordable office options. It is also a prime location that has made it a popular market for many companies. However, this submarket is one of the hardest hit by the pandemic, making historical negative net absorption and virtually no transactions for the first half of 2021. Reports indicate that this market will experience slow and difficult recovery, with reports showing slowdowns of leasing, poor net absorbtion, and an increase in the vacancy rate.

The source of the slow recovery can be attributed to the aging office inventories in the submarket. The older office buildings, which comprise more than half the submarket's existing space, are lacking the necessary amenities and specifications to meet the needs of prospective tenants. The leasing landscape today requires newer office layouts with the flexibility to incorporate a hybrid workspace, support work-life balance, access to technology, and many other factors. The CBD's old office spaces are rigid and expensive. This makes it difficult for other areas to challenge the CBD in office space. The CBD is constantly suffering from oversupply of office space, stagnant demand, declining occupancy, and large office assets. [xvii] CBD is currently in a quandary as they try to decide whether to create new offices in the middle of oversupply.

Office tenants now look into other submarkets to expand and relocate to. Many articles report capital flows into Bethesda East End Tysons Corner and Reston. NoMa has been the most prominent in this growth. [xviii] CoStar identifies NoMa, Washington D.C.'s top institutional market. It also has one of the fastest growing populations in the area. NoMa's resilience has been demonstrated throughout the pandemic. It has a positive outlook for a robust recovery. The submarket's current vacancy rate is reported at 7.1%. However, it is forecast to drop to 6.6%. This is 10% less than CBD. The CBD has had a greater sales volume than NoMa. However, rents have been rising at the rate of CBD. All-in-all, NoMa is anticipated to be the next leading submarket in Washington D.C., amplified by the growth, resilience, and tenant preferences over the next few years.


Many markets have noticed a decline in investor interest for CBD office markets, even before the pandemic. It could be due either to a shift in workforce demographics or tenants' desire to live in newer office spaces. The COVID-19 pandemic had a profound impact on the office asset class. It resulted in historically low performance and absorption but also accelerated existing workplace trends and technology. The CBDs have always been highly desired neighborhoods. However, due to inflexible office layouts and unpopular working environments, the transition is often difficult. Many other submarkets are home to vibrant, diverse mixed-use communities that both attract talent and firms. It will also be fascinating to watch how stakeholders and city planners plan for the future of CBD offices.

[i] Jagannath, T., 2020. Characteristics. Example. Pros. [online] Planning Tank. Available at: [Accessed 15 March 2022].

[ii] Martin Selig Real Estate, 2018. Neighborhood Spotlight: Belltown. [online] Martin Selig Real Estate. Available at: [Accessed 2 May 2022].

[iii] CoStar, 2022. Seattle CBD 22Q1 Office Submarket Report. 22Q1 Office Submarket Report. [online] Available at: [Accessed 14 March 2022].

[iv] CoStar, 2022. Seattle CBD 22Q1 Office Capital Market Reports. 22Q1 Office Capital Market Reports. [online] Available at: [Accessed 14 March 2022].

[v] Cushman & Wakefield, 2022. Seattle CBD 21Q3 Office Market Report. 21Q3 Office Market Report. [online] Available at: [Accessed 15 March 2022].

[vi] CoStar, 2022. Belltown/Denny Regrade the 22Q1 Office Submarket Report. 22Q1 Office Submarket report. [online] Available at: [Accessed 14 March 2022].

[vii] CoStar, 2022. Belltown/Denny Regrade 22Q1 Office Capital Market Reports. 22Q1 Office Capital Market Reports. [online] Available at: [Accessed 14 March 2022].

[viii] CoStar, 2022. Seattle CBD 22Q1 Office Submarket Report. 22Q1 Office Submarket Research. [online] Available at: [Accessed 14 March 2022].

[ix] Crowley, W., 1999. Seattle Neighborhoods: Belltown-Denny Regrade. [online] Available at: [Accessed 17 March 2022].

[x] Pryne, E., 2012. Amazon stamps its mark on downtown Seattle. [online] The Seattle Times. Available at: [Accessed 17 March 2022].

[xi] Clabaugh, J., 2017. Met Square is set for a facelift in Downtown DC. [online] wtopnews. Available at: [Accessed 2 May 2022].

[xii] Long Foster Real Estate, N/A. NoMa Washington District of Columbia. [online] Long Foster Real Estate. Available at: [Accessed 2 May 2022].

[xiii] CoStar, 2022. Washington - DC CBD 22Q1 Office Submarket Report. 22Q1 Office Submarket Submarket Report. [online] Available at: [Accessed 28 March 2022].

[xiv] CoStar, 2022. Washington, DC CBD 22Q1 Office Capital Market Reports. 22Q1 Office Capital Market Reports. [online] Available at: [Accessed 28 March 2022].

[xv] CoStar, 2022. NoMa 22Q1 Office Submarket Report. 22Q1 Office Submarket Report. [online] Available at: [Accessed 28 March 2022].

[xvi] CoStar, 2022. NoMa 22Q1 Office Capital Market Reports. 22Q1 Office Capital Market Reports. [online] Available at: [Accessed 28 March 2022].

[xvii] 2016. Growing Trend - The Advantages of Locating Office Products in Mixed-Use Projects or Neighborhoods. [ebook] HRA. Available at: [Accessed 20 March 2022].

[xviii] Banister, J., 2017. Tale Of Two Cities: D.C.'s Core Office Market Struggles As Emerging Areas Strengthen. [online] Bisnow. Available at: [Accessed 19 March 2022].

Related Posts