Safeco leases more than 750,000 square feet of office space in region

If Safeco's employment in Seattle drops significantly as a result of the sale to Liberty Mutual, there could be a big impact on the downtown office market, some commercial real-estate experts say.

Lower employment could lead Safeco to conclude it doesn't need as much office space. If that happens, the experts say, vacancy rates might climb. Lease rates might drop. New buildings might be delayed.

Safeco, which has 1,900 employees downtown, has operated entirely out of leased space since it sold its 22-story headquarters tower in the University District to the University of Washington in 2006, spokesman Paul Hollie said.

Altogether, the company leases more than 750,000 square feet in the region, two-thirds of that in downtown Seattle.

It occupies 305,000 square feet in what is now called Safeco Plaza — a building still known to many Seattleites as "the box the Space Needle came in" — and 203,000 square feet in the Second and Seneca Building.

Those leases account for more than 40 percent of the space in each building.

Hollie said the leases don't expire until 2017 and 2018. "Right now, everything stays the same," he said. "We're calling it business as usual."

But Liberty Mutual CEO Ted Kelly said Wednesday some job cuts in the Northwest are likely.

If Safeco decides it doesn't need as much space, it could seek long-term sublease tenants, said James Keating, senior vice president of commercial brokerage Staubach Co.

Safeco's space would compete for tenants with five new downtown office buildings under construction and scheduled for completion by the end of 2009, he said. "From a tenant's standpoint, it would be very good."

Kip Spencer, co-founder of the commercial real-estate database Officespace.com, agreed the Safeco sale's ramifications for the office market could be significant.

"You can't ignore that large a chunk of space," Spencer said. "The commercial real-estate observers are watching the Safeco situation very carefully."

When Safeco decided to move downtown, it had a big effect on the market, Spencer said. The decision helped push rents up and drive vacancy rates down, he said, and convinced some developers to build buildings then on the drawing boards.

John Miller, senior managing director in brokerage Cushman & Wakefield's Seattle office, said he can't see Safeco vacating or subleasing large blocks of space.

Even if that were to happen, he said, the impact on the booming downtown office market would be minor.

"We have so much good, organic growth," he said. "It's still a place where companies want to be."

The fate of another downtown-based company, Washington Mutual, is a bigger wild card, Miller said.

WaMu has 900,000 square feet in its 42-floor headquarters tower.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com