1Q 2011 Puget Sound Market Report

Page 1

MARKET REPORT

1 Q ’ 11

Puget Sound SEATTLE | EASTSIDE | NORTHEND | SOUTHEND

CAN MARKET RECOVERY BE FAR BEHIND? The Puget Sound region ended the first quarter with positive results on many fronts, witnessed by a largely positive net absorption rate, a high volume of lease transactions and an uptick in investment activity.


PACIFIC REAL ESTATE PARTNERS, INC.

Puget Sound Market Report ECONO MI C OV E R V IE W

F O R E C A S T C U M U L AT I V E G R O W T H B Y I N D U S T RY 2 0 1 0 - 2 0 1 5

25.00%

20.00%

15.00%

10.00%

5.00%

Moody’s Economy.com

0.00%

-5.00% Seattle National -10.00% Professional & Business Services

Education & Health Care

Leisure & Hospitality

Information (Tech)

Manufacturing

Other Services

Trade, Transportation & Utilities

Government

Financial Activities

Construction

The Seattle MSA (metropolitan statistical area) accounts for

It is anticipated that job growth for traditional office space

nearly 1.93 million jobs and has an estimated gross metropolitan

users over the next several years will be led by the Professional

product of over $218 billion. The greater Seattle area has been

Science/Technical

one of the stronger commercial markets nationally, anchored

industries. Jobs in both of these sectors are expected to grow

by large companies, good market fundamentals and a growing

from 430,000 to nearly 470,000 by 2015, resulting in a 9% rise in

population.

the next 4 years.1,2

The Seattle area has grown by nearly 500,000 people since 2000

According to Moody’s, the housing industry may be poised

and shows signs of continued growth. With major employers,

for growth as well, as building permits are expected to rise from

such as Microsoft, Amazon.com, Costco, Paccar, Expedia and

8,000 to 18,000 annually by 2015. Housing prices are expected

Starbucks, Seattle has a strong economic backbone and will

to rise nearly $100,000 in that same time period.1

continue to build on that in the coming quarters.

The Ports are showing signs of strength as well, with Port TEU’s

Currently the Puget Sound’s unemployment rate is just above

in the region higher than last year’s YTD numbers. The Port of

8.5% and it is anticipated that we will have a full job recovery

Seattle is up 9.5% from 2010, and the Port of Tacoma is up 14.4%

in roughly 3 years. The growth will be seen in a wide array of

in the same period.

industries and we should see the largest gains in Information

There are numerous signs that the economic recovery in the

Technology, Healthcare, Leisure/Hospitality and Professional

Puget Sound region is already well underway. Bolstered by

Services, all of which are expected to grow as much as 3-3.5%

growing companies and population, with a highly educated and

annually.1

skilled workforce, the Puget Sound is poised to be one of the

Service

and

Information

Technology

strongest and quickest markets to recover in the nation. (1) Moody’s Analytics (2) PPR (Property and Portfolio Research)

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1Q’11 PUGET SOUND MARKET REPORT

Vacancy by Submarket & Class SEATTLE O F F IC E MA RK E T 50.0%

Lake Union: Amazon.com’s 1,000,000 SF of absorption in 2Q will drop vacancy in class A.

CLASS A CLASS B CLASS C

45.0%

Pioneer Square: Only 10 buildings; Over 611,000 SF combined of space vacant.

40.0%

43.1%

42.4%

40.4%

Queen Anne: Only 10 buildings; 635 & 645 Elliott Ave have 284,454 SF combined vacant.

35.0%

30.3%

South Seattle: Only 3 buildings; Amazon. com Building, Stadium Innovation Center, West Seattle Corporate Center.

30.0%

25.0%

20.7% 19.1%

20.0%

15.0%

14.6%

18.8% 16.8%

16.2%

12.7%

11.8%

13.9%

11.0%

9.9%

10.0%

8.3%

8.0%

7.8%

4.1%

5.0%

16.8%

2.3%

2.4%

3.3%

0.0% Seattle CBD

Ballard/ U-District

Belltown/ Denny Regrade

Capitol Hill/ Central District

Lake Union

Pioneer Square/ Waterfront

Queen Anne/ Magnolia

South Seattle

Excludes Capitol Hill Class A: 2 buildings 87% vacant

EA STSI DE OF F IC E MA RKE T 30.0%

25.8%

CLASS A CLASS B CLASS C

25.0%

23.9%

20.0%

22.1%

21.6%

21.4%

21.1%

19.7%

19.5% 16.9%

17.0%

16.7%

15.6% 15.0%

15.2%

14.2%

10.0%

9.7%

9.5%

8.7%

8.0% 5.8%

8.3%

7.7%

6.8%

5.2%

5.0% 3.3% 1.8%

0.0%

0.0%

0.0% Bellevue CBD

Bothell

520 Corridor

I-90 Corridor

Issaquah

Kirkland

Mercer Island

Redmond

Suburban Bellevue

Excludes Suburban Bellevue Class A: 1 building

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PACIFIC REAL ESTATE PARTNERS, INC.

PUGET SO U N D OF F IC E M A R K E T M AP

Whidbey Island

EVERETT

NORTHEND

5

Puget Sound

5 405

Lake Washington

S E AT T L E

520

EASTSIDE

SEATTLE 90

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1Q’11 PUGET SOUND MARKET REPORT

PUGET SO U N D IN D U S T R I AL M A R K E T M AP

Whidbey Island

5

EVERETT

Puget Sound

NORTHEND

EASTSIDE 5

S E AT T L E Bainbridge Island

405 Lake Washington

520

SEATTLE 90

BELLEVUE

KENT

Vashon Island

SOUTHEND

TACOMA

5

PIERCE COUNTY

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PACIFIC REAL ESTATE PARTNERS, INC.

Seattle Office Market SEATTLE R E V IVA L The Seattle Office Market saw a significant jump in activity in

SEATTLE OFFICE SUBMARKETS MAP

the first quarter of this year, illustrated by a sizeable increase in the number of tenants touring the market for additional space,

BALLARD/ U DISTRICT

fewer available large blocks of space and nearly 345,000 SF of net absorption. Market velocity is beginning to tick upward in Seattle. Although the first quarter ended with 16.2% vacancy, there

QUEEN ANNE/ MAGNOLIA

were a total of nearly 180 signed leases and investment activity

LAKE UNION

has started to return to healthier levels, as occupancy in high

DENNY REGRADE SEATTLE CBD

functioning assets continues to rise.

520 CAPITOL HILL/ CENTRAL DISTRICT

SEATTLE

PIONEER SQ/ WATERFRONT

South Lake Union continues to outpace the rest of the Seattle market in terms of new development and will continue to be the

Elliott Bay

Lake Washington

90 5

primary area of growth in the Puget Sound region. One new South Lake Union tenant that will have a significant impact the vacancy rate in the second quarter is Amazon.com.

S SEATTLE/SODO WEST SEATTLE

With the continued progression of Amazon.com’s 1.7 million SF headquarters, the tech giant will take occupancy (544,000 SF) of Phase IV of their project in 2Q 2011. In addition to their own campus they recently signed a lease for 460,000 SF at one of the CBD’s newer buildings, 1918 Eighth. Another well known name taking up residence in the South Lake Union neighborhood is the Bill & Melinda Gates

Biotech, technology and medical companies have led

Foundation.

This 590,000 SF two-building campus sits just

the charge in the Puget Sound’s recovery and are leasing or

west of the Amazon.com headquarters and is also slated for

purchasing most of the large blocks of space in the area from

completion in the second quarter.

This exciting new facility

the CBD to Fremont. Aside from the large users, smaller groups

will be a draw for many national and international philanthropic

have been expanding as well. In Fremont alone, three tech

groups.

tenants are increasing their space needs by more than 8,000 SF

The availability of large blocks of space in the Seattle CBD

each. Overall, the South Lake Union and Fremont areas have

market has been steadily declining, making it increasingly

been the stalwarts in the Seattle office market, with continued

difficult for large companies to find suitable space. While the

growth and a high level of tenant activity.

Seattle CBD office market does have a 14.5% vacancy, there

There is much anticipation for the rest of 2011 in the Seattle

are only 4 buildings that are able to offer 100,000 SF or more

office market as we continue to see many tenants entering the

of contiguous space. Columbia Center offers the largest space

market and nearly 1,000,000 SF of absorption already slated

at 186,000 SF. Nearly 41% of the available 2,000,000 SF of

for the second quarter of this year. Overall, with 16.2% vacancy

availability in the CBD is comprised of spaces that are 50,000 SF

and rental rates stabilizing, the Seattle office market looks to be

or smaller.

enjoying a quicker recovery than what was initially anticipated.

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1Q’11 PUGET SOUND MARKET REPORT

Seattle Office Market The Seattle Office Market consists of eight submarkets, with 697

HISTORICAL VACANCY RATES & RENTAL RATES

buildings and a total of 59,233,118 SF. The overall vacancy rate has

18.0%

edged slightly upward since the end of 2010, while average asking

15.0%

rental rates have declined. Overall, year to date net absorption is on

12.0%

pace with last year, with the largest gains in the Lake Union and Pioneer Square/Waterfront submarkets.

$32.00 $30.00

9.0%

$28.00

6.0% $26.00

3.0% 0.0%

2005

2006

INVENTORY Buildings

Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE

2008

Rental Rates (FS)

Seattle Office Overview Market Area

2007

103 84 83 84 102 97 73 71 697

ABSORPTION SF

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

25,161,152 3,166,922 5,566,588 4,643,628 7,931,918 6,050,336 3,875,806 2,836,768 59,233,118

13.3% 6.3% 12.6% 7.3% 24.3% 19.3% 18.1% 18.6% 15.0%

1.2% 4.4% 1.0% 0.1% 1.4% 1.4% 0.1% 0.0% 1.2%

14.5% 10.7% 13.6% 7.4% 25.7% 20.7% 18.2% 18.6% 16.2%

(79,448) 62,624 (20,748) 4,152 287,826 97,705 41,310 (49,750) 343,671

(79,448) 62,624 (20,748) 4,152 287,826 97,705 41,310 (49,750) 343,671

2009

2010

$24.00

2011

Vacancy Rates AVERAGE RENT & EXPENSES (FS) Rent NNN

$28.90 $25.42 $24.50 $27.00 $34.45 $23.84 $26.67 $22.98 $26.72

$9.45 $8.00 $8.25 $8.00 $9.45 $8.50 $8.50 $8.00 $8.52

Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE

2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

13.4% 5.4% 14.1% 11.2% 18.3% 13.9% 17.7% 9.9% 13.3%

12.5% 4.7% 12.0% 10.6% 16.1% 11.9% 15.9% 9.7% 11.9%

10.4% 3.4% 9.7% 7.3% 11.6% 8.7% 8.5% 12.7% 9.2%

10.4% 2.7% 9.2% 4.1% 5.7% 7.2% 7.6% 9.6% 8.6%

11.0% 12.6% 8.1% 4.3% 6.4% 12.4% 5.8% 10.0% 10.1%

15.9% 11.9% 16.4% 13.5% 8.2% 15.6% 15.6% 10.9% 16.4%

15.6% 14.0% 15.7% 9.1% 25.5% 14.2% 16.1% 17.3% 16.2%

16.2% 14.5% 12.4% 8.6% 22.4% 18.4% 16.6% 18.6% 16.4%

15.3% 14.6% 13.1% 7.5% 22.3% 22.2% 16.4% 16.7% 16.3%

14.0% 14.4% 13.2% 7.2% 20.9% 22.4% 16.5% 15.9% 15.6%

14.5% 10.7% 13.6% 7.4% 25.7% 20.7% 18.2% 18.6% 16.2%

Historical Rents (FS) Market Area

Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE

Prior years as of 4Q

Historical Total Vacancy Market Area

Historical Total Absorption

2007

2008

2009

2010

$35.37 $35.59 $29.25 $35.08 $32.52 $25.92 $25.81 $22.74 $30.29

$33.37 $31.10 $30.56 $31.05 $38.31 $28.97 $35.80 $22.95 $31.51

$29.49 $28.83 $26.16 $30.00 $31.29 $26.34 $21.55 $23.61 $27.16

$29.16 $28.06 $24.80 $29.53 $32.20 $25.69 $27.66 $23.25 $27.54

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE

65,210 (63,698) 41,206 191,401 117,562 80,232 (16,586) (24,369) 390,958

(140,078) (16,787) 182,460 24,976 509,498 (3,664) (18,245) (2,512) 535,648

229,388 (2,393) (40,792) 30,320 144,692 (232,194) 4,559 53,491 187,071

320,815 78,031 (7,401) 22,719 98,069 (14,602) (1,035) 22,632 519,228

475,335 (4,847) 175,473 269,416 869,821 (170,228) (31,307) 49,242 1,632,905

(79,448) 62,624 (20,748) 4,152 287,826 97,705 41,310 (49,750) 343,671

Asking Lease Rates by Class (FS) Class A

Seattle CBD Ballard/U District Belltown/Denny Regrade Capitol Hill/Central District Lake Union Pioneer Square/Waterfront Queen Anne/Magnolia South Seattle SEATTLE OFFICE

$28.90 $25.42 $24.50 $27.00 $34.45 $23.84 $26.67 $22.98 $26.72

LEASE RATES (FULL SERVICE) Class B Class C

$23.51 $22.23 $22.70 $24.47 $25.23 $22.44 $21.49 $21.36 $22.93

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$17.18 $20.27 $21.20 $18.50 $18.50 $19.23 $22.00 $13.00 $18.74

Class A

$9.45 $8.00 $8.25 $8.00 $9.45 $8.50 $8.50 $8.00 $8.52

OPERATING EXPENSES* (PSF) Class B Class C

$8.45 $7.00 $7.25 $7.00 $8.45 $7.50 $7.50 $7.00 $7.52

$7.45 $6.00 $6.25 $6.00 $7.45 $6.50 $6.50 $6.00 $6.52

*Expenses are approximate

Market Area

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PACIFIC REAL ESTATE PARTNERS, INC.

Eastside and Northend Office Market TECH BOOM The Eastside and Northend Office Markets experienced a significant rise in activity in the first quarter of 2011. The CBD, along with many of the suburban Eastside markets, has seen significant growth in the high tech and bio tech sectors as vacancy in these markets has remained relatively flat over the

EASTSIDE AND NORTHEND OFFICE SUBMARKETS LEGEND Northend Office Submarkets Eastside Office Submarkets 5

last year.

EVERETT CBD

The year got off to a healthy start, with many new leases

S SNOHOMISH COUNTY

being signed and a large number of tenants touring prospective

S EVERETT/ HARBOR POINTE

spaces in the CBD, Issaquah, Redmond and Bothell. The I-90 Corridor was the most active submarket in the first quarter, with its excellent access, large blocks of vacant available space and building efficiencies. This market should continue to gain strength and grow as the 520 Bridge toll will force companies to

EDMONDS/ LYNNWOOD

MILL CREEK/ WOODINVILLE

BOTHELL

choose a location that will be economical for their employees. Rental rates, vacancy, absorption and concessions were mostly unchanged during the first quarter, which can be an early indicator of market stability. One gauge of local market strength

405 NORTHGATE/ N SEATTLE KIRKLAND

continues to be illustrated by the growing number of pending transactions. We anticipate increased signs of stabilization and

520 CORRIDOR

520

positive rental growth as we head into the second quarter. The benefits of the year’s earlier activity should start to fully be realized as we head into the third quarter, with recently signed

REDMOND

5

SEATTLE

tenants beginning to occupy their new spaces. In addition, we

BELLEVUE

SUBURBAN BELLEVUE BELLEVUE CBD I-90 CORRIDOR

MERCER ISLAND

anticipate continued market momentum as companies with

ISSAQUAH

90

2012 or 2013 lease expirations start to look for space. One of the major issues that will impact the Eastside office market will be the diminishing supply of large blocks of contiguous space. Major tenants – those requiring 75,000 SF or

The true vacancy in the Eastside and Northend Markets can

more - will find it increasingly difficult to identify spaces that

be best illustrated by the number of small spaces spread

adequately meet their size requirements. As the high tech and

throughout the various submarkets. As market demand returns

biomedical industries continue to grow, the demand for larger

and space requirements rise, development of downtown office

spaces will continue to increase. Their movement in the market

product and suburban business parks should start to return to

will have a trickle -down effect on other industry segments

support the expansion.

requiring larger, contiguous work spaces. Current capacity is not

The Eastside Office Market will anxiously await the outcome of

able to support this type of growth and with very few, if any, new

the possible AT&T/T-Mobile merger, which could greatly affect

projects in the pipeline the more desirable large blocks of space

the market if a space consolidation is needed, or if a massive

will continue to diminish.

expansion occurs.

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1Q’11 PUGET SOUND MARKET REPORT

Eastside Office Market The Eastside Office Market consists of nine submarkets, with 666

HISTORICAL VACANCY RATES & RENTAL RATES

buildings and a total of 34,700,529 SF. The overall vacancy rate is nearly

18.0%

$35.00

even with where it ended in 2010, while average asking rental rates have

15.0%

$30.00

gone up in nearly all submarkets. Overall, year to date net absorption

12.0%

is on pace with 2010, with the largest gains in the first quarter in the Kirkland and Bothell submarkets.

$25.00 $20.00

9.0%

$15.00

6.0%

$10.00

3.0% 0.0%

$5.00

2005

2006

Eastside Office Overview Market Area

2008

Rental Rates (FS)

INVENTORY Buildings

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

2007

51 72 76 58 39 112 20 68 170 666

SF

Direct Vacancy

Sublet Vacancy

Total Vacancy

8,404,237 3,865,553 3,112,139 4,798,470 1,790,277 4,034,108 438,616 3,814,326 4,442,803 34,700,529

13.2% 18.4% 10.8% 15.2% 10.4% 16.7% 14.7% 19.0% 13.5% 14.8%

1.6% 1.9% 0.1% 0.8% 2.6% 1.4% 0.2% 1.4% 0.8% 1.3%

14.8% 20.3% 10.9% 16.0% 13.0% 18.1% 14.9% 20.4% 14.3% 16.1%

ABSORPTION 1Q YTD

7,642 56,301 20,630 1,590 17,533 50,221 3,664 20,288 (104,585) 73,284

7,642 56,301 20,630 1,590 17,533 50,221 3,664 20,288 (104,585) 73,284

2009

2010

$0.00

2011

Vacancy Rates AVG CLASS A RENT & EXPENSES (FS) Rent NNN

$34.52 $27.00 $27.37 $31.05 $27.82 $30.31 $32.00 $28.53 $35.00 $30.40

$9.75 $8.00 $7.00 $8.50 $7.50 $8.00 $9.00 $7.00 $8.50 $8.14

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

16.3% 20.0% 12.7% 14.1% 3.3% 14.0% 3.6% 23.2% 11.1% 14.9%

9.6% 15.1% 12.3% 9.0% 2.0% 7.4% 1.2% 13.2% 7.7% 9.7%

5.5% 16.1% 8.9% 5.8% 3.0% 10.6% 1.8% 9.7% 10.1% 8.7%

6.9% 26.2% 3.5% 6.7% 5.9% 6.8% 4.9% 7.8% 8.3% 9.0%

10.5% 27.8% 6.5% 15.0% 2.3% 12.6% 10.1% 12.0% 9.7% 12.6%

13.4% 22.9% 12.0% 16.9% 6.5% 19.0% 14.8% 21.8% 11.6% 15.8%

15.7% 22.0% 12.6% 15.8% 7.9% 18.2% 15.6% 25.1% 11.4% 16.5%

16.3% 22.9% 12.7% 14.9% 4.9% 17.0% 20.4% 23.6% 11.1% 16.4%

15.3% 21.1% 13.0% 16.5% 13.9% 17.4% 19.3% 19.7% 12.5% 16.2%

14.9% 21.7% 11.5% 16.1% 14.1% 19.3% 15.7% 19.9% 12.1% 16.2%

14.8% 20.3% 10.9% 16.0% 13.0% 18.1% 14.9% 20.4% 14.3% 16.1%

Historical Rents (FS) Market Area

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

Prior years as of 4Q

Historical Total Vacancy Market Area

Historical Total Absorption

2007

2008

2009

2010

$37.87 $25.81 $28.04 $34.61 $31.42 $31.22 $29.42 $28.74 $29.20 $30.70

$39.06 $26.14 $28.59 $35.50 $31.65 $32.96 $30.40 $28.91 $29.88 $31.45

$35.02 $23.54 $26.15 $31.04 $29.95 $27.57 $26.65 $25.11 $26.02 $27.89

$32.67 $23.58 $24.51 $30.37 $29.04 $27.18 $26.63 $24.45 $24.65 $27.01

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

(191,343) 37,381 (18,227) 126,193 (25,336) 31,084 (3,589) (123,411) 12,483 (154,765)

(50,899) (35,567) (2,390) 11,797 (16,431) 49,563 (21,177) 54,638 9,977 (489)

81,147 70,787 (8,388) 231,887 (48,569) (16,464) 4,882 144,764 (22,694) 437,352

37,295 (25,991) 44,697 (85,126) (2,883) (78,489) 15,633 61,787 19,394 (13,683)

(123,800) 46,610 15,692 284,751 (93,219) (14,306) (4,251) 137,778 19,160 268,415

7,642 56,301 20,630 1,590 17,533 50,221 3,664 20,288 (104,585) 73,284

Asking Lease Rates by Class (FS) Class A

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

$34.52 $27.00 $27.37 $31.05 $27.82 $30.31 $32.00 $28.53 $35.00 $30.40

LEASE RATES (FULL SERVICE) Class B Class C

$26.96 $23.65 $24.03 $27.63 $29.50 $24.96 $23.92 $22.71 $25.05 $25.38

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$20.51 $19.17 $14.10 $20.00 $22.72 $23.98 $18.94 $18.35 $17.77 $19.50

Class A

$10.75 $9.00 $8.00 $9.50 $8.50 $9.00 $10.00 $8.00 $9.50 $9.14

OPERATING EXPENSES* (PSF) Class B Class C

$9.75 $8.00 $7.00 $8.50 $7.50 $8.00 $9.00 $7.00 $8.50 $8.14

$8.75 $7.00 $6.00 $7.50 $6.50 $7.00 $8.00 $6.00 $7.50 $7.14

*Expenses are approximate

Market Area

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PACIFIC REAL ESTATE PARTNERS, INC.

Northend Office Market The Northend Office Market consists of seven submarkets, with 295

HISTORICAL VACANCY RATES & RENTAL RATES

buildings and a total of 8,645,620 SF. The overall vacancy rate is even

16.0%

$27.50

with where it ended in 2010, while average asking rental rates have

14.0%

$26.00

edged down slightly. Year to date net absorption is heading into positive

12.0%

$24.50

territory, with the largest gains in the first quarter in the Woodinville/

10.0%

$23.00

8.0%

$21.50

Mill Creek submarket.

6.0%

2005

2006

2007

2008

2009

Rental Rates (FS)

2010

$20.00

2011

Vacancy Rates

Northend Office Overview INVENTORY Buildings

Market Area

ABSORPTION SF

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

AVERAGE RENT & EXPENSES (FS) Rent NNN

Everett CBD

57

1,708,912

7.4%

0.0%

7.4%

3,935

3,935

$22.14

$4.50

Lynnwood/Edmonds

92

2,791,113

23.6%

0.1%

23.7%

7,947

7,947

$22.72

$5.50

Woodinville/Mill Creek

27

671,368

20.6%

0.0%

20.6%

42,238

42,238

$20.57

$4.50

N Snohomish County

19

361,271

6.7%

0.0%

6.7%

(1,950)

(1,950)

$20.50

$4.50

S Snohomish County

7

227,227

9.3%

0.0%

9.3%

-

-

$20.50

$4.50

S Everett/Harbor Point

43

1,237,737

9.4%

1.7%

11.1%

5,343

5,343

$19.80

$4.50

North Seattle/Northgate

50

1,647,992

10.9%

0.6%

11.5%

18,134

18,134

$22.01

$5.00

NORTHEND OFFICE

295

8,645,620

14.6%

0.4%

15.0%

75,647

75,647

$22.10

$5.19

Historical Total Vacancy 2004

2005

2006

2007

2008

2009

Q1 2010

Q2 2010

Q3 2010

4 2010

Everett CBD

5.0%

6.7%

6.5%

8.9%

5.6%

4.1%

4.9%

5.1%

6.2%

7.7%

7.4%

Lynnwood/Edmonds

17.0%

17.0%

17.7%

18.9%

16.3%

23.0%

24.7%

24.3%

24.5%

24.0%

23.7%

Woodinville/Mill Creek

5.2%

7.9%

10.2%

12.8%

29.3%

30.8%

30.7%

30.5%

28.0%

26.9%

20.6%

N Snohomish County

5.1%

2.8%

3.4%

3.1%

4.4%

5.1%

5.4%

6.5%

5.7%

6.1%

6.7%

S Snohomish County

1.0%

11.0%

13.3%

12.6%

12.0%

8.7%

7.1%

7.1%

11.5%

9.3%

9.3%

S Everett/Harbor Point

13.8%

16.3%

10.7%

9.4%

9.5%

12.0%

12.6%

10.8%

11.7%

11.5%

11.1%

North Seattle/Northgate

9.3%

11.2%

11.5%

9.5%

11.2%

12.8%

12.7%

12.8%

11.8%

12.7%

11.5%

NORTHEND OFFICE

11.1%

12.3%

11.9%

12.4%

12.6%

15.2%

16.0%

15.7%

15.8%

15.9%

15.0%

Historical Rents (FS)

Q1 2011

Prior years as of 4Q

Market Area

Historical Total Absorption

Market Area

2007

2008

2009

2010

Market Area

Q1 2010

Q2 2010

Q3 2010

Q4 2010

2010

Q1 2011

Everett CBD

$24.54

$23.32

$23.43

$23.29

Everett CBD

(14,091)

(3,679)

(17,901)

(25,161)

(60,832)

3,935

Lynnwood/Edmonds

$24.23

$24.15

$22.70

$22.33

Lynnwood/Edmonds

(47,880)

12,372

(5,431)

13,135

(27,804)

7,947

Woodinville/Mill Creek

$26.80

$25.89

$23.26

$22.72

Woodinville/Mill Creek

7,584

1,465

16,830

7,190

33,069

42,238

N Snohomish County

$25.83

$24.87

$21.58

$21.42

N Snohomish County

(1,034)

(4,070)

3,144

(1,685)

(3,645)

(1,950)

S Snohomish County

$26.87

$27.60

$20.41

$28.09

S Snohomish County

3,811

-

(10,168)

5,099

(1,258)

-

S Everett/Harbor Point

$22.46

$22.62

$22.26

$21.92

S Everett/Harbor Point

(7,773)

22,849

(12,110)

2,549

5,515

5,343

North Seattle/Northgate

$26.80

$25.61

$23.12

$22.49

North Seattle/Northgate

1,865

(1,712)

16,847

(14,326)

2,674

18,134

NORTHEND OFFICE

$25.36

$24.87

$22.39

$23.18

NORTHEND OFFICE

(57,518)

27,225

(8,789)

(13,199)

(52,281)

75,647

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Asking Lease Rates by Class (FS) Class A

LEASE RATES (FULL SERVICE) Class B Class C

Class A

OPERATING EXPENSES* (PSF) Class B Class C

-

$26.47

$17.80

-

$5.00

$4.00

$25.34

-

$20.09

$6.50

-

$4.50

Woodinville/Mill Creek

-

$23.02

$18.11

-

$5.00

$4.00

N Snohomish County

-

$22.00

$19.00

-

$5.00

$4.00

S Snohomish County

-

$22.00

$19.00

-

$5.00

$4.00

S Everett/Harbor Point

-

$23.29

$16.31

-

$5.00

$4.00

North Seattle/Northgate

$23.62

$22.48

$19.94

$6.00

$5.00

$4.00

NORTHEND OFFICE

$24.48

$23.21

$18.61

$6.50

$5.00

$4.07

Everett CBD Lynnwood/Edmonds

S EATT LE | B E L L E V U E | TAC O MA | P O RTLAND

*Expenses are approximate

Market Area

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1Q’11 PUGET SOUND MARKET REPORT

Southend Industrial/Flex Market IN DUSTRI A L RE S U RGE N C E The Seattle Industrial Market gained strength in

SOUTHEND INDUSTRIAL/FLEX SUBMARKETS MAP

the first quarter, bolstered by continued growth in the Kent Valley Market. The three market areas of Seattle Industrial, Kent Valley Industrial, and Pierce

SEATTLE

County Industrial have all seen a significant uptick

BELLEVUE

in tenant activity, which bodes well for the rest of 2011.

GEORGETOWN/ DUWAMISH S

Industrial

Market

has

Sou

quarters and has seen very little market activity.

nd

Smurfit leased 86,000 SF at AMB Portside and

TUKWILA

RENTON

get

consistently hovering near 5.8% for the last five

Seattle

LEGEND

SEATAC/ BURIEN

Vashon Island

Regal Aluminum Products - a Boeing supplier -

Southend Industrial/Flex Submarket

purchased a 50,000 SF facility in order to be better

Pierce County Industrial/ Flex Submarket

90

405

Pu

been

GEORGETOWN/ DUWAMISH N

The

WEST SEATTLE

SODO

KENT

5

situated in the region. FEDERAL WAY

The Kent Valley Industrial Market proved to be the winner in the first quarter. They saw nearly 720,000

NORTHEND TACOMA

SF of absorption and a 60 basis point vacancy decline, which helped to greatly strengthen that

PORT OF TACOMA/ FIFE

OTHER PIERCE COUNTY

submarket. The Valley experienced an upsurge in larger space activity in the first quarter, supported

LAKEWOOD

through occupancies by companies such as ULine

PUYALLUP/ SUMNER

and American Tire. There was a significant amount of tenant activity

AUBURN

OTHER PIERCE COUNTY

PARKLAND/ SPANAWAY OTHER PIERCE COUNTY

in the market and many existing tenants continue to seek expansion space, while new companies are looking in the region too. As occupancy levels rise

which could be a well known retailer or Trader Joe’s. If Trader

for the first time in the last eight quarters, and market stability

Joe’s does not take the space they will most likely look at build

returns, institutional buyers and REIT’s are combing the market

to suit opportunities in the Southend market.

looking for well stabilized assets. Unsolicited investment sales

The Southend Industrial Market is poised to see significant

are outpacing market sales approximately 4 to1 in the Southend

positive net absorption in the coming quarters, as there are no

Market.

buildings currently under construction and there are a multitude

The Pierce County Industrial Market has been a consistently

of tenants looking for space. One of the main areas of interest

stable market throughout the recession and continues to show

is the availability of large blocks of space in the Southend. With

signs of strengthening. On the heels of last year’s 444,000 SF

Mega Brands vacating Pacific Coast Corporate Park Phase II,

occupancy of Pepsico in the Port of Tacoma, Sumner Corporate

there are currently only 5 buildings that can support a user of

Park’s 492,000 SF Summit building is rumored to have a tenant,

over 400,000 SF.

S EATT LE | B E L L E V U E | TAC O MA | P O RTLAND

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11


PACIFIC REAL ESTATE PARTNERS, INC.

Seattle Industrial Market The Seattle Industrial Market is comprised of fifteen submarkets, with

HISTORICAL VACANCY RATES & RENTAL RATES

1,278 buildings and a total of 52,187,988 SF. The overall vacany rate

7.0%

$0.46

remains relatively even with the end of 2010, while asking rental rates

6.0%

$0.45

5.0%

$0.44

4.0%

$0.43

negative territory, with the largest loss in the Georgetown/Duawamish

3.0%

$0.42

submarket.

2.0%

$0.41

1.0%

$0.40

are slightly higher. Overall, year to date net absorption remains in

0.0%

2005

2006

2007

2009

Rental Rates

Seattle Industrial Overview INVENTORY Buildings

Market Area

2008

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

$0.39

2011

Vacancy Rates

ABSORPTION SF

2010

UNDER CONSTRUCTION Projects SF

SoDo

239

11,921,392

5.5%

0.0%

5.5%

(42,607)

(42,607)

-

-

Gtown/Duwamish N

284

14,192,975

8.4%

0.2%

8.6%

(64,359)

(64,359)

-

-

Gtown/Duwamish S

141

4,428,407

3.4%

0.2%

3.6%

5,910

5,910

-

-

Ballard

88

2,110,841

3.7%

0.0%

3.7%

10,049

10,049

-

-

West Seattle

72

3,306,501

2.0%

0.0%

2.0%

(14,679)

(14,679)

-

-

Other Seattle Markets*

454

16,227,872

5.1%

0.1%

5.2%

46,389

46,389

-

-

1,278

52,187,988

5.7%

0.1%

5.8%

(59,297)

(59,297)

-

-

SEATTLE INDUSTRIAL

Market Area

2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

SoDo

4.1%

3.2%

3.0%

2.3%

3.9%

3.8%

4.0%

4.1%

4.7%

5.1%

5.5%

Gtown/Duwamish N

8.3%

7.2%

7.6%

6.8%

6.1%

9.6%

8.9%

8.3%

8.6%

8.2%

8.6%

Gtown/Duwamish S

2.0%

7.1%

2.9%

2.3%

4.2%

5.7%

5.7%

5.7%

5.1%

3.7%

3.6%

Ballard

4.2%

4.1%

4.1%

3.0%

2.2%

4.6%

3.2%

4.2%

4.2%

4.2%

3.7%

West Seattle

3.5%

4.1%

1.1%

1.9%

40.0%

1.3%

1.1%

1.3%

2.0%

1.6%

2.0%

Other Seattle Markets*

4.4%

4.2%

2.6%

2.4%

2.8%

5.6%

5.8%

6.3%

5.9%

5.5%

5.2%

SEATTLE INDUSTRIAL

5.1%

5.0%

4.0%

3.6%

3.9%

6.0%

5.8%

5.9%

5.9%

5.7%

5.8%

Historical Total TEUs Market Area

Prior years as of 4Q

Historical Total Vacancy

Historical Total Absorption

2009

2010

2011-YTD

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Port of Seattle

1,584,596

2,139,577

323,569

SoDo

(23,886)

(7,363)

(52,834)

(56,245)

(140,328)

(42,607)

Port of Tacoma

1,545,855

1,455,467

221,193

Gtown/Duwamish N

90,405

82,441

(19,671)

49,936

203,111

(64,359)

PUGET SOUND PORTS

3,130,451

3,595,044

544,762

Gtown/Duwamish S

(2,990)

2,836

26,559

62,547

88,952

5,910

Ballard

30,358

(22,650)

470

-

8,178

10,049 (14,679)

West Seattle

7,500

(7,585)

(23,726)

15,188

(8,623)

Other Seattle Markets*

(36,352)

(78,013)

58,744

71,734

16,113

46,389

SEATTLE INDUSTRIAL

65,035

(30,334)

(10,458)

143,160

167,403

(59,297)

Market Area

SoDo Gtown/Duwamish N Gtown/Duwamish S Ballard West Seattle Other Seattle Markets* SEATTLE INDUSTRIAL

LEASE RATES (NNN) Shell Office

$0.55-$0.75 $0.45-$0.65 $0.45-$0.65 $0.45-$0.65 $0.45-$0.65 $0.45-$0.65 $0.45-$0.75

$0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75

OPERATING EXPENSES* (PSF) NNN Free Rent

$0.08-$0.10 $0.08-$0.10 $0.08-$0.10 $0.08-$0.10 $0.08-$0.10 $0.08-$0.10 $0.08-$0.10

1-4 months 1-4 months 1-4 months 1-4 months 1-4 months 1-4 months 1-4 months

*Rates/expenses are approximate

Gross Asking Lease Rates by Class

*Other Seattle Markets Includes: Seattle, CBD, Belltown/Denny,Capitol Hill/Central,Fremont,Lake Union,Magnolia/Queen Anne,Rainier/Beacon Hill,U. District, Waterfront

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1Q’11 PUGET SOUND MARKET REPORT

Kent Valley Industrial Market The Kent Valley Industrial Market is comprised of six submarkets, with

HISTORICAL VACANCY RATES & RENTAL RATES

1,573 buildings and a total of 111,721,944 SF. The overall vacany rate has

9.0%

dropped slightly since the end of 2010, while shell asking rates remain

7.0%

nearly the same. The Valley experienced strong positive net absorption

5.0%

during the first quarter, totaling 720,795S SF, with the largest gain in the

3.0%

Auburn submarket.

1.0%

$0.40 $0.30 $0.20

0.0%

$0.10

2005

2006

2008

2009

Rental Rates

Kent Valley Industrial Overview INVENTORY Buildings

Market Area

2007

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

$0.00

2011

Vacancy Rates

ABSORPTION SF

2010

UNDER CONSTRUCTION Projects SF

Auburn

317

23,832,799

3.7%

1.3%

5.0%

602,850

602,850

-

-

Federal Way

53

1,855,596

18.0%

0.0%

18.0%

(7,852)

(7,852)

-

-

Kent

711

49,514,780

9.0%

0.7%

9.7%

227,222

227,222

-

-

Renton

152

13,171,517

2.8%

4.4%

7.2%

(39,643)

(39,643)

-

-

Seatac/Burien

88

3,824,949

9.2%

0.2%

9.4%

10,454

10,454

-

-

Tukwila

252

19,522,303

4.8%

0.9%

5.7%

(72,236)

(72,236)

-

-

1,573

111,721,944

6.5%

1.3%

7.8%

720,795

720,795

-

-

KENT VALLEY INDUSTRIAL

Historical Total Vacancy 2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

Auburn

5.2%

4.8%

3.9%

6.0%

3.8%

4.2%

6.2%

7.9%

7.8%

7.4%

5.0%

Federal Way

4.3%

2.4%

2.1%

2.6%

3.0%

7.6%

8.6%

7.1%

6.8%

18.2%

18.7%

Kent

9.1%

7.1%

5.5%

4.1%

3.8%

8.8%

9.1%

9.5%

9.7%

10.2%

9.7%

Renton

5.6%

2.9%

3.6%

1.1%

1.4%

7.6%

7.8%

7.5%

7.4%

6.8%

7.2%

Seatac/Burien

8.3%

8.3%

5.0%

4.3%

12.2%

13.2%

11.1%

11.4%

10.0%

10.0%

9.7%

Tukwila

5.1%

5.3%

4.9%

5.1%

3.3%

5.6%

5.2%

5.2%

5.2%

5.2%

5.7%

KENT VALLEY INDUSTRIAL

7.1%

5.8%

4.8%

4.3%

3.7%

7.2%

7.7%

8.2%

8.2%

8.4%

7.8%

Historical Total TEUs Market Area

1Q 2011

Prior years as of 4Q

Market Area

Historical Total Absorption

2009

2010

2011-YTD

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Port of Seattle

1,584,596

2,139,577

323,569

Auburn

(459,711)

(412,586)

38,110

26,593

(807,594)

602,850

Port of Tacoma

1,545,855

1,455,467

221,193

Federal Way

(17,347)

27,321

5,067

(204,912)

(189,871)

(7,852)

PUGET SOUND PORTS

3,130,451

3,595,044

544,762

Kent

(151,091)

(186,275)

(63,492)

(278,488)

(679,346)

227,222

Renton

(20,599)

41,020

3,807

78,705

102,933

(39,643)

Seatac/Burien

77,332

(12,374)

51,266

2,313

118,537

10,454

Tukwila

79,398

(1,715)

15,102

(14,834)

77,951

(72,236)

(492,018)

(544,609)

49,860

(390,623)

(1,377,390)

720,795

KENT VALLEY

Market Area

Auburn Federal Way Kent Renton Seatac/Burien Tukwila KENT VALLEY INDUSTRIAL

LEASE RATES (NNN) Shell Office

$0.32-$0.38 $0.32-$0.38 $0.32-$0.40 $0.34-$0.40 $0.42-$0.50 $0.34-$0.40 $0.32-$0.50

$0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75

S EATT LE | B E L L E V U E | TAC O MA | P O RTLAND

OPERATING EXPENSES* (PSF) NNN Free Rent

$0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14

3-5 months 3-5 months 3-5 months 3-5 months 3-5 months 3-5 months 3-5 months

*Rates/expenses are approximate

Gross Asking Lease Rates by Class

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13


PACIFIC REAL ESTATE PARTNERS, INC.

Pierce County Industrial Market The Pierce County Industrial Market is comprised of thirteen submarkets,

HISTORICAL VACANCY RATES & RENTAL RATES

with 1,136 buildings and a total of 61,993,353 SF. The overall vacany rate

10.0%

remains even with where the year ended in 2010, while asking rental

8.0%

rates have edged up slightly. Overall, year to date net absorption was

6.0%

$0.30

negative in most areas, with the only positive gains in the Tacoma CBD

4.0%

$0.29

and several smaller outlying submarkets.

2.0%

$0.33 $0.32 $0.31

$0.28 $0.27

0.0%

2005

2006

2008

2009

Rental Rates

Pierce County Industrial Overview INVENTORY Buildings

Market Area

2007

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

$0.26

2011

Vacancy Rates

ABSORPTION SF

2010

UNDER CONSTRUCTION Rent NNN

Port of Tacoma/Fife

284

18,853,834

7.9%

0.0%

7.9%

(117,842)

(117,842)

-

-

Lakewood

108

4,770,761

7.5%

0.1%

7.6%

(139,305)

(139,305)

-

-

North End Tacoma

67

2,112,040

4.7%

0.0%

4.7%

(15,600)

(15,600)

-

-

Spanaway

56

3,432,830

6.2%

0.0%

6.2%

(9,301)

(9,301)

-

-

Puyallup/Sumner

268

20,907,468

13.6%

0.0%

13.6%

(10,302)

(10,302)

-

-

Tacoma CBD

49

1,435,574

11.2%

0.0%

11.2%

37,630

37,630

-

-

Other Pierce County Markets*

304

10,480,846

3.6%

0.5%

4.1%

34,562

34,562

-

-

PIERCE COUNTY INDUSTRIAL

1,136

61,993,353

9.0%

0.1%

9.1%

(220,158)

(220,158)

-

-

2004

2005

2006

2007

2008

2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Port of Tacoma/Fife

5.6%

3.2%

3.3%

4.8%

8.5%

9.0%

8.9%

9.4%

9.6%

7.3%

7.9%

Lakewood

6.3%

5.2%

13.9%

7.8%

4.0%

4.5%

4.8%

4.4%

4.3%

4.8%

7.6%

North End Tacoma

1.2%

2.6%

1.9%

2.6%

2.1%

4.1%

4.2%

3.9%

3.9%

4.0%

4.7%

Spanaway

11.3%

2.1%

0.8%

10.8%

11.9%

5.6%

5.5%

5.4%

6.0%

5.9%

6.2%

Puyallup/Sumner

4.0%

8.3%

6.2%

11.3%

14.5%

12.4%

13.4%

12.2%

13.3%

13.0%

13.6%

Tacoma CBD

5.0%

4.3%

6.8%

7.0%

5.5%

11.4%

11.6%

13.3%

14.0%

13.8%

11.2%

Other Pierce County Markets*

3.9%

4.2%

5.2%

2.3%

4.9%

4.7%

6.4%

5.6%

4.2%

4.4%

4.1%

PIERCE COUNTY INDUSTRIAL

5.0%

4.8%

5.4%

6.9%

9.4%

8.8%

9.4%

9.0%

9.2%

9.1%

9.1%

Historical Total TEUs Market Area

Prior years as of 4Q

Historical Total Vacancy Market Area

Historical Total Absorption

2009

2010

2011-YTD

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Port of Seattle

1,584,596

2,139,577

323,569

Market Area

Port of Tacoma/Fife

33,660

(29,872)

290,444

430,998

725,230

(117,842)

Port of Tacoma

1,545,855

1,455,467

221,193

Lakewood

(14,500)

20,343

6,598

(23,588)

(11,147)

(139,305)

PUGET SOUND PORTS

3,130,451

3,595,044

544,762

North End Tacoma

(1,140)

4,800

600

(1,050)

3,210

(15,600)

Spanaway

2,308

5,616

(20,051)

1,752

(10,375)

(9,301)

(133,583)

244,057

(227,487)

74,350

(42,663)

(10,302) 37,630

Puyallup/Sumner Tacoma CBD

(3,360)

(23,070)

(10,468)

1,932

(34,966)

Other Pierce County Markets*

(177,942)

88,890

146,945

(29,623)

28,270

34,562

PIERCE COUNTY INDUSTRIAL

(294,557)

310,764

186,581

454,771

657,559

(220,158)

Gross Asking Lease Rates by Class

Port of Tacoma/Fife Lakewood North End Tacoma Spanaway Puyallup/Sumner Tacoma CBD Other Pierce County Markets* PIERCE COUNTY INDUSTRIAL

LEASE RATES (NNN) Shell Office

$0.28-$0.36 $0.28-$0.36 $0.28-$0.36 $0.28-$0.36 $0.28-$0.36 $0.28-$0.36 $0.26-$0.32 $0.28-$0.36

$0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75

OPERATING EXPENSES* (PSF) NNN Free Rent

$0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14 $0.09-$0.14

3-6 months 3-6 months 3-6 months 3-6 months 3-6 months 3-6 months 3-6 months 3-6 months

Rates/expenses are approximate

Market Area

*Other Pierce County Markets Includes: Dupont,E Pierce,E Tacoma,Fort Lewis,Gig Harbor,University Place, E Pierce

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1Q’11 PUGET SOUND MARKET REPORT

Eastside and Northend Industrial/Flex Market STABLE AN D GROW IN G The Eastside and Northend Industrial/Flex Markets were relatively quiet in the first quarter of 2011, with a rise in vacancy

EASTSIDE AND NORTHEND INDUSTRIAL/FLEX SUBMARKETS MAP

in the Eastside and minimal change in the Northend. The Eastside market, in particular, has seen significant tenant activity and growth in the high tech and bio tech sector, with a multitude of tenants continuing to scour the market for expansion space. Rental rates, vacancy, absorption and concessions were mostly et S oun d

activity continues to be steady, which bodes well for further

5

Pug

indicator of market stability. As we head into the second quarter

EVERETT

MUKIL TEO

unchanged during the first quarter, which can be an early

growth and an anticipated recovery.

MONROE

During the recent recession, one of the primary methods used LYNNWOOD

by landlords to combat falling rental rates on their properties was to offer additional concessions. Most landlords were giving

BOTHELL

more than would normally be offered in both free rent and tenant

WOODINVILLE

5

improvements to entice tenants and maintain reasonable rental

405

rates. Since the margin now needs to be closed, it is anticipated we will see a decline in concessions before rental rates start to rise again. will strengthen as occupancies occur for leases signed this the market are looking for space down the road as well, with

Wa s

hin

Looking ahead to later in 2011 we forecast the markets 520

SEATTLE

Lake

quarter and market momentum continues. Tenants currently in

REDMOND

gto

n

KIRKLAND

90

occupancies to occur in 2012 or 2013.

BELLEVUE

BELLEVUE

The recent Boeing tanker contract award, along with Boeing ramping up production across their entire line is great news for

West Seattle

ISSAQUAH

the Eastside and Northend Industrial Markets. Boeing is also bringing more of their work back in-house, which is expected to help the Eastside and Northend Industrial Markets significantly. It is expected that there will be noticeable growth among the vendors and suppliers that service Boeing in 2011-2012.

LEGEND Northend Industrial Submarket Eastside Industrial Submarket

There is continued optimism that absorption is around the corner and market growth is likely. Although it may be slow, the Northend and Eastside Industrial/Flex Markets will eventually benefit greatly from Boeing’s ramp up. For right now though, we will have to settle for stability and moderate growth.

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PACIFIC REAL ESTATE PARTNERS, INC.

Eastside and Northend Industrial Market The Eastside and Northend Industrial Markets consist of ten submarkets,

HISTORICAL VACANCY RATES

with 724 buildings and a total of 28,944,690 SF. The overall vacancy rate

16.0%

in the Eastside Market edged up slightly from the end of 2010, while

14.0%

remaining even in the Northend Market. Asking rental rates remain

12.0%

farily consistent with 2010 rates. The largest number of signed leases,

10.0%

year to date, have been in the Woodinville and Redmond submarkets,

8.0%

while Woodinville and Mukilteo have seen the largest gains in positive

6.0% 4.0%

net absorption since the beginning of the year.

2005

2006

2007

Eastside and Northend Industrial Overview Market Area

INVENTORY Buildings SF

2008

2009

2010

2011

Vacancy Rates ABSORPTION

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

AVERAGE RENT & EXPENSES Shell Office

CONCESSIONS Shell

Bothell

31

1,096,891

4.4%

1.6%

6.0%

(45,356)

(45,356)

$0.50-$0.60

$1.00-$1.20

4-6 months

Woodinville

136

5,395,595

9.9%

0.3%

10.2%

27,517

27,517

$0.45-$0.60

$0.95-$1.20

4-6 months

Kirkland

43

1,576,880

10.0%

1.3%

11.3%

(5,480)

(5,480)

$0.45-$0.60

$0.95-$1.25

4-5 months

Monroe

48

1,590,449

21.0%

2.3%

23.3%

(4,917)

(4,917)

$0.40-$0.55

$0.95-$1.15

4-7 months

Redmond

104

3,829,067

9.2%

0.5%

9.7%

1,148

1,148

$0.50-$0.60

$1.00-$1.25

3-6 months

Bellevue

69

2,909,088

7.5%

0.0%

7.5%

(98,691)

(98,691)

$0.50-$0.65

$1.10-$1.25

3-5 months

Issaquah

14

719,574

7.1%

0.0%

7.1%

(2,757)

(2,757)

$0.50-$0.65

$1.10-$1.25

3-6 months

EASTSIDE INDUSTRIAL

445

17,117,544

9.9%

0.6%

10.5%

(128,536)

(128,536)

$0.45-$0.65

$0.95-$1.25

3-7 months

Everett

157

7,859,901

12.6%

0.4%

13.0%

(15,353)

(15,353)

$0.45-$0.60

$1.10-$1.25

3-6 months

Mukilteo

59

2,201,977

18.4%

0.0%

18.4%

30,651

30,651

$0.50-$0.65

$1.10-$1.25

3-6 months

Lynnwood

63

1,765,268

6.3%

0.8%

7.1%

(14,442)

(14,442)

$0.50-$0.65

$1.10-$1.25

3-6 months

NORTHEND INDUSTRIAL

279

11,827,146

12.7%

0.4%

13.1%

856

856

$0.45-$0.65

$1.10-$1.25

3-6 months

Historical Total Vacancy 2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

Bothell

18.8%

18.1%

13.6%

2.8%

0.3%

0.0%

0.0%

0.0%

1.6%

1.8%

6.0%

Woodinville

14.1%

11.9%

8.1%

4.9%

4.6%

10.9%

11.1%

10.2%

11.3%

10.7%

10.2%

Kirkland

32.0%

12.7%

3.1%

10.8%

3.7%

14.4%

13.8%

13.7%

10.7%

10.9%

11.3%

Monroe

3.6%

3.6%

8.1%

10.4%

8.9%

24.2%

25.8%

24.8%

23.1%

23.0%

23.3%

Redmond

10.2%

9.5%

5.0%

3.9%

4.3%

8.9%

7.9%

9.0%

9.9%

9.7%

9.7%

Bellevue

6.5%

4.1%

22.2%

12.2%

5.2%

5.4%

3.9%

2.0%

2.7%

4.2%

7.5%

Issaquah

42.2%

32.5%

22.5%

10.1%

6.4%

6.9%

6.7%

7.0%

7.0%

6.7%

7.1%

EASTSIDE INDUSTRIAL

13.9%

10.4%

10.3%

7.4%

4.7%

10.2%

9.9%

9.4%

9.8%

9.8%

10.5%

Everett

18.0%

15.9%

18.7%

9.2%

11.2%

15.7%

16.3%

14.9%

14.2%

12.8%

13.0%

Mukilteo

17.2%

16.0%

13.9%

10.8%

9.4%

11.6%

13.4%

14.6%

20.2%

19.8%

18.4%

Lynnwood

6.7%

12.0%

7.0%

7.0%

4.8%

7.5%

7.4%

6.9%

7.1%

6.3%

7.1%

NORTHEND INDUSTRIAL

16.0%

15.3%

15.8%

9.1%

9.9%

13.7%

14.4%

13.6%

14.2%

13.1%

13.1%

Historical Leasing Activity Market Area

Historical Total Absorption

2010 Leases

2010 SF

YTD 2011 Leases

YTD 2011 SF

Bothell

2

24,311

2

9,000

Bothell

Woodinville

46

313,272

11

62,905

Kirkland

18

98,863

1

Monroe

13

94,970

Redmond

20

115,136

Bellevue

29

221,443

Issaquah

1Q 2011

Prior years as of 4Q

Market Area

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

-

-

(17,096)

(2,998)

(20,094)

(45,356)

Woodinville

(9,312)

48,213

(60,658)

33,796

12,039

27,517

7,125

Kirkland

8,667

1,019

48,200

(3,878)

54,008

(5,480)

1

4,100

Monroe

(26,262)

15,646

26,925

2,318

18,627

(4,917)

8

188,180

Redmond

39,921

(41,961)

(34,139)

4,878

(31,301)

1,148

7

45,046

Bellevue

44,807

52,599

(17,922)

(43,489)

35,995

(98,691)

Issaquah

1,790

(2,540)

-

2,190

1,440

(2,757)

EASTSIDE INDUSTRIAL

59,611

72,976

(54,690)

(7,183)

70,714

(128,536) (15,353)

5

18,220

1

2,540

EASTSIDE INDUSTRIAL

133

886,215

31

318,896

Everett

39

643,109

3

9,201

Everett

(45,322)

111,190

54,107

110,737

230,712

Mukilteo

9

31,970

1

3,705

Mukilteo

(39,185)

(26,092)

(124,594)

8,333

(181,538)

30,651

Lynnwood

14

60,244

-

-

Lynnwood

1,481

10,202

(4,977)

15,165

21,871

(14,442)

NORTHEND INDUSTRIAL

62

735,323

4

12,906

(83,026)

95,300

(75,464)

134,235

71,045

856

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NORTHEND INDUSTRIAL

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1Q’11 PUGET SOUND MARKET REPORT

Eastside and Northend Flex Market The Eastside and Northend Flex Markets are comprised of nine submarkets, with 360 buildings and a total of 12,157,024 SF. The overall vacancy rate in the Eastside Market edged up slightly from the end of 2010, while remaining even in the Northend Market. Asking rental rates remain farily consistent with 2010 rates. The largest number of signed leases, year to date, has been in the Redmond submarket and the Woodinvillesubmarket saw the largest gain in positive net absorption

HISTORICAL VACANCY RATES 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

since the beginning of the year.

2005

2006

2007

Eastside and Northend Flex Overview Market Area

2008

2009

2010

2011

Vacancy Rates

INVENTORY Buildings SF

ABSORPTION Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

AVERAGE RENT & EXPENSES Shell Office

CONCESSIONS Shell

Bothell

56

2,704,864

20.3%

1.4%

21.7%

9,948

9,948

$0.50-$0.60

$1.10-$1.25

1-3 months

Woodinville

13

409,282

8.7%

4.4%

13.1%

20,564

20,564

$0.50-$0.60

$1.00-$1.25

3-6 months

Kirkland

43

1,264,755

22.3%

0.0%

22.3%

(21,515)

(21,515)

$0.50-$0.65

$1.10-$1.25

1-3 months

Redmond

129

4,036,594

13.9%

0.9%

14.8%

(28,012)

(28,012)

$0.50-$0.65

$1.10-$1.25

2-4 months

Bellevue

47

1,219,958

16.2%

0.0%

16.2%

(8,516)

(8,516)

$0.50-$0.65

$1.10-$1.25

3-5 months

Issaquah

12

267,600

4.4%

0.0%

4.4%

1,916

1,916

$0.50-$0.65

3-5 months

EASTSIDE FLEX

300

9,903,053

16.5%

0.9%

17.4%

(25,615)

(25,615)

$0.50-$0.65

$1.10-$1.25 $1.00-$1.25

Everett

18

1,191,111

10.7%

8.4%

19.1%

8,606

8,606

$0.50-$0.60

$1.05-$1.25

3-6 months

Mukilteo

13

594,296

13.3%

0.0%

13.3%

-

-

$0.50-$0.60

$1.05-$1.25

3-6 months

Lynnwood

29

468,564

12.4%

0.0%

12.4%

(8,199)

(8,199)

$0.50-$0.60

$1.05-$1.25

3-6 months

NORTHEND FLEX

60

2,253,971

11.8%

4.4%

16.2%

407

407

$0.50-$0.60

$1.05-$1.25

3-6 months

1-5 months

2004

2005

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

Bothell

25.9%

23.3%

19.1%

14.8%

21.5%

23.1%

22.7%

21.4%

20.1%

21.1%

21.7%

Woodinville

8.4%

2.8%

8.0%

9.8%

9.6%

8.3%

8.6%

9.5%

18.1%

18..1%

13.1%

Kirkland

18.3%

17.1%

13.9%

12.7%

16.1%

22.2%

20.6%

19.8%

19.9%

20.6%

22.3%

Redmond

26.7%

24.8%

11.6%

8.4%

7.6%

11.7%

11.9%

12.7%

13.9%

14.2%

14.8%

Bellevue

10.0%

8.8%

8.7%

11.4%

10.5%

17.0%

18.3%

18.4%

16.1%

15.5%

16.2%

Issaquah

33.6%

1.9%

4.7%

13.5%

8.6%

6.0%

6.6%

4.9%

4.5%

5.1%

4.4%

EASTSIDE FLEX

22.7%

19.9%

13.3%

11.2%

12.9%

16.5%

16.4%

16.3%

16.5%

16.9%

17.4%

Everett

13.6%

15.9%

10.2%

14.9%

8.8%

8.1%

8.5%

8.5%

20.2%

19.9%

19.1%

Mukilteo

58.6%

36.6%

16.2%

15.3%

13.7%

20.5%

20.5%

20.5%

13.3%

13.3%

13.3%

Lynnwood

20.1%

17.2%

11.3%

7.2%

6.7%

12.1%

15.0%

14.7%

10.8%

10.6%

12.4%

NORTHEND FLEX

28.5%

25.0%

19.9%

10.4%

9.7%

12.2%

13.0%

12.9%

16.4%

16.2%

16.2%

Historical Leasing Activity Market Area

Prior years as of 4Q

Historical Total Vacancy Market Area

Historical Total Absorption

2010 Leases

2010 SF

YTD 2011 Leases

YTD 2011 SF

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

Bothell

42

223,637

5

11,856

Bothell

6,782

36,050

36,087

(26,113)

52,806

9,948

Woodinville

6

8,194

6

7,083

Woodinville

(1,269)

(3,758)

(35,660)

515

(40,172)

20,564

Kirkland

18

58,040

5

13,068

Kirkland

21,106

10,192

(1,560)

(8,657)

21,081

(21,515)

Redmond

82

231,921

14

44,466

Redmond

(5,347)

(33,978)

(46,613)

(12,515)

(98,453)

(28,012)

Bellevue

35

106,785

6

12,726

Bellevue

(15,308)

(1,588)

27,864

7,562

18,530

(8,516)

Issaquah

4

8,797

1

1,916

Issaquah

(1,613)

4,533

1,000

(1,547)

2,373

1,916

187

637,374

37

91,115

EASTSIDE FLEX

4,351

11,451

(18,882)

(40,755)

(43,835)

(25,615)

Everett

8,606

EASTSIDE FLEX

Market Area

1Q 2011

Everett

6

25,180

1

5,286

(3,806)

-

(140,221)

4,476

(139,551)

Mukilteo

10

232,645

-

-

Mukilteo

-

-

42,534

(76)

42,458

-

Lynnwood

24

42,109

3

2,311

Lynnwood

(13,813)

1,338

18,535

759

6,819

(8,199)

NORTHEND FLEX

40

299,934

4

7,597

NORTHEND FLEX

(17,619)

1,338

(79,152)

5,159

(90,274)

407

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PACIFIC REAL ESTATE PARTNERS, INC.

Puget Sound Retail Market CO NSUM E RS RE T U RN The Puget Sound Retail Market has been

PUGET SOUND RETAIL SUBMARKETS MAP

consistently strong over the last five years, maintaining an overall vacancy rate of less than

5

7%. EVERETT CBD

An expanding population and strong regional employment both help to bolster this vital

S SNOHOMISH COUNTY

S EVERETT/ HARBOR POINTE Puget Sound

component of our regional economy. The Seattle Retail Marketplace continues to be strong and has not seen a vacancy rate above

EDMONDS/ LYNNWOOD

5% in the last five years. The core Seattle Retail

MILL CREEK/ WOODINVILLE

BOTHELL

405

Market, with its strong tenant mix and limited amount of available space, enables retailers to capitalize on the business traffic during the day and the surrounding residential communities during the evening hours. Retail centers such as Westlake Center and Pacific Place have seen a consistently higher flow of traffic since the holiday season and can begin to fully capitalize

NORTHGATE/ N SEATTLE

KIRKLAND

BALLARD/ U DISTRICT

QUEEN ANNE/ MAGNOLIA

520 CORRIDOR SUBURBAN BELLEVUE BELLEVUE CBD I-90 CORRIDOR

REDMOND

520

LAKE UNION

SEATTLE BELLEVUE

CAPITAL HILL/ CENTRAL DIST. BELLTOWN SEATTLE CBD

MERCER ISLAND

S SEATTLE

PIONEER SQ/ WATERFRONT

on growing consumer confidence and spending.

COAL CREEK/ ISSAQUAH

90

RENTON/TUKWILA

The Eastside Retail Market’s stability in the SEATAC/ BURIEN

Bellevue CBD is driven by Bellevue Square and Lincoln Square, which was recently approved for

KENT

5

a 1.6M SF expansion by The City of Bellevue.

LEGEND

Consumer activity will remain strong as the

Northend Retail Submarkets FEDERAL WAY/ AUBURN

number of Microsoft employees now working and living within blocks of this retail center continues to grow.

Eastside Retail Submarkets Seattle Retail Submarkets Pierce County Retail Submarkets

TACOMA

In addition to the retail core of downtown Bellevue,

suburban

retail

centers

such

as

needs, there will be an increased demand for retail areas that

Issaquah’s Pickering Place have also seen expansion, with

can support a growing population.

companies like Costco growing its presence in the area and

The Tacoma Retail Market has been flat in the last year with

expanding its headquarters.

little change. However, with a high volume of returning soldiers

The Northend and Southend Retail Markets have also

to JBLM, retail growth can be expected. One of the areas of

been experiencing positive growth. These traditionally more

note will be Point Ruston, a mixed use retail community on

suburban areas will see heightened activity as Boeing ramps up

Tacoma’s northwestern waterfront. The site will feature retail,

to begin production on their newly acquired tanker contract. As

restaurants, a movie theater, hotel and a mile long boardwalk

more suppliers move to these areas to accommodate Boeing’s

along the waterfront.

S EATT LE | B E L L E V U E | TAC O MA | P O RTLAND

www.pacific-re .co m

(425) 9 7 4 -4 0 0 0

|

18


1Q’11 PUGET SOUND MARKET REPORT

Puget Sound Retail Market M A RKET S TAT IS T IC S A ND HIS TORI CA L T RE N D S

HISTORICAL VACANCY RATES & RENTAL RATES 7.0%

$25.00

6.0%

$20.00

5.0% 4.0%

$15.00

3.0%

$10.00

2.0% $5.00

1.0% 0.0%

2006

2007

2009

Rental Rates

Puget Sound Retail Overview Market Area

2008

INVENTORY Buildings

Direct Vacancy

Sublet Vacancy

Total Vacancy

1Q

YTD

$0.00

2011

Vacancy Rates

ABSORPTION SF

2010

AVERAGE RENT & EXPENSES Rent NNN

Downtown Seattle

3,105

32,347,157

3.3%

0.1%

3.4%

69,737

69,737

$19.68

$8.00

Eastside

1,827

30,807,169

6.6%

0.2%

6.8%

71,808

71,808

$21.85

$8.00

Northend

2,675

38,769,069

6.4%

0.4%

6.8%

83,585

83,585

$17.26

$5.50

Southend

1,753

29,476,356

7.6%

0.4%

8.0%

(19,699)

(19,699)

$16.20

$4.50

Tacoma

3,841

39,907,053

7.2%

0.1%

7.3%

(47,996)

(47,996)

$15.73

$4.50

PUGET SOUND

13,201

171,306,804

6.2%

0.2%

6.4%

157,435

157,435

$18.14

$6.10

2006

2007

2008

2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

Downtown Seattle

3.7%

3.7%

3.5%

4.8%

4.7%

4.8%

4.0%

3.7%

3.4%

Eastside

4.5%

4.2%

4.8%

7.1%

7.2%

6.8%

7.0%

7.0%

6.8%

Northend

4.7%

3.8%

4.0%

5.9%

6.2%

6.4%

6.7%

6.9%

6.8%

Southend

4.9%

5.5%

6.4%

7.9%

8.2%

8.0%

7.7%

7.9%

8.0%

Tacoma

5.0%

4.4%

5.8%

7.0%

6.8%

6.9%

7.0%

7.2%

7.3%

PUGET SOUND

4.6%

4.3%

4.9%

6.5%

6.6%

6.6%

6.5%

6.6%

6.4%

Historical Rents (NNN) Market Area

Prior years as of 4Q

Historical Total Vacancy Market Area

Historical Total Absorption

2007

2008

2009

2010

Market Area

1Q 2010

2Q 2010

3Q 2010

4Q 2010

2010

1Q 2011

Downtown Seattle

$23.42

$24.42

$22.23

$20.20

Downtown Seattle

52,818

(35,163)

240,011

115,984

373,650

69,737

Eastside

$34.09

$31.95

$24.98

$21.88

Eastside

(8,828)

140,907

(59,179)

876

73,776

71,808

Northend

$20.93

$20.77

$17.94

$17.64

Northend

(111,073)

(31,665)

(103,473)

(73,047)

(319,258)

83,585

Southend

$22.05

$19.93

$17.11

$16.30

Southend

(54,498)

69,567

75,703

(64,013)

26,759

(19,699)

Tacoma

$18.52

$18.34

$16.77

$15.82

Tacoma

71,862

(25,405)

(36,309)

(74,142)

(63,994)

(47,996)

PUGET SOUND

$23.80

$23.08

$19.81

$18.37

PUGET SOUND

(49,719)

118,241

116,753

(94,342)

90,933

157,435

Average Asking Lease Rates Market Area

LEASE RATES (FULL SERVICE) Rent NNN

OPERATING EXPENSES* (PSF) TI's Parking

Downtown Seattle

$19.68

$8.00

$10-$20/SF

Free

Eastside

$21.85

$8.00

$15-$30/SF

Free

Northend

$17.26

$5.50

$10-$25/SF

Free

Southend

$16.20

$4.50

$10-$25/SF

Free

Tacoma

$15.73

$4.50

$10-$20/SF

Free

PUGET SOUND

$18.14

$6.10

$10-$30/SF

Free

S EATT LE | B E L L E V U E | TAC O MA | P O RTLAND

www.pacific-re .co m

(425) 9 7 4 -4 0 0 0

|

19


SEATTLE BELLEVUE

TACOMA

Founded in 1993, Pacific Real Estate Partners (PREP) has over 35 brokers in four offices serving

WASHINGTON

the Seattle, Bellevue, Tacoma, Washington and Portland, Oregon markets. Providing client-centered and value-driven real estate services to clients throughout the Pacific Northwest and beyond, we represent tenants, landlords, and investors in the office, industrial, investment sales, and retail sectors.

PORTLAND OUR BROKERS: SEATTLE:

EASTSIDE:

PORTLAND:

David Abbott

Bill Cooper

Buzz Ellis, SIOR

Ann Chamberlin

Mark Flippo

Mark Friel

Tony Ford

Chris Hughes

Kristin Hammond

Laura Ford

Brent Jackson

John Lee

Lori Hill

Charlie Malley

Mark McFarland, SIOR

Greg Inglin

Steve Schwartz

Paige Morgan

Erwin Park

Daniel Seger

Tom Shimota

Wyk Parker

JJ Shephard

Jeff Sholian, SIOR

Nate White

Gabe Smith

Josh Stohr

Stuart Williams

Joe Vaughan

SOUTHEND:

TACOMA:

Les Boudwin, SIOR

Steve Crantz

Scott Carter

Mike Horner

Andrew Stark

Andrew Miller

Casey Trees

www.pacific-re.com | (503) 972-8000

OREGON


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