2Q’11 PUGET SOUND MARKET REPORT
Eastside and Northend Office Market EA STSI D E SO L I D I F I ES SEATTLE BELLEVUE
The Eastside and Northend office markets both continued to see a significant rise in activity in the second quarter of 2011. The majority of the activity was attributable to the Eastside suburban
TACOMA
markets, as occupancies of leases executed during previous quarters went into effect. Overall, rents are stabilizing, tenant
Founded in 1993, Pacific Real Estate Partners (PREP) has over 35 brokers in four offices serving
EASTSIDE AND NORTHEND OFFICE SUBMARKETS LEGEND Northend Office Submarkets Eastside Office Submarkets 5
concessions are decreasing and vacancy rates continue to drop.
WASHINGTON
EVERETT CBD
As we reach the mid-year point of 2011 it appears as though
the Seattle, Bellevue, Tacoma, Washington and
market tension is easing as tenant activity continues to gain
Portland, Oregon markets. Providing client-centered
momentum. Transaction volume on the Eastside has gained
and value-driven real estate services to clients
strength with nearly 250 lease transactions, accounting for more
throughout the Pacific Northwest and beyond, we
than one million square feet already inked in 2011.
represent tenants, landlords, and investors in the
Investment activity also experienced an uptick on the
office, industrial, investment sales, and retail sectors.
Eastside, with eight office building sales totaling $342M in just
S SNOHOMISH COUNTY S EVERETT/ HARBOR POINTE
EDMONDS/ LYNNWOOD
MILL CREEK/ WOODINVILLE
BOTHELL
over 900,000 SF. The highlight of the second quarter was the sale of the 488,000 SF Class A office building, Key Center, to Kilroy PORTLAND
Realty Corporation for $217M ($444/SF). Rental rates, vacancy, absorption and concessions saw their
EASTSIDE BROKERS: Bill Cooper
biggest transition in the second quarter. Indicators of climbing
Mark Flippo
market strength were 513,000 SF of absorption, a 1.7% vacancy
Chris Hughes
drop, rental rates holding steady and concessions from landlords
Brent Jackson Charlie Malley
OREGON
beginning to decrease. Leasing was strong throughout most of the submarkets and
Steve Schwartz
was highlighted by Expedia’s expansion into 54,000 SF at Bellevue
Daniel Seger
CBD’s Skyline Tower. With rental rates stabilizing, absorption
JJ Shephard
increasing and concessions shrinking, the Eastside office market
Gabe Smith
is getting closer to market equilibrium. While the landscape of
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the market is starting to shift there are still opportunities for
amount of prospective tenant activity.
tenants; however if a move or expansion is needed, the window
As expected, the high tech, professional services and
of opportunity in this market is shrinking.
biomedical industries are growing and will continue to have the
Heading into the second half of 2011 the Eastside office market
greatest demand for this type of product. With the stabilization
will continue to have one primary challenge: the diminishing
of rental rates and vacancy inching closer to lower levels the
supply of available space for tenants that require contiguous
Eastside office market may once again begin to see office
large blocks. Prior quarter’s increased tenant activity and the lack
development sites become active.
of new development will combine to put a strain on contiguous
While any new speculative development most likely wouldn’t
blocks of space that are 75,000 SF or greater. Currently, there
hit the market until 2013 there are emerging signs that the
are only 10 buildings on the Eastside that can deliver this type
Eastside office market is solidifying and those market indicators
of commodity, many of which are already experiencing a healthy
may be the foundation that developers need to move forward.
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SEATTL E | B E L L E VUE | TACO M A | P O RT L AN D
2Q’11 PUGET SOUND MARKET REPORT
2Q’11 PUGET SOUND MARKET REPORT
Eastside Office Market
Northend Office Market The Northend office market is comprised of 298 properties and is
HISTORICAL VACANCY RATES & RENTAL RATES
of 668 office buildings that total nearly 35 million square feet. Over the
18.0%
$35.00
spread throughout seven submarkets, representing a total of just over
second quarter the overall vacancy rate declined nearly 2%, positive net
15.0%
$30.00
8.6 million square feet. Although there was no change to the overall
absorption increased just over 513,000 square feet and overall average
12.0%
$25.00
9.0%
rental rates increased close to 11.6%.
6.0%
2005
2006
Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE
2007
2008
Rental Rates (FS)
51 72 76 58 39 111 21 68 172 668
SF
Direct Vacancy
Sublet Vacancy
Total Vacancy
8,425,846 3,866,066 3,114,091 4,797,842 1,805,874 4,027,270 593,816 3,815,304 4,442,803 34,888,912
12.7% 17.0% 9.8% 11.1% 12.1% 13.7% 12.1% 18.7% 12.8% 13.4%
1.4% 1.6% 0.2% 1.2% 0.3% 1.4% 0.1% 1.3% 0.6% 1.1%
14.1% 18.6% 10.0% 12.3% 12.4% 15.1% 12.2% 20.0% 13.4% 14.5%
positive territory at 67,833 square feet.
ABSORPTION 2Q Absorption YTD
57,837 64,860 29,818 179,478 11,629 115,454 (7,537) 11,651 50,467 513,657
2009
2010
$0.00
2011
65,479 121,161 50,448 181,068 29,162 165,675 (3,873) 31,939 (54,118) 586,941
$34.20 $27.00 $27.25 $31.20 $28.96 $31.09 $30.39 $26.09 $35.00 $30.13
2004
2005
2006
2007
2008
2009
2Q’10
3Q’10
4Q’10
1Q’11
2Q’11
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%
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%
14.1% 18.6% 10.0% 12.3% 12.4% 15.1% 12.2% 20.0% 13.4% 14.5%
Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE
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
Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE
2Q’10
3Q’10
4Q’10
2010
1Q’11
2Q’11
(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
57,837 64,860 29,818 179,478 11,629 115,454 (7,537) 11,651 50,467 513,657
Asking Lease Rates by Class (FS)
INVENTORY Buildings
Market Area
$21.50
2005
2006
2007
2008
2009
2010
2011
$20.00
Vacancy Rates
SF
Direct Vacancy
Sublet Vacancy
Total Vacancy
ABSORPTION 2Q Absorption YTD
AVERAGE RENT & EXPENSES (FS) Rent NNN
Everett CBD
64
1,926,654
6.8%
0.0%
6.8%
(160)
3,775
$22.33
$4.50
Lynnwood/Edmonds
91
2,720,504
23.9%
0.2%
24.1%
(5,298)
2,649
$22.24
$5.50
Woodinville/Mill Creek
27
671,368
19.6%
0.0%
19.6%
(2,749)
39,489
$24.81
$4.50
N Snohomish County
19
361,271
6.7%
0.0%
6.7%
-
(1,950)
$21.56
$4.50
S Snohomish County
7
227,227
9.1%
0.0%
9.1%
383
383
$28.00
$4.50
S Everett/Harbor Point
42
1,218,966
10.2%
1.7%
11.9%
(12,748)
(7,405)
$28.04
$4.50
North Seattle/Northgate
48
1,555,355
10.7%
0.5%
11.2%
12,758
30,892
$22.46
$5.00
NORTHEND
298
8,681,345
14.4%
0.4%
14.8%
(7,814)
67,833
$24.21
$5.19
Historical Total Vacancy Market Area
2004
2005
2006
2007
2008
2009
2Q’10
3Q’10
4Q’10
1Q’11
Everett CBD
5.0%
6.7%
6.5%
8.9%
5.6%
4.1%
5.1%
6.2%
7.7%
7.4%
6.8%
Lynnwood/Edmonds
17.0%
17.0%
17.7%
18.9%
16.3%
23.0%
24.3%
24.5%
24.0%
23.7%
24.1%
Woodinville/Mill Creek
5.2%
7.9%
10.2%
12.8%
29.3%
30.8%
30.5%
28.0%
26.9%
20.6%
19.6%
N Snohomish County
5.1%
2.8%
3.4%
3.1%
4.4%
5.1%
6.5%
5.7%
6.1%
6.7%
6.7%
S Snohomish County
1.0%
11.0%
13.3%
12.6%
12.0%
8.7%
7.1%
11.5%
9.3%
9.3%
9.1%
S Everett/Harbor Point
13.8%
16.3%
10.7%
9.4%
9.5%
12.0%
10.8%
11.7%
11.5%
11.1%
11.9%
North Seattle/Northgate
9.3%
11.2%
11.5%
9.5%
11.2%
12.8%
12.8%
11.8%
12.7%
11.5%
11.2%
NORTHEND OFFICE
11.1%
12.3%
11.9%
12.4%
12.6%
15.2%
15.7%
15.8%
15.9%
14.8%
14.8%
2Q’11
Historical Rents (FS)
2Q’11
Historical Total Absorption
Market Area
$24.54
$23.32
$23.43
$23.29
Market Area
2Q’10
3Q’10
4Q’10
2010
1Q’11
Everett CBD
$24.23
$24.15
$22.70
$22.33
Everett CBD
(3,679)
(17,901)
(25,161)
(60,832)
3,935
(160)
Lynnwood/Edmonds
$26.80
$25.89
$23.26
$22.72
Lynnwood/Edmonds
12,372
(5,431)
13,135
(27,804)
7,947
(5,298)
Woodinville/Mill Creek
$25.83
$24.87
$21.58
$21.42
Woodinville/Mill Creek
1,465
16,830
7,190
33,069
42,238
(2,749)
N Snohomish County
$26.87
$27.60
$20.41
$28.09
N Snohomish County
(4,070)
3,144
(1,685)
(3,645)
(1,950)
-
S Snohomish County
$22.46
$22.62
$22.26
$21.92
S Snohomish County
-
(10,168)
5,099
(1,258)
-
383
S Everett/Harbor Point
$26.80
$25.61
$23.12
$22.49
S Everett/Harbor Point
22,849
(12,110)
2,549
5,515
5,343
(12,748)
North Seattle/Northgate
$25.36
$24.87
$22.39
$23.18
North Seattle/Northgate
(1,712)
16,847
(14,326)
2,674
18,134
12,758
NORTHEND OFFICE
$25.36
$24.87
$22.39
$23.18
NORTHEND OFFICE
27,225
(8,789)
(13,199)
(52,281)
75,647
(7,814)
Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE
$34.20 $27.00 $27.25 $31.20 $28.96 $31.09 $30.39 $26.09 $35.00 $30.13
$10.75 $9.00 $8.00 $9.50 $8.50 $9.00 $10.00 $8.00 $9.50 $9.14
$26.62 $23.74 $23.52 $27.34 $29.25 $24.94 $24.79 $22.36 $24.63 $25.24
$20.44 $22.53 $14.25 $20.00 $22.72 $24.38 $18.94 $18.35 $18.07 $19.96
$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
Market Area
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
-
$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
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Lynnwood/Edmonds
S EAT T L E | BEL L EV U E | TA COM A | PORTLA N D
Class A
$25.34
Everett CBD
*Expenses are approximate
Market Area
OPERATING EXPENSES* (PSF) Class A Class B Class C
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$23.00
Asking Lease Rates by Class
LEASE RATES (FULL SERVICE) Class A Class B Class C
(4 2 5 ) 9 74- 4000
$24.50
Northend Office Overview
$9.75 $8.00 $7.00 $8.50 $7.50 $8.00 $9.00 $7.00 $8.50 $8.14
16.3% 20.0% 12.7% 14.1% 3.3% 14.0% 3.6% 23.2% 11.1% 14.9%
Historical Rents (FS) Market Area
$26.00
Rental Rates (FS)
*Prior years as of 4Q
Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE
$27.50
Vacancy Rates AVG CLASS A RENT & EXPENSES (FS) Rent NNN
Historical Total Vacancy Market Area
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
*Expenses are approximate
Market Area
increase to $24.21 per square foot and YTD net absorption remains in
$5.00
Eastside Office Overview INVENTORY Buildings
vacancy rate during the second quarter, average rental rates saw a slight
$15.00 $10.00
3.0% 0.0%
$20.00
HISTORICAL VACANCY RATES & RENTAL RATES
SEATTL E | B E L L E VUE | TACO M A | P O RT L AN D
*Prior years as of 4Q
The Eastside office market is made up of nine submarkets, with a total