Market Report 2Q 2010

Page 1

2Q‘10

PUGET SOUND

BELLEVUE: 225 108th Avenue NE, Suite 550, Bellevue, WA 98004 | (425) 974-4000 PORTLAND: 1 SW Columbia Street, Suite 850, Portland, OR 97258 | (503) 972-8000 SEATTLE: 1700 7th Avenue, Suite 2050, Seattle, WA 98101 | (206) 971-7000

w w w.p a cific- re .co m


Puget Sound Office Market - 2Q ’10 HISTORICAL VACANCY AND RENTAL RATES 20%

» After increasing steadily since mid-2007, vacancy has remained at » Year-to-date net absorption is approximately 425,000 square feet as compared to negative 100,000 square feet in 2009 – a marked

Ren

15% VACANCY %

just over 16 percent since October 2009

$35 $30

t

$25 $20

10%

$15 $10

5%

improvement

RENTAL RATES (FS)

Class A & B(1)

$5

» Average quoted direct rental rates have held firm since January at

0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q’10

around $26.75/SF/FS; average quoted sublease rental rates fell $0.70/

DIRECT RENTAL RATES

$0

TOTAL VACANCY

SF/FS from April through June KEY MARKET INDICATORS

» Approximately seven percent more leases were signed in the first half of this year than in the first six months of 2009

VACANCY RATES

» Average lease size in the Puget Sound region is approximately 4,168 square feet, approximately 13 percent less than January through June

RENTAL RATES

2009 NET ABSORPTION (1) Does not include owner/user space

Puget Sound Industrial Market - 2Q ’10 HISTORICAL VACANCY AND RENTAL RATES 12%

» Regional vacancy held firm over the second quarter at just over 10 » Year-to-date absorption is negative 1.5M square feet as compared to negative 4.4M square feet at the end of second quarter 2009

10% VACANCY %

percent after increasing steadily since early 2008

$.70

Ren

t

$.50

8%

$.40

6%

$.30

4%

» Transaction volume dropped slightly from first quarter (485 vs. 462

2%

signed leases), but average lease size remains over 8,000 square feet

0%

$.60

$.20

RENTAL RATES (NNN)

ALL CLASSES (1)

$.10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2Q’10

» After falling approximately $0.20/SF/NNN from January through

DIRECT RENTS (OFFICE & WAREHOUSE)

$0

TOTAL VACANCY

March, average quoted direct rental rates (combined office and warehouse) leveled off in the second quarter; average quoted

KEY MARKET INDICATORS

sublease rates are approximately $0.50/SF/NNN higher than year-end VACANCY RATES

2009 (1) Does not include owner/user space

RENTAL RATES

Source: CoStar

NET ABSORPTION

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Downtown Seattle Office Market 2Q ’10 CLASS A & B(1) Vacancy

Direct Quoted Rate(2)

Free Rent

TI’s

Parking

Ballard/U-District

15.6%

$28.30 FS

3-5 months

$10-$30/SF

$50-$150

Belltown

14.0%

$25.01 FS

3-8 months

$10-$30/SF

$125-$175

Capitol Hill

9.9%

$31.23 FS

1-3 months

$10-$25/SF

$100-$150

Lake Union

8.4%

$26.52 FS

3-10 months

$10-$35/SF

$75-$175

Pioneer Square/Waterfront

17.6%

$26.56 FS

3-8 months

$10-$40/SF

$100-$250

Queen Anne

16.0%

$28.20 FS

2-6 months

$10-$20/SF

$100-$200

Seattle Central Business District (Seattle CBD)

18.7%

$30.09 FS

4-12 months

$25-$85/SF

$200-$325

Total Downtown Seattle

16.3%

$28.61 FS

1-12 months

$10-$85/SF

$50-$325

Submarket

(1) Does not include owner/user space (2) Per square foot per year

» After peaking at approximately 17 percent in December 2009, vacancy in Downtown Seattle has fallen to just over 16 percent in the first six months of 2010; average quoted direct rental rates held steady over this period » Vacancy in the Seattle CBD has dropped five percent since the end of March and 7.5

KEY MARKET INDICATORS VACANCY RATES RENTAL RATES

percent since year-end 2009 » Absorption in Downtown Seattle was approximately 820,000 square feet through June

NET ABSORPTION

2010; this time last year, absorption was negative 937,221 square feet

Eastside & Northend Office Market 2Q ’10

NORTH END

EASTSIDE

CLASS A & B(1)

Submarket

Vacancy

Direct Quoted Rate(2)

Free Rent

TI’s

Parking

520 Corridor

13.8%

$24.30 FS

3-6 months

$10-$25/SF

Free – $50 reserved/covered

Bellevue Central Business District (Bellevue CBD)

14.2%

$34.31 FS

3-6 months

$20-$30/SF

$140 – $195 non-reserved $150 – $250 reserved

Bothell

18.5%

$23.92 FS

6-8 months

$15-$25/SF

Free

I-90 Corridor

13.4%

$29.75 FS

4-6 months

$15-$25/SF

Free –$50 reserved

Issaquah

7.4%

$28.88 FS

2-4 months

$10-$15/SF

$50 reserved/covered

Kirkland

18.6%

$27.74 FS

4-8 months

$15-$25/SF

$50 – $125 reserved

Mercer Island

17.0%

$28.95 FS

3-5 months

$10-$20/SF

$50 reserved

Redmond

19.7%

$24.86 FS

5-8 months

$15-$25/SF

Free

Suburban Bellevue

11.5%

$25.36 FS

3-6 months

$10-$30/SF

Free – $75 reserved

Total Eastside

15.0%

$27.80 FS

2-8 months

$10-$30/SF

Free – $195 non-reserved $50 – $250 reserved

Lynnwood

24.2%

$23.15 FS

5-7 months

$20-$25/SF

Free

(1) Does not include owner/user space (2) Per square foot per year

» Total Eastside vacancy has hovered around 15 percent since third quarter 2009 after rising steadily since late 2007

KEY MARKET INDICATORS VACANCY RATES

year after increasing the previous eight quarters » Although net absorption remained negative across the Eastside market, positive leasing activity was reported in the I-90 Corridor, Kirkland and Suburban Bellevue submarkets

RENTAL RATES NET ABSORPTION

Source: CoStar

» Vacancy in the Bellevue CBD leveled off to about 14 percent in the first six months of the


Southend Office Market 2Q ’10 Class A & B(1) Submarket

Vacancy

Direct Quoted Rate(2)

Free Rent

TI’s

Parking

Federal Way/Auburn

28.8%

$20.76 FS

3-7 months

$10-$20/SF

Free

Kent Valley

30.3%

$21.01 FS

4-7 months

$15-$30/SF

Free

Renton/Tukwila

13.6%

$20.85 FS

4-6 months

$10-$25/SF

Free

SeaTac/Burien

18.7%

$21.98 FS

3-5 months

$10-$25/SF

Free

Total Southend

20.9%

$20.96 FS

3-7 months

$10-$25/SF

Free

(1) Does not include owner/user space (2) Per square foot per year

KEY MARKET INDICATORS » As with other regional submarkets, vacancy has held steady since January and closed the second quarter at approximately 21 percent » Average quoted direct rental rates increased slightly to $20.96/SF/FS while average

VACANCY RATES RENTAL RATES

quoted sublease rents fell almost $1.00/SF/FS

Source: CoStar

NET ABSORPTION

Terms and Definitions Absorption The change in available space for rent; positive net absorption occurs when the total space available at the beginning of a period is less than at the end of that period; negative net absorption occurs when the total space available increases from the beginning to the end of a defined period of time

Full Service Rental Rate (FS) Includes operating expenses (taxes, insurance and common area maintenance charges)

Asking Rate The listed rental rate; quoted as Full Service (FS) or Triple Net (NNN)

TI Allowance (TI’s) The amount of money given to a tenant by the Landlord to partially cover the cost to build-out their space (tenant improvements)

Owner/User Space that is owned and leased by the tenant/owner

Cap Rates Short for capitalization rate; reflects the relationship between a property’s net operating income for a one year period to its current market value; calculated by dividing the annual net operating income by the sales or asking price

Triple Net Rental Rate (NNN) In addition to the stated rental rate, a tenant is also responsible for operating expenses which includes taxes, insurance and common area maintenance charges

Concessions Discounts given by Landlords to prospective tenants to induce them to sign a lease; examples include free rent, a tenant improvement allowance (TI’s), moving allowance etc.

Turn-key A lease in which the landlord agrees to give the leased premises to the tenant in a ready-to-occupy condition with no additional costs for tenant improvements

Effective Rate The average rental rate charged per square foot of space; reflects the deduction of concessions

Vacancy The amount of space available for rent; usually measured in square feet (SF)

Free Rent Otherwise known as Rent Abatement; usually across the term of five year leases

Vacancy Rate The ratio between the number of available square feet and the total square feet (size) of a building

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Eastside & Northend Industrial/Flex Market 2Q ’10 All Classes(1)

NORTH END

EASTSIDE

Submarket

Direct Quoted Rates(2) Office Rate Warehouse Rate

Vacancy

Free Rent

Bellevue

9.3%

$1.10 - $1.25 NNN

$0.55 - $0.65 NNN

1 - 3 months

Bothell/Mill Creek

16.3%

$1.00 - $1.20 NNN

$0.55 - $0.60 NNN

3 - 6 months

Issaquah/Preston

7.4%

$1.20 - $1.30 NNN

$0.60 - $0.65 NNN

1 - 3 months

Kirkland

17.0%

$1.00 - $1.25 NNN

$0.50 - $0.65 NNN

2 - 4 months

Monroe

22.0%

$1.00 - $1.10 NNN

$0.45 - $0.50 NNN

3 - 6 months

Redmond

12.2%

$1.00 - $1.20 NNN

$0.50 - $0.65 NNN

2 - 4 months

Woodinville

10.6%

$1.00 - $1.20 NNN

$0.50 - $0.60 NNN

3 - 5 months

Total Eastside

12.9%

$1.00 - $1.30 NNN

$0.45 - $0.65 NNN

1 - 6 months

Lynnwood, Everett and Mukilteo

11.7%

$1.00 - $1.15 NNN

$0.45 - $0.55 NNN

3 - 6 months

(1) Does not include owner/user space (2) Per square foot per month

» Overall Eastside industrial vacancy remained around 13 percent in the second quarter

KEY MARKET INDICATORS

although the Bothell/Mill Creek, Monroe and Woodinville submarkets reported increased leasing activity

EASTSIDE

NORTHEND

VACANCY RATES

» The Northend submarkets of Lynnwood, Everett and Mukilteo also reported a drop in RENTAL RATES

aggregate vacancy (six percent) » Direct rental rates dropped from first quarter in some areas

NET ABSORPTION

» Eastside industrial net absorption was positive for the first time since mid-2008

Southend Industrial/Flex Market 2Q ’10 All Classes(1) Direct Quoted Rate(2) Office Rate Warehouse Rate

Vacancy

Free Rent

SoDo

4.1%

$0.75 NNN

$0.55 - $0.70 NNN

1.5-5 months

GTown/Duwamish N.

8.0%

$0.75 NNN

$0.45 - $0.65 NNN

1.5-5 months

GTown/Duwamish S.

5.3%

$0.75 NNN

$0.45 - $0.65 NNN

1.5-5 months

SeaTac/Burien

11.1%

$0.75 NNN

$0.42 - $0.50 NNN

3-5 months

Tukwila

5.4%

$0.75 NNN

$0.34 - $0.40 NNN

3-5 months

Renton

6.9%

$0.75 NNN

$0.34 - $0.40 NNN

3-5 months

Kent

8.9%

$0.75 NNN

$0.32 - $0.40 NNN

3-5 months

Auburn

7.3%

$0.75 NNN

$0.32 - $0.38 NNN

3-5 months

Federal Way

7.5%

$0.75 NNN

$0.32 - $0.38 NNN

3-7.5 months

Puyallup/Sumner

13.1%

$0.75 NNN

$0.28 - $0.36 NNN

3-7.5 months

Port of Tacoma/Fife

8.9%

$0.75 NNN

$0.28 - $0.36 NNN

3-7.5 months

Tacoma(3)

6.1%

$0.75 NNN

$0.28 - $0.36 NNN

3-7.5 months

Lakewood

4.3%

$0.75 NNN

$0.28 - $0.36 NNN

3-7.5 months

Outlying Submarkets(4)

6.8%

$0.75 NNN

$0.26 - $0.32 NNN

3-7.5 months

(1) Does not include owner/user space (2) Per square foot per month (3) Tacoma includes: NE Tacoma, E Tacoma, Tacoma CBD and University Place; (4) Outlying Submarkets include Dupont, East Pierce County, Parkland, Spanaway, Fort Lewis and Gig Harbor

» Vacancy fell or remained stable in nine of the fourteen Southend submarkets signaling increased leasing activity from first quarter 2010 » Office and warehouse rents remained unchanged across the Southend market except in

KEY MARKET INDICATORS VACANCY RATES RENTAL RATES

South Seattle and Kent which lowered starting warehouse rents by $0.02-$0.10/SF/NNN NET ABSORPTION

www.pacific-re.com

Source: CoStar

PIERCE COUNTY

SOUTHEND KING COUNTY

SOUTH SEATTLE

Submarket


Private Capital Sales OFFICE SALES $1M-$10M Class A & B 2006 65 $430M 38,568 SF $6.6M $172/SF

Transactions Volume Average Size (SF) Average Price Average Price/SF

2007 73 $384M 27,623 SF $5.3M $191/SF

2008 52 $310M 24,570 SF $6M $243/SF

2009 18 $55M 7,798 SF $3.1M $168/SF

YTD 2010 11 $40M 30,697 SF $3.6M $119/SF

2007 133 $478M 29,278 SF $3.6M $123/SF

2008 89 $299M 27,052 SF $3.3M $124/SF

2009 36 $111M 34,147 SF $3.1M $90/SF

YTD 2010 18 $46M 22,568 SF $2.6M $114/SF

Industrial Sales $1M-$10M All Classes 2006 122 $398M 35,221 SF $3.3M $93/SF

Transactions Volume Average Size (SF) Average Price Average Price/SF

KEY MARKET INDICATORS » As second quarter office sale activity mirrored the first three months of 2010, year-todate transactions represent almost 75 percent of the volume in 2009

OFFICE

INDUSTRIAL

TRANSACTIONS

» Fifty percent of the private industrial sales were under $2M, with only two sales reported over $5M

$ VOLUME AVERAGE PRICE AVERAGE PRICE/SF

Institutional Sales Office Sales Over $10M Class A & B Transactions Highest Price/SF Cap Rate (1)

2004 30 $411/SF 8.1%

2005 43 $459/SF 6.7%

2006 54 $575/SF 6.3%

2007 131 $531/SF 5.2%

2008 7 $342/SF 6.1%

2009 5 $405/SF 9.5%

YTD 2010 7 $297/SF(1) 8.5%

2006 14 $131/SF 6.8%

2007 35 $164/SF 5.8%

2008 19 $142/SF 6.5%

2009 9 $100/SF 9.2%

YTD 2010 1 $68/SF 8.0%

Legacy I-90 Center North; Auburn Professional Plaza (office condos) sold at $456/SF

Industrial Sales Over $10M All Classes Transactions Highest Price/SF Cap Rate

2004 20 $79/SF 7.2%

2005 22 $109/SF 6.8%

KEY MARKET INDICATORS » Sales of office properties over $10M showed marked improvement from first quarter

OFFICE

INDUSTRIAL

TRANSACTIONS

» Institutional industrial sales remained slow with Valley Freeway Corporate Park the only trade in the second quarter at $15.5M

$ VOLUME AVERAGE PRICE

NA

AVERAGE PRICE/SF

NA

CAP RATE

www.pacific-re.com

NA

NA

Source: CoStar

with total transaction volume of $127M


Our Puget Sound Brokers

BELLEVUE Les Boudwin Principal les.boudwin@pacific-re.com 425-974-4023

W. Scott Carter Principal scott.carter@pacific-re.com 425-974-4004

Bill Cooper Associate bill.cooper@pacific-re.com 425-974-4011

Mark Flippo Principal, Co-Founder mark.flippo@pacific-re.com 425-974-4007

Dan Foster Vice President dan.foster@pacific-re.com 425-974-4022

Matthew Hinrichs Associate matthew.hinrichs@pacific-re.com 425-974-4002

Chris Hughes Principal chris.hughes@pacific-re.com 425-974-4030

Brent Jackson Vice President brent.jackson@pacific-re.com 425-974-4015

Charlie Malley Vice President charlie.malley@pacific-re.com 425-974-4003

Wyk Parker Vice President wyk.parker@pacific-re.com 425-974-4024

Steve Schwartz Principal, Co-Founder steve.schwartz@pacific-re.com 425-974-4005

Daniel Seger Vice President daniel.seger@pacific-re.com 425-974-4032

JJ Shephard Principal jj.shephard@pacific-re.com 425-974-4031

Gabriel Smith Associate gabriel.smith@pacific-re.com 425-974-4029

Andrew Stark Associate andrew.stark@pacific-re.com 425-974-4006

Casey Trees Associate casey.trees@pacific-re.com 425-974-4008

David Abbott Associate david.abbott@pacific-re.com 206-971-7018

Ann Chamberlin Principal ann.chamberlin@pacific-re.com 206-971-7013

Jeff Durrell Principal jeff.durrell@pacific-re.com 206-971-7010

Laura Ford Vice President laura.ford@pacific-re.com 206-971-7007

Tony Ford Associate tony.ford@pacific-re.com 206-971-7017

Lori Hill Principal lori.hill@pacific-re.com 206-971-7006

Greg Inglin Associate greg.inglin@pacific-re.com 206-971-7020

Eric Leland Vice President, Advisory Services eric.leland@pacific-re.com 206-971-7002

Nate White Associate nate.white@pacific-re.com 206-971-7024

Stuart Williams Principal, Co-Founder stuart.williams@pacific-re.com 206-971-7008

SEATTLE

www.pacific-re.com


225 108th Avenue NE, Suite 550 Bellevue, WA 98004


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