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
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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
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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
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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
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