3Q‘10
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Puget Sound Economic Overview - 3Q ‘10 CUMULATIVE GROWTH (2010-2014)
most vibrant and stable real estate markets, with low vacancy, strong
20%
port commerce and a diversified economic base. However, the Great
15%
expected to rise almost five percent by 2012, and the local information (tech) and manufacturing industries are expected to grow as much as
Government
Construction
-10%
Financial Services
rest of the U.S. in most economic sectors. Year-over-year job growth is
Trade, Transportation, Utilities
-5%
Moody’s Economy.com, Seattle is expected to rebound ahead of the
Other Services
Sound region in terms of job growth and commerce. According to
0% Manufacturing
December 2007 ended in June 2009. This is great news for the Puget
5%
Information
Bureau of Economic Research (NBER), the recession that began in
Leisure & Hospitality
flattened and there are signs of stabilization. According to the National
10%
Education & Health Care
to soften. With the close of the third quarter, the market decline has
PERCENT GROWTH
Recession caught up to the Puget Sound region causing the market
Professional & Business Services
The Puget Sound region has historically been one of the nation’s
fifteen percent by 2014. Overall, Puget Sound is poised for a strong recovery driven by Microsoft, Amazon.com and Boeing, that will add stability to the marketplace and allow for expansion and increased regional commerce. Source: Moody’s Economy.com
Puget Sound Office Market - 3Q ’10 HISTORICAL VACANCY AND RENTAL RATES
» Vacancy in the Puget Sound region dipped below 15.8 percent in
20%
third quarter 2010 with nearly 1.5 million square feet of leasing » Year-to-date net absorption is approximately 904,000 square feet as compared to negative 535,000 square feet in 2009 » Average quoted direct rental rates have held firm since January at around $26.64/SF/FS; average quoted sublease rental rates fell
REN
15% VACANCY %
activity
$35
$20 $15 $10
5%
$5 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 3Q’10 DIRECT RENTAL RATES
» Approximately 10 percent more leases were signed in the first three » Average lease size in the Puget Sound region in the third quarter is approximately 3,806 square feet, 22 percent less than last quarter’s average
KEY MARKET INDICATORS VACANCY RATES RENTAL RATES
» Amazon.com’s 1.7 million square foot corporate campus is emerging along the South Lake Union waterfront and will also feature 94,000 square feet of retail
$25
10%
$0.21/SF/FS from third quarter 2009 quarters of this year than over the same period in 2009
$30
T
NET ABSORPTION Quarter over Quarter Change
(1) Does not include owner/user space Source: CoStar
www.pacific-re.com
TOTAL VACANCY
$0
RENTAL RATES (FS)
CLASS A & B(1)
Puget Sound Industrial Market - 3Q ’10 HISTORICAL VACANCY AND RENTAL RATES 12% 10%
fell slightly to 10.4 percent in third quarter 2010 from 10.8 percent
8%
in second quarter 2009 » Year-to-date absorption is negative 910,000 square feet as
VACANCY %
» After 10 consecutive quarters of rising vacancy across the region, it
compared to negative 4.2 million square feet in 2009
$.70
RE NT
$.60 $.50 $.40
6%
$.30
4%
$.20
2%
» There were 209 lease transactions in the third quarter of 2010
0%
RENTAL RATES (NNN)
ALL CLASSES (1)
$.10 2001 2002 2003 2004 2005 2006 2007 2008 2009 3Q’10
averaging 10,037 square feet, only six of which were sublease deals
DIRECT RENTS (OFFICE & WAREHOUSE)
$0
TOTAL VACANCY
» Average direct rental rates have remained around $0.57/SF/NNN throughout 2010
KEY MARKET INDICATORS
» The Southend industrial market has been in a recovery phase since VACANCY RATES
the Green River flooding threat; as no significant flooding occured, tenants are regaining confidence and returning to the market
RENTAL RATES
(1) Does not include owner/user space
NET ABSORPTION Quarter over Quarter Change
Puget Sound Retail Market - 3Q ’10 HISTORICAL VACANCY AND RENTAL RATES 10%
$30
» After a 100 basis point rise from first quarter 2010, regional vacancy » Only 99,766 square feet of net absorption occured in the third quarter as the retail market struggles to gain momentum » Average quoted direct rental rates have fallen $0.79/SF/NNN since the first quarter and $3.31/SF/NNN since the same period in 2009
7.5% VACANCY %
has leveled off at 6.4 percent
$35
$25
RENT
$20
5.0%
$15 $10
2.5%
RENTAL RATES NNN)
ALL CLASSES
$5 0%
2006
» Approximately 871 retail transactions have been completed
2007
2008
DIRECT RENTAL RATES
2009
3Q’10
$0
TOTAL VACANCY
regionally in the first three quarters of 2010 as compared to 986 transactions from January to September 2009, a decrease of 11.6 percent » Average lease size in the Puget Sound region is approximately 2,415 square feet, approximately 4.7 percent less than last quarter
KEY MARKET INDICATORS VACANCY RATES RENTAL RATES NET ABSORPTION
Source: CoStar
Quarter over Quarter Change
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Downtown Seattle Office Market 3Q ’10 CLASS A & B(1) Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
Parking
Ballard/U-District
16.0%
$28.45 FS
3-5 months
$10-$30/SF
$50-$150
Belltown
12.2%
$25.11 FS
3-8 months
$10-$30/SF
$125-$175
Capitol Hill
8.5%
$31.19 FS
1-3 months
$10-$25/SF
$100-$150
Lake Union
8.3%
$26.84 FS
3-10 months
$10-$35/SF
$75-$175
Pioneer Square/Waterfront
21.4%
$26.66 FS
3-8 months
$10-$40/SF
$100-$250
Queen Anne
15.5%
$28.45 FS
2-6 months
$10-$20/SF
$100-$200
Seattle Central Business District (Seattle CBD)
17.4%
$30.64 FS
4-12 months
$25-$85/SF
$200-$325
Total Downtown Seattle
15.5%
$29.07 FS
1-12 months
$10-$85/SF
$50-$325
Submarket
(1) Does not include owner/user space (2) Per square foot per year
» Vacancy leveled off in the third quarter of 2010, rising only 10 basis points from September » Average direct rental rates increased $0.24/SF/FS since the previous quarter and net absorption for the third quarter was 94,000 square feet » Concessions in the form of free rent and tenant improvements continue to be widely
KEY MARKET INDICATORS VAC A NC Y R AT E S R E NTA L R AT E S
used to entice tenants to relocate and/or sign longer term leases NE T A B S OR P T I ON Quarter over Quarter Change
Eastside & Northend Office Market 3Q ’10
NORTH END
EASTSIDE
CLASS A & B(1)
Submarket
Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
Parking
520 Corridor
14.5%
$24.95 FS
3-6 months
$10-$25/SF
Free – $50 reserved/covered
Bellevue Central Business District (Bellevue CBD)
14.5%
$32.59 FS
3-6 months
$20-$30/SF
$140 – $195 non-reserved $150 – $250 reserved
Bothell
18.2%
$23.82 FS
6-8 months
$15-$25/SF
Free
I-90 Corridor
13.5%
$30.15 FS
4-6 months
$15-$25/SF
Free –$50 reserved
Issaquah
9.5%
$28.82 FS
2-4 months
$10-$15/SF
$50 reserved/covered
Kirkland
16.5%
$27.09 FS
4-8 months
$15-$25/SF
$50 – $125 reserved
Mercer Island
17.0%
$27.48 FS
3-5 months
$10-$20/SF
$50 reserved
Redmond
20.0%
$24.79 FS
5-8 months
$15-$25/SF
Free
Suburban Bellevue
12.8%
$25.53FS
3-6 months
$10-$30/SF
Free – $75 reserved
Total Eastside
15.1%
$27.55 FS
2-8 months
$10-$30/SF
Free – $195 non-reserved $50 – $250 reserved
Lynnwood
24.1%
$22.64 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 the fourth quarter of 2009; year-to-date net absorption is 38,223 square feet
KEY MARKET INDICATORS VACANCY RATES
» Average direct rental rates have dropped $0.49/SF/FS since the first quarter of 2010 » There were 116 lease transactions in the third quarter with an average deal size of 3,138 square feet; five were sublease deals
RENTAL RATES NET ABSORPTION Quarter over Quarter Change
Source: CoStar
while sublet rates have only declined $0.05/SF/FS
Southend Office Market 3Q ’10 CLASS A & B(1) Submarket
Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
Parking
Federal Way/Auburn
25.6%
$20.43 FS
3-7 months
$10-$20/SF
Free
Kent Valley
30.3%
$21.16 FS
4-7 months
$15-$30/SF
Free
Renton/Tukwila
13.4%
$20.72 FS
4-6 months
$10-$25/SF
Free
SeaTac/Burien
17.1%
$22.01 FS
3-5 months
$10-$25/SF
Free
Total Southend
19.7%
$20.84 FS
3-7 months
$10-$25/SF
Free
(1) Does not include owner/user space (2) Per square foot per year
KEY MARKET INDICATORS » Vacancy saw downward pressure this quarter, leveling off at 19.7 percent due to nearly 132,000 square feet of positive net absorption » Average quoted direct rental rates decreased slightly to $20.84/SF/FS and rent
VACANCY RATES RENTAL RATES
concessions continue to range from 3-7 months NET ABSORPTION Quarter over Quarter Change
Puget Sound Retail Market 3Q ’10 ALL CLASSES Market
Vacancy
Direct Quoted Rate
Free Rent
TI’s
Parking
Seattle
4.0%
$21.35 NNN
3-7 months
$10-$20/SF
Free
Eastside
6.9%
$23.42 NNN
4-7 months
$15-$30/SF
Free
Northend
6.5%
$17.34 NNN
4-6 months
$10-$25/SF
Free
Southend
7.6%
$16.58 NNN
3-5 months
$10-$25/SF
Free
Tacoma
7.0%
$15.78 NNN
3-6 months
$10-$20/SF
Free
Total Retail
6.4%
$18.16 NNN
3-7 months
$10-$30/SF
Free
KEY MARKET INDICATORS » Regional retail vacancy has remained relatively flat for the last four quarters at
VACANCY RATES
6.4 percent » Average quoted direct rental rates fell slightly to $18.16/SF/NNN while average quoted
RENTAL RATES
sublease rents rose $0.19/SF/NNN » Point Ruston, a major mixed-used development project, is emerging along Tacoma’s Commencement Bay Waterfront; the site will feature shopping, restaurants, apartments,
NET ABSORPTION Quarter over Quarter Change
Source: CoStar
condominiums, office space and a one mile boardwalk
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Eastside & Northend Industrial/Flex Market 3Q ’10 ALL CLASSES(1) Submarket
EASTSIDE
Free Rent
6.4%
$1.15 - $1.25 NNN
$0.55 - $0.65 NNN
1 - 3 months
Issaquah/Preston
5.5%
$1.20 - $1.30 NNN
$0.60 - $0.65 NNN
1 - 3 months
Redmond
11.7%
$1.00 - $1.20 NNN
$0.50 - $0.60 NNN
2 - 4 months
Kirkland
14.5%
$1.00 - $1.20 NNN
$0.45 - $0.60 NNN
2 - 4 months
Bothell/Kenmore
16.1%
$1.00 - $1.20 NNN
$0.50 - $0.60 NNN
3 - 6 months
Monroe
20.4%
$0.95 - $1.10 NNN
$0.45 - $0.50 NNN
3 - 6 months
Woodinville
10.8%
$0.90 - $1.20 NNN
$0.48 - $0.60 NNN
3 - 5 months
Total Eastside
12.0%
$1.00 - $1.30 NNN
$0.45 - $0.65 NNN
1 - 6 months
Lynnwood, Everett & Mukilteo
11.6%
$1.00 - $1.15 NNN
$0.45 - $0.55 NNN
3 - 6 months
Bellevue
NORTH END
Direct Quoted Rates(2) Office Rate Warehouse Rate
Vacancy
(1) Does not include owner/user space (2) Per square foot per month
KEY MARKET INDICATORS
» Eastside industrial vacancy dropped 90 basis points in the third quarter with increased activity in the Bellevue, Redmond and Kirkland submarkets
EASTSIDE
NORTHEND
VACANCY RATES
» The Northend industrial market was quiet in the third quarter with little change in RENTAL RATES
vacancy, rental rates or absorption » Direct rental rates have been relatively flat awaiting the return of market demand » Eastside industrial net absorption is 166,020 square feet year-to-date
NET ABSORPTION Quarter over Quarter Change
Southend Industrial/Flex Market 3Q ’10 ALL CLASSES(1)
PIERCE COUNTY
SOUTHEND KING COUNTY
SOUTH SEATTLE
Submarket
Direct Quoted Rate(2) Office Rate Warehouse Rate
Vacancy
Free Rent
SoDo
4.7%
$0.75 NNN
$0.55 - $0.70 NNN
1.5-5 months
GTown/Duwamish N.
8.3%
$0.75 NNN
$0.45 - $0.65 NNN
1.5-5 months
GTown/Duwamish S.
4.5%
$0.75 NNN
$0.45 - $0.65 NNN
1.5-5 months
SeaTac/Burien
10.3%
$0.75 NNN
$0.42 - $0.50 NNN
3-5 months
Tukwila
5.2%
$0.75 NNN
$0.34 - $0.40 NNN
3-5 months
Renton
7.1%
$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
6.1%
$0.75 NNN
$0.32 - $0.38 NNN
3-5 months
Federal Way
6.1%
$0.75 NNN
$0.32 - $0.38 NNN
3-7.5 months
Puyallup/Sumner
10.6%
$0.75 NNN
$0.28 - $0.36 NNN
3-7.5 months
Port of Tacoma/Fife
6.6%
$0.75 NNN
$0.28 - $0.36 NNN
3-7.5 months
Tacoma(3)
5.3%
$0.75 NNN
$0.28 - $0.36 NNN
3-7.5 months
Lakewood
4.5%
$0.75 NNN
$0.28 - $0.36 NNN
3-7.5 months
Outlying Submarkets(4)
6.5%
$0.75 NNN
$0.26 - $0.32 NNN
3-7.5 months
(1) Includes 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 in 10 of the fourteen Southend submarkets, signaling a return of market demand » Office and warehouse rents remained unchanged as the emphasis has shifted to
KEY MARKET INDICATORS VACANCY RATES RENTAL RATES
» Leasing activity has been on an upward trend with multiple large leases inked in the third quarter
NET ABSORPTION Quarter over Quarter Change
www.pacific-re.com
Source: CoStar
attractive tenant improvement and concession packages
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 15 $62M 29,403 SF $4.2M $142/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 36 $98M 33,882 SF $2.7M $81/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 » After only three quarters, 2010’s office sales volume has surpassed that of 2009 by nearly $7 million and is nearly four times the average size in square feet sold » While average price and average price/square foot is down, the industrial market has already seen 36 transactions this year, equal to 2009’s total transaction volume
OFFICE
INDUSTRIAL
TRANSACTIONS $ VOLUME AVERAGE PRICE AVERAGE PRICE/SF Quarter over Quarter Change
Institutional Sales OFFICE SALES OVER $10M CLASS A & B Transactions Highest Price/SF Cap Rate
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 12 $548/SF 7.2%
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 5 $264/SF 8.0%
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 » Year-to-date office sales are more than double 2009 transactions, the highest price/square foot is $548/SF compared to $405/SF last year and the average CAP rate is a healthier 7.2 percent
OFFICE
INDUSTRIAL
TRANSACTIONS
» Institutional industrial sales rose in the third quarter with four transactions totaling $55 million and 393,000 square feet
AVERAGE PRICE
NA
AVERAGE PRICE/SF
NA
CAP RATE Quarter over Quarter Change
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NA
NA
Source: CoStar
$ VOLUME
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)
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. Effective Rate The average rental rate charged per square foot of space; reflects the deduction of concessions Free Rent Otherwise known as Rent Abatement; usually across the term of five year leases
Owner/User Space that is owned and leased by the tenant/owner
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 Vacancy The amount of space available for rent; usually measured in square feet (SF) Vacancy Rate The ratio between the number of available square feet and the total square feet (size) of a building
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