4Q 2010
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Puget Sound Economic Overview - 4Q 2010 SEATTLE CUMULATIVE GROWTH (2010-2014)
that has been made over the last four quarters. After coming off of one of the worst years in commercial real estate history in 2009, the
15%
and September, and with the help of initiatives in transportation, local government infrastructure, capital construction and others, Washington
Construction
Government
Financial Services
-10%
Trade, Transportation, Utilities
recovery.wa.gov, over 16,100 jobs were created/saved between July
Other Services
-5%
10.4% in February of 2010 to 8.5% in October of 2010. According to
Manufacturing
Washington State’s unemployment dropped from its ten-year high of
0% Information
minimal, and lease and sales transaction volume was significantly up.
5%
Leisure & Hospitality
all product types was able to stabilize, negative absorption was
10%
Education & Health Care
gain momentum and strength in 2010. Vacancy in the region across
PERCENT GROWTH
outlook for 2010 was skeptical at best. However, the Puget Sound region was able to abstain from a continued free fall and began to
Source: Moody’s Economy.com
20%
Professional & Business Services
As 2010 is now behind us, it is nice to look back and see the progress
looks to add 60,000 new jobs in the near future. With companies like Boeing, Microsoft, Amazon.com, Fred Hutchinson, Nintendo and T-Mobile USA, the Puget Sound region has an elite list of progressive and innovative companies that can adapt with an ever-changing economy, many of which are at the forefront of their industries. 2011 will be a year in which the region hopes to capitalize on positive momentum, decreased unemployment and strong, but vigilant market fundamentals.
Puget Sound Office Market - 4Q 2010 HISTORICAL VACANCY AND RENTAL RATES
» Vacancy in the Puget Sound region dropped to 15.6% in 4Q 2010
20%
with nearly 1.26 million SF of leasing activity compared to negative 535,000 SF in 2009 » Average quoted direct rental rates have held firm since January at $26.60/SF/FS*; average quoted sublease rental rates fell $1.18/SF/FS from 4Q 2009
REN
15% VACANCY %
» Year-to-date net absorption is approximately 1,700,000 SF as
$35 $30
T
$25 $20
10%
$15 $10
5%
RENTAL RATES (FS)
CLASS A & B(1)
$5 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 4Q’10
» 2010 saw 1,790 office lease transactions, approximately 5% more
DIRECT RENTAL RATES
$0
TOTAL VACANCY
than 2009 transactions » Average lease size in the Puget Sound region in fourth quarter was approximately 3,475 SF, 13% less than last quarter’s average » Amazon.com’s 1.7 million SF corporate campus countinues to emerge along South Lake Union where they have already occupied
KEY MARKET INDICATORS VACANCY RATES RENTAL RATES
over 600,000 SF NET ABSORPTION Source: CoStar
(1) Does not include owner/user space
Quarter over Quarter Change
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Puget Sound Industrial Market - 4Q 2010 HISTORICAL VACANCY AND RENTAL RATES 12%
» After 10 consecutive quarters of rising vacancy across the region, quarter » Year-to-date absorption is negative 1.11 million SF as compared to
RE NT
10% VACANCY %
vacancy has held at 10.4% again in 4Q 2010, unchanged from last
$.70
negative 4.2 million SF in 2009
$.60 $.50
8%
$.40
6%
$.30
4%
$.20
2%
» There were 199 lease transactions in 4Q 2010 averaging
0%
9,535 SF
RENTAL RATES (NNN)
ALL CLASSES
$.10 2001 2002 2003 2004 2005 2006 2007 2008 2009 4Q’10 DIRECT RENTS (OFFICE & WAREHOUSE)
$0
TOTAL VACANCY
» Average direct rental rates have remained around $0.56/SF/NNN* throughout 2010
KEY MARKET INDICATORS
» Construction continues to be quiet in the region with no new VACANCY RATES
buildings delivered in the 4Q 2010 and nine in 2010, totaling 561,709 SF
RENTAL RATES NET ABSORPTION Quarter over Quarter Change
Puget Sound Retail Market - 4Q 2010 HISTORICAL VACANCY AND RENTAL RATES 10%
$30
» Regional retail vacancy hovered between 6.4% and 6.3% » 4Q 2010 saw negative 89,000 SF of absorption which constitutes less than 1% of the overall inventory » Average quoted direct rental rates have fallen $1.38/SF/NNN since 4Q 2009 and $4.31/SF/NNN since 4Q 2008
7.5% VACANCY %
throughout 2010 and finished at 6.3% this quarter
$35
$25
RENT
$20
5.0%
$15 $10
2.5%
RENTAL RATES NNN)
ALL CLASSES
$5 0%
2006
» Approximately 1,183 retail transactions have been completed
2007
2008
DIRECT RENTAL RATES
2009
4Q’10
$0
TOTAL VACANCY
regionally in 2010 as compared to 1,378 transactions in 2009, down » Average lease size in the Puget Sound region is approximately 2,441 SF, nearly 5.2% less than last quarter
KEY MARKET INDICATORS VACANCY RATES RENTAL RATES NET ABSORPTION Quarter over Quarter Change Source: CoStar
14% year over year
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Downtown Seattle Office Market 4Q 2010 CLASS A & B(1) Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
Parking
Ballard/U-District
15.6%
$28.28 FS
3-5 months
$10-$30/SF
$50-$150
Belltown
13.8%
$25.29 FS
3-8 months
$10-$30/SF
$125-$175
Capitol Hill
8.3%
$31.04 FS
1-3 months
$10-$25/SF
$100-$150
Lake Union
5.4%
$26.91 FS
3-10 months
$10-$35/SF
$75-$175
Pioneer Square/Waterfront
22.2%
$26.39 FS
3-8 months
$10-$40/SF
$100-$250
Queen Anne
14.6%
$28.44 FS
2-6 months
$10-$20/SF
$100-$200
Seattle Central Business District (Seattle CBD)
16.4%
$30.87 FS
4-12 months
$25-$85/SF
$200-$325
Total Downtown Seattle
14.9%
$29.16 FS
1-12 months
$10-$85/SF
$50-$325
Submarket
(1) Does not include owner/user space (2) Per square foot per year
KEY MARKET INDICATORS
» Vacancy dropped to 14.9% in 4Q 2010, down 2% from 4Q 2009 » Average direct rental rates decreased $0.03/SF/FS since the previous quarter and net absorption for 4Q 2010 was 473,213 SF » Concessions in the form of free rent and tenant improvements continue to be widely
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 4Q 2010
NORTH END
EASTSIDE
CLASS A & B(1)
Submarket
Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
520 Corridor
12.2%
$25.35 FS
3-6 months
$10-$25/SF
Free – $50 res/covered
Bellevue Central Business District (Bellevue CBD)
14.8%
$32.80 FS
3-6 months
$20-$30/SF
$140 – $195 non-reserved $150 – $250 reserved
Bothell
17.7%
$23.48 FS
6-8 months
$15-$25/SF
Free
I-90 Corridor
13.6%
$30.36 FS
4-6 months
$15-$25/SF
Free –$50 reserved
Issaquah
12.2%
$28.88 FS
2-4 months
$10-$15/SF
$50 reserved/covered
Kirkland
18.1%
$27.10 FS
4-8 months
$15-$25/SF
$50 – $125 reserved
Mercer Island
14.3%
$27.60 FS
3-5 months
$10-$20/SF
$50 reserved
Redmond
19.7%
$24.35 FS
5-8 months
$15-$25/SF
Free
Suburban Bellevue
12.5%
$25.39 FS
3-6 months
$10-$30/SF
Free – $75 reserved
Total Eastside
15.3%
$27.55 FS
2-8 months
$10-$30/SF
Free – $195 non-reserved $50 – $250 reserved
Lynnwood
23.3%
$22.36 FS
5-7 months
$20-$25/SF
Free
Parking
(1) Does not include owner/user space (2) Per square foot per year
» Total Eastside vacancy has continued to hover around 15% since 4Q 2009; year-to-date net absorption is 186,900 SF
KEY MARKET INDICATORS VACANCY RATES
» Average direct rental rates have dropped $1.10/SF/FS since 4Q 2009 while sublet rates » There were 104 lease transactions in the fourth quarter with an average deal size of 3,749 SF; only one was a sublease deal
RENTAL RATES Source: CoStar
have risen $0.03/SF/FS
NET ABSORPTION Quarter over Quarter Change
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Southend Office Market 4Q 2010 CLASS A & B(1) Submarket
Vacancy
Direct Quoted Rate(2)
Free Rent
TI’s
Parking
Federal Way/Auburn
25.4%
$20.19 FS
3-7 months
$10-$20/SF
Free
Kent Valley
22.8%
$21.35 FS
4-7 months
$15-$30/SF
Free
Renton/Tukwila
12.9%
$20.58 FS
4-6 months
$10-$25/SF
Free
SeaTac/Burien
17.1%
$22.04 FS
3-5 months
$10-$25/SF
Free
Total Southend
18.2%
$20.79 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 dropped by 150 basis points in 4Q 2010 to finish the year at 18.2%, down 40 basis points from 4Q 2009, due to nearly 165,000 SF of positive net absorption » Average quoted direct rental rates decreased $0.14/SF/FS since 4Q 2009 to $20.79/SF/
VACANCY RATES RENTAL RATES
FS and rent concessions continue to range from 3-7 months » Leasing activity included 30 transactions in 4Q 2010 totaling roughly 128,000 SF
NET ABSORPTION Quarter over Quarter Change
Puget Sound Retail Market 4Q 2010 ALL CLASSES Market
Vacancy
Direct Quoted Rate
Free Rent
TI’s
Parking
Seattle
3.6%
$20.34 NNN
3-7 months
$10-$20/SF
Free
Eastside
6.7%
$22.97 NNN
4-7 months
$15-$30/SF
Free
Northend
6.6%
$17.41 NNN
4-6 months
$10-$25/SF
Free
Southend
7.9%
$16.26 NNN
3-5 months
$10-$25/SF
Free
Tacoma
6.9%
$15.73 NNN
3-6 months
$10-$20/SF
Free
Total Retail
6.3%
$17.88 NNN
3-7 months
$10-$30/SF
Free
KEY MARKET INDICATORS » Regional retail vacancy has remained relatively unchanged since 2Q 2010, hovering
VACANCY RATES
between 6.0% and 6.4% » Average quoted direct rental rates have fallen $1.32/SF/NNN since 4Q 2009 to $17.88/
RENTAL RATES
SF/NNN while average quoted sublease rents dropped $0.08/SF/NNN only three of which were sublease deals
NET ABSORPTION Quarter over Quarter Change
Source: CoStar
» There were 228 lease transactions completed in the fourth quarter totaling 565,000 SF,
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Eastside & Northend Industrial/Flex Market 4Q 2010 ALL CLASSES(1) Submarket
Vacancy
EASTSIDE
Free Rent
7.9%
$1.10 - $1.25 NNN
$0.55 - $0.65 NNN
1 - 3 months
Issaquah/Preston
6.5%
$1.20 - $1.30 NNN
$0.60 - $0.65 NNN
1 - 3 months
Redmond
11.9%
$1.00 - $1.20 NNN
$0.50 - $0.60 NNN
2 - 4 months
Kirkland
14.8%
$1.00 - $1.20 NNN
$0.45 - $0.60 NNN
2 - 4 months
Bothell/Mill Creek
14.1%
$1.00 - $1.20 NNN
$0.50 - $0.60 NNN
3 - 6 months
Monroe
21.8%
$0.90 - $1.10 NNN
$0.40 - $0.50 NNN
3 - 6 months
Woodinville
11.4%
$0.90 - $1.20 NNN
$0.48 - $0.60 NNN
3 - 5 months
Total Eastside
12.3%
$1.00 - $1.30 NNN
$0.45 - $0.65 NNN
1 - 6 months
Lynnwood, Everett & Mukilteo
11.3%
$1.00 - $1.15 NNN
$0.45 - $0.55 NNN
3 - 6 months
Bellevue
NORTH END
Direct Quoted Rates(2) Office Rate Warehouse Rate
(1) Does not include owner/user space (2) Per square foot per month
KEY MARKET INDICATORS
» Eastside industrial vacancy was flat in 4Q 2010 with minimal negative absorption » There were 72 deals inked in 4Q 2010 totaling 302,814 SF
EASTSIDE
NORTHEND
VACANCY RATES
» The Northend industrial market showed positive momentum in 4Q 2010 with RENTAL RATES
140,000 SF of absorption » Direct rental rates have been relatively flat awaiting the return of market demand
NET ABSORPTION Quarter over Quarter Change
Southend Industrial/Flex Market 4Q 2010 ALL CLASSES(1)
PIERCE COUNTY
SOUTHEND KING COUNTY
SOUTH SEATTLE
Submarket
Vacancy
Direct Quoted Rate(2) Office Rate Warehouse Rate
Free Rent
SoDo
4.4%
$0.75 NNN
$0.55 - $0.75 NNN
1-4 months
GTown/Duwamish N.
8.0%
$0.75 NNN
$0.45 - $0.65 NNN
1-4 months
GTown/Duwamish S.
4.5%
$0.75 NNN
$0.45 - $0.65 NNN
1-4 months
Total South Seattle
6.1%
$0.75 NNN
$0.45 - $0.75 NNN
1-4 months
SeaTac/Burien
8.7%
$0.75 NNN
$0.42 - $0.50 NNN
3-5 months
Tukwila
5.1%
$0.75 NNN
$0.34 - $0.40 NNN
3-5 months
Renton
6.6%
$0.75 NNN
$0.34 - $0.40 NNN
3-5 months
Kent
9.1%
$0.75 NNN
$0.32 - $0.40 NNN
3-5 months
Auburn
5.8%
$0.75 NNN
$0.32 - $0.38 NNN
3-5 months
Federal Way
7.0%
$0.75 NNN
$0.32 - $0.38 NNN
3-5 months
Total Southend King County
7.3%
$0.75 NNN
$0.32 - $0.50 NNN
3-5 months
Puyallup/Sumner
12.7%
$0.75 NNN
$0.28 - $0.36 NNN
3-6 months
Port of Tacoma/Fife
6.9%
$0.75 NNN
$0.28 - $0.36 NNN
3-6 months
Tacoma(3)
5.3%
$0.75 NNN
$0.28 - $0.36 NNN
3-6 months
Lakewood
4.1%
$0.75 NNN
$0.28 - $0.36 NNN
3-6 months
Outlying Submarkets(4)
6.4%
$0.75 NNN
$0.26 - $0.32 NNN
3-6 months
Total Pierce County
8.2%
$0.75 NNN
$0.26 - $0.36 NNN
3-6 months
Total Southend
7.4%
$0.75 NNN
$0.26 - $0.75 NNN
1-6 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
» Regional vacancy was steady at 7.4% in 4Q 2010 down 20 basis points since 4Q 2009 » Office and warehouse rents were flat in 4Q 2010, but look for concessions and TI’s to
KEY MARKET INDICATORS VACANCY RATES
reduce as market demand returns in 2011 constitutes a 0.37% loss in the overall occupancy, and down significantly from the four million plus SF loss in 2009
RENTAL RATES Source: CoStar
» Year to date net absorption in the Southend was negative 786,209 SF, however this only
NET ABSORPTION Quarter over Quarter Change
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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 18 $70M 30,939 SF $3.9M $126/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 51 $162M 38,196 SF $3.1M $83/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 » While 2010 had the same amount of office sales transactions as 2009, 2010’s office sales volume was $15 million higher, average size was 23,000 SF larger, and average price was $800,000 more
OFFICE
INDUSTRIAL
TRANSACTIONS $ VOLUME
» 2010 had 15 more industrial sales transactions than 2009 with $51 million more volume and average size was up 4,000 SF
AVERAGE PRICE AVERAGE PRICE/SF Quarter over Quarter Change
Institutional Sales OFFICE SALES OVER $10M CLASS A & B Transactions Highest Price/SF Avg. 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 18 $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 8 $186/SF 7.3%
INDUSTRIAL SALES OVER $10M ALL CLASSES Transactions Highest Price/SF Avg. Cap Rate
2004 20 $79/SF 7.2%
2005 22 $109/SF 6.8%
KEY MARKET INDICATORS » Year-to-date office sales nearly quadrupled 2009 transactions, the highest CAP rate is steady at 7.2% » Institutional industrial sales rose in the fourth quarter to finish 2010 with eight transaction sales totaling $1.54 billion in two million SF. Most notable was the 11 building, 940,689 square foot James Campbell Portfolio purchased by RREEF for $63,000,000
INDUSTRIAL
TRANSACTIONS $ VOLUME AVERAGE PRICE
NA
AVERAGE PRICE/SF
NA
CAP RATE
NA
Quarter over Quarter Change
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Source: CoStar
price per square foot is $548/SF compared to $405/SF last year and the average
OFFICE
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
Our Puget Sound Locations & Brokers SEATTLE BELLEVUE TACOMA OLYMPIA
WASHINGTON
SEATTLE
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PORTLAND
1700 7th Avenue Suite 2050 Seattle, WA 98101
225 108th Avenue NE Suite 550 Bellevue, WA 98004
1145 Broadway Plaza Suite 1350 Tacoma, WA 98402
111 Market Street NE Suite 325 Olympia, WA 98501
1 SW Columbia Street Suite 850 Portland, OR 97258
(206) 971-7000
(425) 974-4000
(253) 219-4868
(360) 357-7979
(503) 972-8000
DAVID ABBOTT ANN CHAMBERLIN LAURA FORD TONY FORD LORI HILL GREG INGLIN ERIC LELAND ERWIN PARK WYK PARKER NATE WHITE STUART WILLIAMS
LES BOUDWIN SCOTT CARTER BILL COOPER MARK FLIPPO CHRIS HUGHES BRENT JACKSON CHARLIE MALLEY STEVE SCHWARTZ DANIEL SEGER JJ SHEPHARD GABRIEL SMITH ANDREW STARK CASEY TREES
STEVE CRANTZ MIKE HORNER
TROY DANA RYAN HADDOCK CRYSTAL HARLOW PAUL VALENTINE
BUZZ ELLIS, SIOR MARK FRIEL KRISTIN HAMMOND MARK MCFARLAND, SIOR PAIGE MORGAN TOM SHIMOTA JEFF SHOLIAN, SIOR JOSH STOHR JOE VAUGHAN
PORTLAND
OREGON
For more information contact: Taylor Odegard Research Analyst taylor.odegard@pacific-re.com (425) 974-4013
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