Seattle
• Once again, economic conditions impacted the Seattle office market in the fourth quarter. Vacancy rates increased to 14.36% in the fourth quarter, up 220 basis points since third quarter 2009. This is the largest jump in vacancy this market has posted in 2009 as well as the highest volume of space given back to the market.
• Three new high rise office buildings were delivered to the Seattle office market this quarter. Both 635 and 645 Elliott were delivered vacant this quarter contributing 320,000 sf of vacant space to Seattle’s Queen Anne/Magnolia submarket. Additionally, the 680,000 sf 1918 8th Building also delivered this quarter vacant. This delivery of 1918 8th spiked the Lake Union submarket’s vacancy 746 basis points to 20.32% vacant. However, Freestone Capital and Hagens Berman each signed a lease to take a full floor in the building and will be occupying first quarter of 2010. RBC Wealth Management will be taking an additional two floors in the second quarter.
• The Seattle office market saw several other large tenants secure space in the fourth quarter. Dorsey & Whitney moved into their new space, over 70,000 sf, at the Columbia Center (701 5th Ave.). Last quarter Northwestern Mutual purchased Chase Center (1301 2nd Ave.) for $115 million and in the fourth quarter, WAMU’s vacated space hit the market, contributing ~518,000 sf of space. Nordstrom is rumored to be taking over 300,000 sf of that vacant space, including the SAM’s (Seattle Art Museum’s) sublease space. Tenants, especially large ones, are looking to secure leases and lock in rates while the market is soft.
Eastside
• The steep increase in vacancy rates exhibited in the past five quarters appears to be on the decline; vacancy rates have increased 32 basis points since last quarter to end the fourth quarter at 12.16%.
• Colliers International represented Clearwire during leasing negotiations for their 72,000 sf location at the Teledesic Building (1445 120th Ave. NE) in the Suburban Bellevue submarket. Clearwire plans to occupy the space mid-2010.
• Despite vacancy rates in the 520 Corridor essentially doubling due to second quarter move-outs by EDS and Microsoft, the submarket continues to post the lowest vacancy rate in the Eastside office market at 4.7%.
• Microsoft placed a combined 236,000 sf of space on the market for sublease during the fourth quarter in the Coal Creek/Issaquah, 520 Corridor, Redmond, and Kirkland submarkets.
• The Kirkland submarket posted the highest vacancy rate at 18.0%, increasing 1.3% since the third quarter.
• Eagle Home Mortgage leased approximately 20,000 sf at the 405 Corporate Center (301 116th Ave. SE). Open Text was the sublessor.
• Valve leased 89,000 sf at Skyline Tower (10900 NE 4th St.). They plan to occupy the space March 2010.
• Sunrise Design signed a 10 year lease at the Cordova Building (405 114th Ave. SE) in the Suburban Bellevue submarket for approximately 15,000 sf.
Northend
• The Northend office vacancy rate increased a mere five basis points to end the fourth quarter at 14.53%.
• The Bothell submarket had the largest quarter-over-quarter decrease in vacancy, falling 2.1% due to Vertafore occupying approximately 105,000 sf at Schnitzer Building A (11724 NE 195th St.).
• South Everett, Mill Creek/Woodinville and Edmonds/Lynnwood were the only submarkets to return space to landlords with a combined 12,000 sf of negative absorption during the fourth quarter.
• The Everett CBD submarket continues to post the lowest vacancy rate of the Northend office market at 5.3%.
South King County
• For the first time in 2009 the South King County office market saw a decrease in vacancy from 14.13% in the third quarter 2009 to 13.44% in the fourth quarter with over a net 130,000 sf absorbed this quarter. This reduction in vacancy is a reflection of the Howard Hanson Dam flood potential causing some tenants to secure additional space outside of the flood zone. South King County’s vacancy appears lower than some other markets because of the high volume (~45%) of owner/user buildings.
• The Tukwila and Renton submarkets saw the most positive growth this quarter helping to drop the overall vacancy in the region. Tukwila posted over 75,000 sf of positive absorption and Renton posted another positive 45,000 sf. In Tukwila the growth can mainly be attributed King County Elections leasing 83,000 sf of temporary space at the Airport Office Center (9010 E Marginal Way). The county leased this space as contingency space due to the potential flood danger at their former location. Once the flood danger is gone, the county will likely be moving this office back to its original location (919 SW Grady Way) in Renton.
• Office tenants and landlords located on the Kent Valley floor continue to watch for the potential flood danger in this region but less vigilantly now with the risk of flooding reduced from 1:4 to 1:33.
Pierce County
• Vacancy in Pierce County rose 50 basis points in the fourth quarter to12.60% as well as posting nearly 53,000 sf of negative absorption. Most of the contraction was concentrated in the Class B and C markets and was limited to small vacancies spread throughout the Tacoma Suburban, University Place/Lakewood and Gig Harbor submarkets.
• Tacoma’s newest Class A building, Pacific Plaza, delivered in the third quarter and has been an active and highly coveted property since its delivery. Multiple leases have been inked in the recent quarter including the DEA for 13,576 sf, Grant Makers for 3,037 sf and the Attorney General’s office won approval to convert 13,971 sf of the street level retail into additional required office space. The turnkey build out will give the Attorney General’s office a combination of 18,479 sf on the 8th floor as well as the additional 13,971 sf on the 1st floor for a total occupancy of approximately 32,450 sf expected to come available before June of 2010. The finished build-out will reconfigure the building’s space mix to roughly 82,000 sf of office with two retail spaces totaling 17,886 sf.
• Puyallup continues to experience vacancy woes with the county’s highest vacancy (35%). However 28% of that vacancy stems directly from the South Hill Business & Technology Center buildings 1 & 2 totaling 319,311 sf of vacant office space.
About Colliers International
Colliers Macaulay Nicolls Inc. (CMN), operating as Colliers International, is a leading global real
estate services company that provides a full range of services to real estate occupiers, developers and investors worldwide. The organization’s 12,700 employees span the globe in 294 offices in 61 countries. On a worldwide basis, Colliers manages more than 1 billion square feet and has revenue of $1.6 billion. Services include brokerage, property management, hotel investment sales and consulting, corporate services, valuation, consulting and appraisal services, project management, mortgage banking and research.
Colliers is committed to sustainable practices for business and the environment. We take a global leadership role by offering professional education, minimizing our environmental impact, and helping our clients implement sustainable practices in their property and business.
In the Puget Sound region, Colliers has over 80 brokers located in the Seattle, Bellevue, Tacoma, and Olympia offices. Colliers’ sales and leasing professionals are listed on CoStar’s Puget Sound Power Broker list. Find out more at www.colliersmn.com.
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