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2Q’11 PUGET SOUND MARKET REPORT

Eastside and Northend Office Market EA STSI D E SO L I D I F I ES SEATTLE BELLEVUE

The Eastside and Northend office markets both continued to see a significant rise in activity in the second quarter of 2011. The majority of the activity was attributable to the Eastside suburban

TACOMA

markets, as occupancies of leases executed during previous quarters went into effect. Overall, rents are stabilizing, tenant

Founded in 1993, Pacific Real Estate Partners (PREP) has over 35 brokers in four offices serving

EASTSIDE AND NORTHEND OFFICE SUBMARKETS LEGEND Northend Office Submarkets Eastside Office Submarkets 5

concessions are decreasing and vacancy rates continue to drop.

WASHINGTON

EVERETT CBD

As we reach the mid-year point of 2011 it appears as though

the Seattle, Bellevue, Tacoma, Washington and

market tension is easing as tenant activity continues to gain

Portland, Oregon markets. Providing client-centered

momentum. Transaction volume on the Eastside has gained

and value-driven real estate services to clients

strength with nearly 250 lease transactions, accounting for more

throughout the Pacific Northwest and beyond, we

than one million square feet already inked in 2011.

represent tenants, landlords, and investors in the

Investment activity also experienced an uptick on the

office, industrial, investment sales, and retail sectors.

Eastside, with eight office building sales totaling $342M in just

S SNOHOMISH COUNTY S EVERETT/ HARBOR POINTE

EDMONDS/ LYNNWOOD

MILL CREEK/ WOODINVILLE

BOTHELL

over 900,000 SF. The highlight of the second quarter was the sale of the 488,000 SF Class A office building, Key Center, to Kilroy PORTLAND

Realty Corporation for $217M ($444/SF). Rental rates, vacancy, absorption and concessions saw their

EASTSIDE BROKERS: Bill Cooper

biggest transition in the second quarter. Indicators of climbing

Mark Flippo

market strength were 513,000 SF of absorption, a 1.7% vacancy

Chris Hughes

drop, rental rates holding steady and concessions from landlords

Brent Jackson Charlie Malley

OREGON

beginning to decrease. Leasing was strong throughout most of the submarkets and

Steve Schwartz

was highlighted by Expedia’s expansion into 54,000 SF at Bellevue

Daniel Seger

CBD’s Skyline Tower. With rental rates stabilizing, absorption

JJ Shephard

increasing and concessions shrinking, the Eastside office market

Gabe Smith

is getting closer to market equilibrium. While the landscape of

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the market is starting to shift there are still opportunities for

amount of prospective tenant activity.

tenants; however if a move or expansion is needed, the window

As expected, the high tech, professional services and

of opportunity in this market is shrinking.

biomedical industries are growing and will continue to have the

Heading into the second half of 2011 the Eastside office market

greatest demand for this type of product. With the stabilization

will continue to have one primary challenge: the diminishing

of rental rates and vacancy inching closer to lower levels the

supply of available space for tenants that require contiguous

Eastside office market may once again begin to see office

large blocks. Prior quarter’s increased tenant activity and the lack

development sites become active.

of new development will combine to put a strain on contiguous

While any new speculative development most likely wouldn’t

blocks of space that are 75,000 SF or greater. Currently, there

hit the market until 2013 there are emerging signs that the

are only 10 buildings on the Eastside that can deliver this type

Eastside office market is solidifying and those market indicators

of commodity, many of which are already experiencing a healthy

may be the foundation that developers need to move forward.

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2Q’11 PUGET SOUND MARKET REPORT

2Q’11 PUGET SOUND MARKET REPORT

Eastside Office Market

Northend Office Market The Northend office market is comprised of 298 properties and is

HISTORICAL VACANCY RATES & RENTAL RATES

of 668 office buildings that total nearly 35 million square feet. Over the

18.0%

$35.00

spread throughout seven submarkets, representing a total of just over

second quarter the overall vacancy rate declined nearly 2%, positive net

15.0%

$30.00

8.6 million square feet. Although there was no change to the overall

absorption increased just over 513,000 square feet and overall average

12.0%

$25.00

9.0%

rental rates increased close to 11.6%.

6.0%

2005

2006

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE

2007

2008

Rental Rates (FS)

51 72 76 58 39 111 21 68 172 668

SF

Direct Vacancy

Sublet Vacancy

Total Vacancy

8,425,846 3,866,066 3,114,091 4,797,842 1,805,874 4,027,270 593,816 3,815,304 4,442,803 34,888,912

12.7% 17.0% 9.8% 11.1% 12.1% 13.7% 12.1% 18.7% 12.8% 13.4%

1.4% 1.6% 0.2% 1.2% 0.3% 1.4% 0.1% 1.3% 0.6% 1.1%

14.1% 18.6% 10.0% 12.3% 12.4% 15.1% 12.2% 20.0% 13.4% 14.5%

positive territory at 67,833 square feet.

ABSORPTION 2Q Absorption YTD

57,837 64,860 29,818 179,478 11,629 115,454 (7,537) 11,651 50,467 513,657

2009

2010

$0.00

2011

65,479 121,161 50,448 181,068 29,162 165,675 (3,873) 31,939 (54,118) 586,941

$34.20 $27.00 $27.25 $31.20 $28.96 $31.09 $30.39 $26.09 $35.00 $30.13

2004

2005

2006

2007

2008

2009

2Q’10

3Q’10

4Q’10

1Q’11

2Q’11

9.6% 15.1% 12.3% 9.0% 2.0% 7.4% 1.2% 13.2% 7.7% 9.7%

5.5% 16.1% 8.9% 5.8% 3.0% 10.6% 1.8% 9.7% 10.1% 8.7%

6.9% 26.2% 3.5% 6.7% 5.9% 6.8% 4.9% 7.8% 8.3% 9.0%

10.5% 27.8% 6.5% 15.0% 2.3% 12.6% 10.1% 12.0% 9.7% 12.6%

13.4% 22.9% 12.0% 16.9% 6.5% 19.0% 14.8% 21.8% 11.6% 15.8%

16.3% 22.9% 12.7% 14.9% 4.9% 17.0% 20.4% 23.6% 11.1% 16.4%

15.3% 21.1% 13.0% 16.5% 13.9% 17.4% 19.3% 19.7% 12.5% 16.2%

14.9% 21.7% 11.5% 16.1% 14.1% 19.3% 15.7% 19.9% 12.1% 16.2%

14.8% 20.3% 10.9% 16.0% 13.0% 18.1% 14.9% 20.4% 14.3% 16.1%

14.1% 18.6% 10.0% 12.3% 12.4% 15.1% 12.2% 20.0% 13.4% 14.5%

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

Historical Total Absorption

2007

2008

2009

2010

$37.87 $25.81 $28.04 $34.61 $31.42 $31.22 $29.42 $28.74 $29.20 $30.70

$39.06 $26.14 $28.59 $35.50 $31.65 $32.96 $30.40 $28.91 $29.88 $31.45

$35.02 $23.54 $26.15 $31.04 $29.95 $27.57 $26.65 $25.11 $26.02 $27.89

$32.67 $23.58 $24.51 $30.37 $29.04 $27.18 $26.63 $24.45 $24.65 $27.01

Market Area

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

2Q’10

3Q’10

4Q’10

2010

1Q’11

2Q’11

(50,899) (35,567) (2,390) 11,797 (16,431) 49,563 (21,177) 54,638 9,977 (489)

81,147 70,787 (8,388) 231,887 (48,569) (16,464) 4,882 144,764 (22,694) 437,352

37,295 (25,991) 44,697 (85,126) (2,883) (78,489) 15,633 61,787 19,394 (13,683)

(123,800) 46,610 15,692 284,751 (93,219) (14,306) (4,251) 137,778 19,160 268,415

7,642 56,301 20,630 1,590 17,533 50,221 3,664 20,288 (104,585) 73,284

57,837 64,860 29,818 179,478 11,629 115,454 (7,537) 11,651 50,467 513,657

Asking Lease Rates by Class (FS)

INVENTORY Buildings

Market Area

$21.50

2005

2006

2007

2008

2009

2010

2011

$20.00

Vacancy Rates

SF

Direct Vacancy

Sublet Vacancy

Total Vacancy

ABSORPTION 2Q Absorption YTD

AVERAGE RENT & EXPENSES (FS) Rent NNN

Everett CBD

64

1,926,654

6.8%

0.0%

6.8%

(160)

3,775

$22.33

$4.50

Lynnwood/Edmonds

91

2,720,504

23.9%

0.2%

24.1%

(5,298)

2,649

$22.24

$5.50

Woodinville/Mill Creek

27

671,368

19.6%

0.0%

19.6%

(2,749)

39,489

$24.81

$4.50

N Snohomish County

19

361,271

6.7%

0.0%

6.7%

-

(1,950)

$21.56

$4.50

S Snohomish County

7

227,227

9.1%

0.0%

9.1%

383

383

$28.00

$4.50

S Everett/Harbor Point

42

1,218,966

10.2%

1.7%

11.9%

(12,748)

(7,405)

$28.04

$4.50

North Seattle/Northgate

48

1,555,355

10.7%

0.5%

11.2%

12,758

30,892

$22.46

$5.00

NORTHEND

298

8,681,345

14.4%

0.4%

14.8%

(7,814)

67,833

$24.21

$5.19

Historical Total Vacancy Market Area

2004

2005

2006

2007

2008

2009

2Q’10

3Q’10

4Q’10

1Q’11

Everett CBD

5.0%

6.7%

6.5%

8.9%

5.6%

4.1%

5.1%

6.2%

7.7%

7.4%

6.8%

Lynnwood/Edmonds

17.0%

17.0%

17.7%

18.9%

16.3%

23.0%

24.3%

24.5%

24.0%

23.7%

24.1%

Woodinville/Mill Creek

5.2%

7.9%

10.2%

12.8%

29.3%

30.8%

30.5%

28.0%

26.9%

20.6%

19.6%

N Snohomish County

5.1%

2.8%

3.4%

3.1%

4.4%

5.1%

6.5%

5.7%

6.1%

6.7%

6.7%

S Snohomish County

1.0%

11.0%

13.3%

12.6%

12.0%

8.7%

7.1%

11.5%

9.3%

9.3%

9.1%

S Everett/Harbor Point

13.8%

16.3%

10.7%

9.4%

9.5%

12.0%

10.8%

11.7%

11.5%

11.1%

11.9%

North Seattle/Northgate

9.3%

11.2%

11.5%

9.5%

11.2%

12.8%

12.8%

11.8%

12.7%

11.5%

11.2%

NORTHEND OFFICE

11.1%

12.3%

11.9%

12.4%

12.6%

15.2%

15.7%

15.8%

15.9%

14.8%

14.8%

2Q’11

Historical Rents (FS)

2Q’11

Historical Total Absorption

Market Area

$24.54

$23.32

$23.43

$23.29

Market Area

2Q’10

3Q’10

4Q’10

2010

1Q’11

Everett CBD

$24.23

$24.15

$22.70

$22.33

Everett CBD

(3,679)

(17,901)

(25,161)

(60,832)

3,935

(160)

Lynnwood/Edmonds

$26.80

$25.89

$23.26

$22.72

Lynnwood/Edmonds

12,372

(5,431)

13,135

(27,804)

7,947

(5,298)

Woodinville/Mill Creek

$25.83

$24.87

$21.58

$21.42

Woodinville/Mill Creek

1,465

16,830

7,190

33,069

42,238

(2,749)

N Snohomish County

$26.87

$27.60

$20.41

$28.09

N Snohomish County

(4,070)

3,144

(1,685)

(3,645)

(1,950)

-

S Snohomish County

$22.46

$22.62

$22.26

$21.92

S Snohomish County

-

(10,168)

5,099

(1,258)

-

383

S Everett/Harbor Point

$26.80

$25.61

$23.12

$22.49

S Everett/Harbor Point

22,849

(12,110)

2,549

5,515

5,343

(12,748)

North Seattle/Northgate

$25.36

$24.87

$22.39

$23.18

North Seattle/Northgate

(1,712)

16,847

(14,326)

2,674

18,134

12,758

NORTHEND OFFICE

$25.36

$24.87

$22.39

$23.18

NORTHEND OFFICE

27,225

(8,789)

(13,199)

(52,281)

75,647

(7,814)

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

$34.20 $27.00 $27.25 $31.20 $28.96 $31.09 $30.39 $26.09 $35.00 $30.13

$10.75 $9.00 $8.00 $9.50 $8.50 $9.00 $10.00 $8.00 $9.50 $9.14

$26.62 $23.74 $23.52 $27.34 $29.25 $24.94 $24.79 $22.36 $24.63 $25.24

$20.44 $22.53 $14.25 $20.00 $22.72 $24.38 $18.94 $18.35 $18.07 $19.96

$9.75 $8.00 $7.00 $8.50 $7.50 $8.00 $9.00 $7.00 $8.50 $8.14

$8.75 $7.00 $6.00 $7.50 $6.50 $7.00 $8.00 $6.00 $7.50 $7.14

Market Area

LEASE RATES (FULL SERVICE) Class B Class C

Class A

OPERATING EXPENSES* (PSF) Class B Class C

-

$26.47

$17.80

-

$5.00

$4.00

-

$20.09

$6.50

-

$4.50

Woodinville/Mill Creek

-

$23.02

$18.11

-

$5.00

$4.00

N Snohomish County

-

$22.00

$19.00

-

$5.00

$4.00

S Snohomish County

-

$22.00

$19.00

-

$5.00

$4.00

S Everett/Harbor Point

-

$23.29

$16.31

-

$5.00

$4.00

North Seattle/Northgate

$23.62

$22.48

$19.94

$6.00

$5.00

$4.00

NORTHEND OFFICE

$24.48

$23.21

$18.61

$6.50

$5.00

$4.07

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Lynnwood/Edmonds

S EAT T L E | BEL L EV U E | TA COM A | PORTLA N D

Class A

$25.34

Everett CBD

*Expenses are approximate

Market Area

OPERATING EXPENSES* (PSF) Class A Class B Class C

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$23.00

Asking Lease Rates by Class

LEASE RATES (FULL SERVICE) Class A Class B Class C

(4 2 5 ) 9 74- 4000

$24.50

Northend Office Overview

$9.75 $8.00 $7.00 $8.50 $7.50 $8.00 $9.00 $7.00 $8.50 $8.14

16.3% 20.0% 12.7% 14.1% 3.3% 14.0% 3.6% 23.2% 11.1% 14.9%

Historical Rents (FS) Market Area

$26.00

Rental Rates (FS)

*Prior years as of 4Q

Bellevue CBD Bothell 520 Corridor I-90 Corridor Issaquah Kirkland Mercer Island Redmond Suburban Bellevue EASTSIDE OFFICE

$27.50

Vacancy Rates AVG CLASS A RENT & EXPENSES (FS) Rent NNN

Historical Total Vacancy Market Area

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

*Expenses are approximate

Market Area

increase to $24.21 per square foot and YTD net absorption remains in

$5.00

Eastside Office Overview INVENTORY Buildings

vacancy rate during the second quarter, average rental rates saw a slight

$15.00 $10.00

3.0% 0.0%

$20.00

HISTORICAL VACANCY RATES & RENTAL RATES

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*Prior years as of 4Q

The Eastside office market is made up of nine submarkets, with a total

2Q11_Eastside_Northend_Office_Market_PDF  

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