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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

BELLEVUE

TACOMA

OLYMPIA

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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Market Report 4Q 2010  

Pacific Real Estate Partners 4Q 2010 Market Report for the Puget Sound Region

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