While nearly 25% of the vacant space in the region is sublease space, the impact of sublease space on vacancy rates appears to be stabilizing. Reflecting the healthy preleasing activity of over 3.2 million sf of new office space in the region, absorption was a surprising 1.9 million sf with the Redmond office market, in Microsoft's backyard, leading the way with over 800,000 sf absorbed.

Average class A asking lease rates are beginning to reflect a softening market and increases have slowed dramatically from previous quarters. Eastside rates dipped a few pennies from $31.06 per sf at the end of last year to $30.82 per sf at the end of March 2001.

"With new spaces hitting the market every day, it is a good time to be a tenant looking for space," says CBRE's Pete Hollomon, an Eastside office specialist. "Over the next few months, rental rates will continue to drop until much of the sublease space has been taken off the market. With fewer growing companies in the market today, it could be a while before this sublease space is gone."