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."

Undeterred by the current market conditions, developers continue to plan, permit and build office projects at a remarkable rate. The Bellevue CBD skyline remains in constant transformation with 2.45 million sf of space under construction.

Included in that number is the recently completed Schnitzer Civica Office Commons and Hines' soon-to-be completed 712,000-sf 112th@12th. Lincoln Square also has broken ground. The 1.4 million-square foot mixed-use project across from Bellevue Square includes 530,000 sf of office space that will be available late next year.

Office markets readily absorbed the first wave of new construction set off by the high-technology frenzy. However, it remains to be seen whether future construction will be as fortunate, according to CBRE. Developers have shown a willingness to sit on planned projects until the market is more favorable for absorbing new space while others are scrambling quickly to finish projects already underway.

"At the start of the fourth quarter, our vacancy rates hit an all-time low at 0.77%," Hollomon said. "Now, over the past three or four months, our market has turned 180 degrees."