Puget Sound Office Vacancy at 17%

SEATTLE-The overall Puget Sound office market saw 384,000 sf of negative net absorption in the first quarter, pushing vacancy to 17%, according to the latest report from the local office of Grubb & Ellis. In the Seattle market only, negative net absorption was about 17,000 sf and office vacancy remains in the 15% range, as it has for the past year.”This is more of the same and we can expect these kinds of numbers many quarters into the future,” said James M. Keating, Senior Vice President of Grubb & Ellis.There are still tenants in the market, according to the report, but activity continues to be mostly lease renewals and lateral moves. Local job growth is anemic and there are few economic drivers that will increase hiring, writes G&E research director Chris Vay.As a result, credit tenants are still seeing free rent, turnkey tenant improvements and moving allowances on some spaces, according to the report; while tenants with leases approaching expiration should be able negotiate very favorable lease terms with their existing property owners. Asking rents now stand at $25.64 per sf for class A product and $18.65 per sf for class B product. Continued negative net absorption is expected as several large firms including NBBJ, Tommy Bahama and Washington Mutual move to built-to-suit projects. As well, the Bill and Melinda Gates Foundation, currently occupying 100,000 sf on Eastlake, is considering building a 200,000- to 600,000-sf office complex in the South Lake Union area, and King County is deciding whether to build an $89 million, 261,000-sf office building in Downtown Seattle. Making matters worse, layoffs at Redmond, WA-based AT&T Wireless if its acquisition by Atlanta-based Cingular Wireless goes through are expected to have a tremendous impact on the 27.8-million-sf Eastside office market, where the company occupies about 1 million sf and vacancy now stands at 17.1%. “All these factors will put some large chunks of space on the market over the next three years, and may stifle any rally landlords are hoping for,” according to the report.The vast majority of the negative net absorption in the quarter occurred in suburban class B product in the 3.6-million-sf Renton sub market, where vacancy spiked to 30.6% from 21.5 at the end of the year. The main culprit was Boeing, which vacated more than 300,000 sf at the five-building Times Square Complex. The only other area with a vacancy rate over 30% is Lynwood, a 1.6-million-sf Northend sub market. In Downtown Seattle’s Financial District, the largest sub market with about 22 million sf, negative net absorption was about 50,000 sf and vacancy now stands at 14.2%. Class A asking rates there stand at $28.54 per sf per year.