Regional Office Vacancy Falls on Strength of Bellevue Alone

SEATTLE-The vast majority of Puget Sound office submarkets saw their vacancy rise in the third quarter, but on the strength of a single Eastside submarket the overall regional vacancy rate fell slightly, from 16.41% to 16.25% on a base of slightly more than 81 million sf.According to the latest report from CB Richard Ellis, the North Seattle office market experienced an increase in vacancy from 7.19% to 8.88% during the third quarter on 24,051 sf of negative absorption. The Tacoma/Fife market also had an increase in vacancy, from 13.43% to 14.11% on 20,477 sf of negative absorption. The vacancy rate in Downtown Seattle increased this quarter from 15.29% to 15.44% as a result of 56,324 sf of negative absorption. It was the first increase in vacancy the downtown market has seen since the second quarter 2003, according to the report.The Southend market–encompassing Auburn, Federal Way, Kent, Renton, Sea-Tac, South Seattle and Tukwila–saw vacancy rise from 21.38% to 24.00% during the third quarter on157,539 sf of negative absorption. The only market other than the Eastside not to see vacancy rise in the third quarter was the relatively slight Snohomish County market, and it wasn’t that impressive. Snohomish County vacancy fell from 23.40% to 23.30% in the third quarter on a mere 3,801 sf of positive absorption. Despite all this, the region still can boast 265,593 sf of positive net absorption during the third quarter which marks the eighth consecutive quarter of positive absorption. Why? While all this mediocrity was taking place, Bellevue was busy reversing in three months what many feared might be years of excess space. During the quarter, the Bellevue CBD saw its vacancy rate fall a whopping 34% or 717 points, from 20.93% to 13.76%, giving it a lower vacancy rate than Downtown Seattle for the first time since the fourth quarter of 2000. Leading the leasing were Safeco spin-off Symetra Financial and Drugstore.com, which leased a combined 342,256 sf in the Bellevue CBD. Indeed, the submarket is almost solely responsible for the Eastside’s 520,000 sf of positive absorption–the most absorption since the first quarter of 2001–which dropped overall Eastside vacancy by 13% or 202 points, from 15.76% to 13.74%.Despite negative absorption in most markets, average class A asking rates rose in every market save for Tacoma, leading to an overall increase in the asking rates fore the entire Puget Sound region, from $22.69 to $22.76 per sf, fully serviced. Asking rates in Bellevue, of course, rose the most, jumping from $21.50 to $21.92 per sf, fully serviced. Regionwide, just over six million sf of planned projects remain in the pipeline awaiting a lasting market recovery, or significant pre-leasing. In Bellevue, with few full-floor opportunities now available, developers including Kemper Freeman, Schnitzer Northwest and Equity Office Properties all are vying for prelease commitments that will allow them to add office towers to the skyline.