Commercial real estate conditions have improved steadily in the Puget Sound region, fueled primarily by new hiring and a lack of new development. During 2010, area employers expanded payrolls by 15,900 workers, following the loss of 125,000 jobs in the preceding two years. The rate of employment growth is forecast to accelerate to 2.2% (or by 36,000 positions) this year as local business conditions strengthen. Translating this into the commercial real estate sector, demand for apartments is expected to increase by year's end, pushing vacancies down and subduing, but certainly not eliminating, distress in that sector. Retail has benefited from a lack of new construction, which has resulted in greater leasing and a decline in concessions. Seattle's industrial sector is also expected to make strides, driven largely by an increase in trade activity. While the office market is gaining momentum, especially in the class A segment, the sector faces some uphill battles due to still-weak fundamentals.

Distress in Multifamily

Apartment vacancy will tighten further in 2011 as employment gains surpass the national average and completions slow to one of the lowest levels on record. Last year, declining homeownership rates and the resumption of job growth fueled a surge in apartment demand, pulling the vacancy rate in line with the 10-year average, despite the influx in deliveries. This year, operations will improve as stock additions decelerate and re-employed young professionals migrate to neighborhoods near major employment hubs such as Capitol Hill, Queen Anne, Ballard and Downtown Tacoma.