Market Report 4Q 2010

4Q 2010

BELLEVUE | SEATTLE | TACOMA | OLYMPIA | PORTLAND

realestate@pacif ic-re.com www.pacif ic-re.com

Puget Sound Office Market - 4Q 2010CLASS A & B(1)

» Vacancy in the Puget Sound region dropped to 15.6% in 4Q 2010

with nearly 1.26 million SF of leasing activity

» Year-to-date net absorption is approximately 1,700,000 SF as

compared to negative 535,000 SF in 2009

» Average quoted direct rental rates have held firm since January at

$26.60/SF/FS*; average quoted sublease rental rates fell $1.18/SF/FS

from 4Q 2009

» 2010 saw 1,790 office lease transactions, approximately 5% more

than 2009 transactions

» Average lease size in the Puget Sound region in fourth quarter was

approximately 3,475 SF, 13% less than last quarter’s average

» Amazon.com’s 1.7 million SF corporate campus countinues to

emerge along South Lake Union where they have already occupied

over 600,000 SF(1) Does not include owner/user space

HISTORICAL VACANCY AND RENTAL RATES

20% $35

$15

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2002 2004 2008 2009 4Q’102001 2003 20072005 2006

DIRECT RENTAL RATES TOTAL VACANCY

KEY MARKET INDICATORS

VACANCY RATES

RENTAL RATES

NET ABSORPTION

Quarter over Quarter Change

Puget Sound Economic Overview - 4Q 2010SEATTLE CUMULATIVE GROWTH (2010-2014)

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As 2010 is now behind us, it is nice to look back and see the progress

that has been made over the last four quarters. After coming off of

one of the worst years in commercial real estate history in 2009, the

outlook for 2010 was skeptical at best. However, the Puget Sound

region was able to abstain from a continued free fall and began to

gain momentum and strength in 2010. Vacancy in the region across

all product types was able to stabilize, negative absorption was

minimal, and lease and sales transaction volume was significantly up.

Washington State’s unemployment dropped from its ten-year high of

10.4% in February of 2010 to 8.5% in October of 2010. According to

recovery.wa.gov, over 16,100 jobs were created/saved between July

and September, and with the help of initiatives in transportation, local

government infrastructure, capital construction and others, Washington

looks to add 60,000 new jobs in the near future.

With companies like Boeing, Microsoft, Amazon.com, Fred Hutchinson, Nintendo and T-Mobile USA, the Puget Sound region

has an elite list of progressive and innovative companies that can adapt with an ever-changing economy, many of which are at the

forefront of their industries. 2011 will be a year in which the region hopes to capitalize on positive momentum, decreased unemployment

and strong, but vigilant market fundamentals.

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Puget Sound Retail Market - 4Q 2010

ALL CLASSES

» Regional retail vacancy hovered between 6.4% and 6.3%

throughout 2010 and finished at 6.3% this quarter

» 4Q 2010 saw negative 89,000 SF of absorption which constitutes

less than 1% of the overall inventory

» Average quoted direct rental rates have fallen $1.38/SF/NNN since

4Q 2009 and $4.31/SF/NNN since 4Q 2008

» Approximately 1,183 retail transactions have been completed

regionally in 2010 as compared to 1,378 transactions in 2009, down

14% year over year

» Average lease size in the Puget Sound region is approximately

2,441 SF, nearly 5.2% less than last quarter

Puget Sound Industrial Market - 4Q 2010

ALL CLASSES

» After 10 consecutive quarters of rising vacancy across the region,

vacancy has held at 10.4% again in 4Q 2010, unchanged from last

quarter

» Year-to-date absorption is negative 1.11 million SF as compared to

negative 4.2 million SF in 2009

» There were 199 lease transactions in 4Q 2010 averaging

9,535 SF

» Average direct rental rates have remained around $0.56/SF/NNN*

throughout 2010

» Construction continues to be quiet in the region with no new

buildings delivered in the 4Q 2010 and nine in 2010, totaling

561,709 SF


DIRECT RENTS (OFFICE & WAREHOUSE) TOTAL VACANCY

12% $.70

$.20

$.40

$.60

$.50

$.10

$.30

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10%

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4%

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2002 2004 2008 2009 4Q’102001 2003 20072005 2006


VACANCY RATES

RENTAL RATES

NET ABSORPTION



10% $35

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$0

7.5%

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NN

)DIRECT RENTAL RATES TOTAL VACANCY


VACANCY RATES

RENTAL RATES

NET ABSORPTION

RENT

2008 2009 4Q’1020072006


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CLASS A & B(1)

Submarket Vacancy Direct Quoted Rate(2) Free Rent TI’s Parking

EA

ST

SID

E

520 Corridor 12.2% $25.35 FS 3-6 months $10-$25/SF Free – $50 res/covered

Bellevue Central Business District (Bellevue CBD)

14.8% $32.80 FS 3-6 months $20-$30/SF$140 – $195 non-reserved $150 – $250 reserved

Bothell 17.7% $23.48 FS 6-8 months $15-$25/SF Free

I-90 Corridor 13.6% $30.36 FS 4-6 months $15-$25/SF Free –$50 reserved

Issaquah 12.2% $28.88 FS 2-4 months $10-$15/SF $50 reserved/covered

Kirkland 18.1% $27.10 FS 4-8 months $15-$25/SF $50 – $125 reserved

Mercer Island 14.3% $27.60 FS 3-5 months $10-$20/SF $50 reserved

Redmond 19.7% $24.35 FS 5-8 months $15-$25/SF Free

Suburban Bellevue 12.5% $25.39 FS 3-6 months $10-$30/SF Free – $75 reserved

Total Eastside 15.3% $27.55 FS 2-8 months $10-$30/SFFree – $195 non-reserved $50 – $250 reserved

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Lynnwood 23.3% $22.36 FS 5-7 months $20-$25/SF Free

(1) Does not include owner/user space (2) Per square foot per year

Eastside & Northend Office Market 4Q 2010

» Total Eastside vacancy has continued to hover around 15% since 4Q 2009; year-to-date

net absorption is 186,900 SF

» Average direct rental rates have dropped $1.10/SF/FS since 4Q 2009 while sublet rates

have risen $0.03/SF/FS

» There were 104 lease transactions in the fourth quarter with an average deal size of

3,749 SF; only one was a sublease deal


VACANCY RATES

RENTAL RATES

NET ABSORPTION

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Downtown Seattle Office Market 4Q 2010CLASS A & B(1)


Ballard/U-District 15.6% $28.28 FS 3-5 months $10-$30/SF $50-$150

Belltown 13.8% $25.29 FS 3-8 months $10-$30/SF $125-$175

Capitol Hill 8.3% $31.04 FS 1-3 months $10-$25/SF $100-$150

Lake Union 5.4% $26.91 FS 3-10 months $10-$35/SF $75-$175

Pioneer Square/Waterfront 22.2% $26.39 FS 3-8 months $10-$40/SF $100-$250

Queen Anne 14.6% $28.44 FS 2-6 months $10-$20/SF $100-$200

Seattle Central Business District (Seattle CBD)

16.4% $30.87 FS 4-12 months $25-$85/SF $200-$325

Total Downtown Seattle 14.9% $29.16 FS 1-12 months $10-$85/SF $50-$325

» Vacancy dropped to 14.9% in 4Q 2010, down 2% from 4Q 2009

» Average direct rental rates decreased $0.03/SF/FS since the previous quarter and net

absorption for 4Q 2010 was 473,213 SF

» Concessions in the form of free rent and tenant improvements continue to be widely

used to entice tenants to relocate and/or sign longer term leases


VACANCY RATES

RENTAL RATES

NET ABSORPTION

(1) Does not include owner/user space(2) Per square foot per year




Southend Office Market 4Q 2010CLASS A & B(1)


Federal Way/Auburn 25.4% $20.19 FS 3-7 months $10-$20/SF Free

Kent Valley 22.8% $21.35 FS 4-7 months $15-$30/SF Free

Renton/Tukwila 12.9% $20.58 FS 4-6 months $10-$25/SF Free

SeaTac/Burien 17.1% $22.04 FS 3-5 months $10-$25/SF Free

Total Southend 18.2% $20.79 FS 3-7 months $10-$25/SF Free(1) Does not include owner/user space(2) Per square foot per year

» Vacancy dropped by 150 basis points in 4Q 2010 to finish the year at 18.2%, down 40

basis points from 4Q 2009, due to nearly 165,000 SF of positive net absorption

» Average quoted direct rental rates decreased $0.14/SF/FS since 4Q 2009 to $20.79/SF/

FS and rent concessions continue to range from 3-7 months

» Leasing activity included 30 transactions in 4Q 2010 totaling roughly 128,000 SF


VACANCY RATES

RENTAL RATES

NET ABSORPTION

Puget Sound Retail Market 4Q 2010ALL CLASSESMarket Vacancy Direct Quoted Rate Free Rent TI’s Parking

Seattle 3.6% $20.34 NNN 3-7 months $10-$20/SF Free

Eastside 6.7% $22.97 NNN 4-7 months $15-$30/SF Free

Northend 6.6% $17.41 NNN 4-6 months $10-$25/SF Free

Southend 7.9% $16.26 NNN 3-5 months $10-$25/SF Free

Tacoma 6.9% $15.73 NNN 3-6 months $10-$20/SF Free

Total Retail 6.3% $17.88 NNN 3-7 months $10-$30/SF Free

» Regional retail vacancy has remained relatively unchanged since 2Q 2010, hovering

between 6.0% and 6.4%

» Average quoted direct rental rates have fallen $1.32/SF/NNN since 4Q 2009 to $17.88/

SF/NNN while average quoted sublease rents dropped $0.08/SF/NNN

» There were 228 lease transactions completed in the fourth quarter totaling 565,000 SF,

only three of which were sublease deals


VACANCY RATES

RENTAL RATES

NET ABSORPTION

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Eastside & Northend Industrial/Flex Market 4Q 2010ALL CLASSES(1)

Submarket VacancyDirect Quoted Rates(2)

Free RentOffice Rate Warehouse Rate

EA

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Bellevue 7.9% $1.10 - $1.25 NNN $0.55 - $0.65 NNN 1 - 3 months

Issaquah/Preston 6.5% $1.20 - $1.30 NNN $0.60 - $0.65 NNN 1 - 3 months

Redmond 11.9% $1.00 - $1.20 NNN $0.50 - $0.60 NNN 2 - 4 months

Kirkland 14.8% $1.00 - $1.20 NNN $0.45 - $0.60 NNN 2 - 4 months

Bothell/Mill Creek 14.1% $1.00 - $1.20 NNN $0.50 - $0.60 NNN 3 - 6 months

Monroe 21.8% $0.90 - $1.10 NNN $0.40 - $0.50 NNN 3 - 6 months

Woodinville 11.4% $0.90 - $1.20 NNN $0.48 - $0.60 NNN 3 - 5 months

Total Eastside 12.3% $1.00 - $1.30 NNN $0.45 - $0.65 NNN 1 - 6 months

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Lynnwood, Everett & Mukilteo 11.3% $1.00 - $1.15 NNN $0.45 - $0.55 NNN 3 - 6 months

(1) Does not include owner/user space (2) Per square foot per month

Southend Industrial/Flex Market 4Q 2010ALL CLASSES(1)

Submarket VacancyDirect Quoted Rate(2)

Free RentOffice Rate Warehouse Rate

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SoDo 4.4% $0.75 NNN $0.55 - $0.75 NNN 1-4 months

GTown/Duwamish N. 8.0% $0.75 NNN $0.45 - $0.65 NNN 1-4 months

GTown/Duwamish S. 4.5% $0.75 NNN $0.45 - $0.65 NNN 1-4 months

Total South Seattle 6.1% $0.75 NNN $0.45 - $0.75 NNN 1-4 months

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SeaTac/Burien 8.7% $0.75 NNN $0.42 - $0.50 NNN 3-5 months

Tukwila 5.1% $0.75 NNN $0.34 - $0.40 NNN 3-5 months

Renton 6.6% $0.75 NNN $0.34 - $0.40 NNN 3-5 months

Kent 9.1% $0.75 NNN $0.32 - $0.40 NNN 3-5 months

Auburn 5.8% $0.75 NNN $0.32 - $0.38 NNN 3-5 months

Federal Way 7.0% $0.75 NNN $0.32 - $0.38 NNN 3-5 months

Total Southend King County 7.3% $0.75 NNN $0.32 - $0.50 NNN 3-5 months

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Puyallup/Sumner 12.7% $0.75 NNN $0.28 - $0.36 NNN 3-6 months

Port of Tacoma/Fife 6.9% $0.75 NNN $0.28 - $0.36 NNN 3-6 months

Tacoma(3) 5.3% $0.75 NNN $0.28 - $0.36 NNN 3-6 months

Lakewood 4.1% $0.75 NNN $0.28 - $0.36 NNN 3-6 months

Outlying Submarkets(4) 6.4% $0.75 NNN $0.26 - $0.32 NNN 3-6 months

Total Pierce County 8.2% $0.75 NNN $0.26 - $0.36 NNN 3-6 months

Total Southend 7.4% $0.75 NNN $0.26 - $0.75 NNN 1-6 months

(1) Includes owner/user space (2) Per square foot per month (3) Tacoma includes: NE Tacoma, E Tacoma, Tacoma CBD and University Place; (4) Outlying Submarkets include Dupont, East Pierce County, Parkland, Spanaway, Fort Lewis and Gig Harbor

» Eastside industrial vacancy was flat in 4Q 2010 with minimal negative absorption

» There were 72 deals inked in 4Q 2010 totaling 302,814 SF

» The Northend industrial market showed positive momentum in 4Q 2010 with

140,000 SF of absorption

» Direct rental rates have been relatively flat awaiting the return of market demand

» Regional vacancy was steady at 7.4% in 4Q 2010 down 20 basis points since 4Q 2009

» Office and warehouse rents were flat in 4Q 2010, but look for concessions and TI’s to

reduce as market demand returns in 2011

» Year to date net absorption in the Southend was negative 786,209 SF, however this only

constitutes a 0.37% loss in the overall occupancy, and down significantly from the four

million plus SF loss in 2009


VACANCY RATES

RENTAL RATES

NET ABSORPTION


EASTSIDE NORTHEND

VACANCY RATES

RENTAL RATES

NET ABSORPTION

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OFFICE INDUSTRIAL

TRANSACTIONS

$ VOLUME

AVERAGE PRICE

AVERAGE PRICE/SF

OFFICE INDUSTRIAL

TRANSACTIONS

$ VOLUME

AVERAGE PRICE NA

AVERAGE PRICE/SF NA

CAP RATE NA

Private Capital SalesOFFICE SALES $1M-$10M CLASS A & B

2006 2007 2008 2009 YTD 2010

Transactions 65 73 52 18 18

Volume $430M $384M $310M $55M $70M

Average Size (SF) 38,568 SF 27,623 SF 24,570 SF 7,798 SF 30,939 SF

Average Price $6.6M $5.3M $6M $3.1M $3.9M

Average Price/SF $172/SF $191/SF $243/SF $168/SF $126/SF

INDUSTRIAL SALES $1M-$10M ALL CLASSES2006 2007 2008 2009 YTD 2010

Transactions 122 133 89 36 51

Volume $398M $478M $299M $111M $162M

Average Size (SF) 35,221 SF 29,278 SF 27,052 SF 34,147 SF 38,196 SF

Average Price $3.3M $3.6M $3.3M $3.1M $3.1M

Average Price/SF $93/SF $123/SF $124/SF $90/SF $83/SF

Institutional Sales

2004 2005 2006 2007 2008 2009 YTD 2010

Transactions 30 43 54 131 7 5 18

Highest Price/SF $411/SF $459/SF $575/SF $531/SF $342/SF $405/SF $548/SF

Avg. Cap Rate 8.1% 6.7% 6.3% 5.2% 6.1% 9.5% 7.2%

2004 2005 2006 2007 2008 2009 YTD 2010

Transactions 20 22 14 35 19 9 8

Highest Price/SF $79/SF $109/SF $131/SF $164/SF $142/SF $100/SF $186/SF

Avg. Cap Rate 7.2% 6.8% 6.8% 5.8% 6.5% 9.2% 7.3%

OFFICE SALES OVER $10M CLASS A & B

INDUSTRIAL SALES OVER $10M ALL CLASSES

» Year-to-date office sales nearly quadrupled 2009 transactions, the highest

price per square foot is $548/SF compared to $405/SF last year and the average

CAP rate is steady at 7.2%

» Institutional industrial sales rose in the fourth quarter to finish 2010 with

eight transaction sales totaling $1.54 billion in two million SF. Most notable was the

11 building, 940,689 square foot James Campbell Portfolio purchased by RREEF for

$63,000,000

» While 2010 had the same amount of office sales transactions as 2009, 2010’s office

sales volume was $15 million higher, average size was 23,000 SF larger, and average

price was $800,000 more

» 2010 had 15 more industrial sales transactions than 2009 with $51 million more

volume and average size was up 4,000 SF



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SEATTLE

DAVID ABBOTTANN CHAMBERLINLAURA FORDTONY FORDLORI HILLGREG INGLINERIC LELAND ERWIN PARKWYK PARKERNATE WHITESTUART WILLIAMS

OLYMPIA

TROY DANARYAN HADDOCK CRYSTAL HARLOW PAUL VALENTINE

BELLEVUE

LES BOUDWINSCOTT CARTERBILL COOPERMARK FLIPPOCHRIS HUGHESBRENT JACKSONCHARLIE MALLEYSTEVE SCHWARTZDANIEL SEGERJJ SHEPHARDGABRIEL SMITHANDREW STARKCASEY TREES

PORTLAND

BUZZ ELLIS, SIORMARK FRIELKRISTIN HAMMONDMARK MCFARLAND, SIORPAIGE MORGANTOM SHIMOTAJEFF SHOLIAN, SIORJOSH STOHRJOE VAUGHAN

Our Puget Sound Locations & Brokers

Terms and DefinitionsAbsorptionThe change in available space for rent; positive net absorption occurs when the total space available at the beginning of a period is less than at the end of that period; negative net absorption occurs when the total space available increases from the beginning to the end of a defined period of time

Asking RateThe listed rental rate; quoted as Full Service (FS) or Triple Net (NNN)

Cap RatesShort for capitalization rate; reflects the relationship between a property’s net operating income for a one year period to its current market value; calculated by dividing the annual net operating income by the sales or asking price

ConcessionsDiscounts given by Landlords to prospective tenants to induce them to sign a lease; examples include free rent, a tenant improvement allowance (TI’s), moving allowance, etc. Effective RateThe average rental rate charged per square foot of space; reflects the deduction of concessions Free RentOtherwise known as Rent Abatement; usually across the term of five year leases

Full Service Rental Rate (FS)*Includes operating expenses (taxes, insurance and common area maintenance charges)

Owner/UserSpace that is owned and leased by the tenant/owner

TI Allowance (TI’s)The amount of money given to a tenant by the Landlord to partially cover the cost to build-out their space (tenant improvements)

Triple Net Rental Rate (NNN)*In addition to the stated rental rate, a tenant is also responsible for operating expenses which includes taxes, insurance and common area maintenance charges Turn-key A lease in which the landlord agrees to give the leased premises to the tenant in a ready-to-occupy condition with no additional costs for tenant improvements

Vacancy The amount of space available for rent; usually measured in square feet (SF) Vacancy RateThe ratio between the number of available square feet and the total square feet (size) of a building

SEATTLEBELLEVUE

OLYMPIA

W A S H I N G T O N

O R E G O N

PORTLAND

TACOMA

STEVE CRANTZMIKE HORNER

TACOMA 1 SW Columbia Street Suite 850 Portland, OR 97258

(503) 972-8000

For more information contact:Taylor OdegardResearch [email protected]

(425) 974-4013

111 Market Street NE Suite 325 Olympia, WA 98501

(360) 357-7979

225 108th Avenue NE Suite 550 Bellevue, WA 98004

(425) 974-4000

1145 Broadway Plaza Suite 1350 Tacoma, WA 98402

(253) 219-4868

1700 7th Avenue Suite 2050 Seattle, WA 98101

(206) 971-7000


Market Report 4Q 2010

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