Puget sound office market Q3 2012
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    Puget sound office market Q3 2012 Puget sound office market Q3 2012 Document Transcript

    • Puget Sound Area, OfficeMarketViewQ3 2012 CBRE Global Research and Consulting GROSS METRO PRODUCT UNEMPLOYMENT OFFICE–USING EMPLOYMENT* YTD OFFICE SALES VOLUME 3.5% 8.0% YoY August 1.5% YoY August $2.18 BillionPOSITIVE ECONOMIC GROWTH MAKES SEATTLE MARKETATTRACTIVE TO INVESTORS The Puget Sound office market continued to to Kilroy Realty Corporation for nearly $187 Quick Stats strengthen during the third quarter of 2012, million. In the Southend market, AEW Capital largely in part to employment growth at Management sold the Cascade East and West Change from Last high-tech tenants, most notably Amazon.com. and Atrium Buildings at Centerpoint Corporate Q3 2012 Yr. Qtr. The online retailer’s footprint has grown by Park to Fountainhead Development Inc. for 1.3 million square feet in the last two years, $46 million. Total Vacancy 15.6% i i fueling the drop in office vacancy. Other large technology tenants signing leases this quarter The Puget Sound office market realized Direct Lease Rate $28.63 h h include drugstore.com and Tyler Technologies. 342,411 SF of net absorption this quarter, Net Absorption 342,411 SF i i The quarter-ending figure of 15.6% is the ninth bringing the year-to-date total to 2.18 million consecutive quarter of declining vacancy. square feet. As a result of increased leasing Completions — i i activity, total vacancy dropped to 15.6%, The third quarter saw several high value nearly 40 basis-points lower than last quarter. investment deals—the largest being Amazon. Direct Class A rents increased to a weighted Hot Topics com’s intent to purchase its 1.8 million-square- average of $28.63/SF, per year, full service. foot headquarters buildings in the Lake Union Eight office projects are currently under • The Seattle-Bellevue- submarket. This transaction is expected to fetch construction totaling 820,896 SF with 60% Everett-Tacoma combined $1.16 billion; one of the nation’s highest- of the space preleased. Another 20 million unemployment rate at the end priced real estate transactions this year, and square feet of announced projects is in the of August finished at 8.0%, will likely set a Puget Sound area record at pipeline. The forecast is for a continued decline much stronger than the state- $644 per square foot. The Eastside market saw in vacancy and an increase in rental rates, wide unemployment rate of Beacon Capital Partners sell two properties this especially quality Class A space in downtown 8.5%. quarter; City Center Bellevue for $229 million Seattle and the Bellevue CBD. to American Assets Trust, and Skyline Tower • Investor interest in Class A Seattle office properties has Chart 1: Total Vacancy vs. Average Direct Asking Lease Rate resulted in sale transactions Total Vacancy Rate 15.63% totaling over $2.18 billion to Total Class A Avg. Asking Rental Rate $28.14 date in 2012. 20% $30.00 18% • Availability of premium Class 16% $25.00 A space continues to decline in the Seattle and Bellevue 14% Central Business Districts. 12% $20.00 10% $15.00 8% 6% $10.00 *Office using employment consists of the Information, Financial Activities and Professional 4% & Business Services sectors in King, Snohomish $5.00 and Pierce Counties, not seasonally adjusted. 2% 0% $0.00 2007 2008 2009 2010 2011 2012 YTD © 2012, CBRE, Inc.
    • Table 1: Market Statistics Class A Avg. Class A Avg. Asking Direct Asking Total Last 4 Building Total Q3 Net Qtrs Net UnderQ3 2012 Lease Rate Lease Rate Submarket SF Vacancy % (Full Service PSF/Yr) (Full Service PSF/Yr) Absorption Absorption Construction Seattle CBD 20,267,129 14.4% $32.36 $31.89 20,015 341,819 — Waterfront 2,232,173 10.1% $28.66 $25.94 (24,727) 17,694 — Pioneer Square 4,032,141 19.9% $30.19 $29.17 21,633 175,874 —Puget Sound Area, Office | MarketView Denny Triangle/Regrade 6,935,851 17.9% $30.84 $30.12 241,375 596,384 — Lower Queen Anne 3,070,626 17.9% $34.16 $34.16 (51,098) 7,030 51,555 Lake Union 5,145,033 5.8% $28.92 $29.08 (6,247) 196,125 502,896 Canal 1,323,832 6.1% $26.67 $26.67 13,286 54,330 47,445 Downtown Seattle 43,006,785 14.2% $31.57 $31.25 214,237 1,389,256 601,896 North Seattle/Interbay 2,382,438 13.4% $24.03 $24.13 15,433 64,544 — Capitol Hill/E Seattle/Rainier 1,103,325 20.2% $23.10 $23.10 1,887 207,313 — South Seattle 1,582,508 27.2% $24.35 $24.35 33,356 44,726 200,000 Seattle Close-In 5,068,271 19.2% $24.20 $24.23 50,676 316,583 200,000 Sea-Tac 951,574 42.9% $23.46 $23.46 6,416 (7,132) — Tukwila 2,101,105 14.1% $20.13 $20.13 12,353 2,624 — Renton 3,122,922 9.8% $22.80 $22.72 (688) (28,790) — Kent 1,223,908 32.3% $22.05 $21.76 26,778 (26,453) — Auburn 289,025 12.9% $20.35 $20.35 — (14,888) — Federal Way 2,102,953 30.6% $20.63 $19.44 (2,395) 6,244 — King Co. 6.9% WA State 8.4% Southend 9,791,487 Snohomish Co. 21.3% 7.9% U.S. Avg. $22.01 7.9% $21.42 42,464 (68,395) — Bellevue CBD 7,925,601 Pierce Co. 12.0% (Not seasonally adjusted) 9.5% $33.69 $32.70 110,676 198,011 — I-405 2,910,799 17.0% $28.45 $28.38 (40,359) 18,512 — SR-520 2,579,812 15.5% $28.21 $28.09 (17,282) 81,005 — I-90 6,726,625 11.5% $30.18 $30.15 (32,383) 156,015 — Bel-Red Road 1,440,326 9.0% $28.08 $28.08 18,719 22,632 19,000 Kirkland 1,465,805 7.4% $30.73 $30.70 (4,052) 56,988 — Redmond 4,247,895 19.0% $26.25 $26.20 (17,855) 107,296 — Bothell 3,195,293 17.4% $23.40 $22.82 (16,085) (12,487) — Eastside 30,492,156 13.8% $29.04 $28.64 1,379 627,972 19,000 Lynn/Edm/Mtlk Terr 2,502,650 25.4% $24.69 $24.74 4,037 (26,065) — Everett 1,747,331 14.2% $21.68 $21.68 255 15,066 — Northend 4,249,981 20.8% $23.80 $23.94 4,292 (10,999) — Tacoma CBD 2,856,552 21.7% $24.92 $27.67 27,964 23,462 — Tacoma Suburban 1,235,161 11.6% $22.38 $22.38 (6,656) (16,218) — Fife 213,994 17.5% $24.00 $24.74 (4,200) (4,642) — Puyallup 456,997 30.4% $20.28 $20.28 12,255 17,018 — Tacoma/Fife 4,762,704 19.7% $23.78 $26.74 29,363 19,620 — Market Total 97,371,384 15.6% $28.63 $28.14 342,411 2,274,037 820,896 Chart 2: Unemployment Rate ECONOMY/UNEMPLOYMENT RATE King Co. 7.4% Pierce Co. 9.4% U.S. Avg. 8.2% In September 2012, Businessweek.com placed Seattle second of Snohomish Co. 8.3% WA State 8.5% (Not seasonally adjusted) the 100 largest metropolises in its annual ranking of “America’s 11% Best Cities.” This honor is due to the abundance of leisure activities, high education level of current residents and strong job 10% prospects from several major employers, especially in the 9% software, aerospace and retail industries. Employment in the Business Services sector, which encompasses software 8% development, grew by 8,700 workers or 3.75% in 12 months. 7% This is nearly matched by the gain in aerospace manufacturing, 2 7,600 new jobs or a 7.5% increase over the same time period. In 6% total, employment grew by 43,500 workers in King and 5% Snohomish Counties and another 4,500 in Pierce County in the 4% last 12 months—pushing vacancy rates down and fueling May11 Jun11 Jul11 Aug11 Sep 11 Oct 11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul 12 Aug12 demand for new buildings. © 2012, CBRE, Inc.
    • Chart 3: Vacancy VACANCY Vacancy in the Puget Sound continued to decrease due to strong Direct Vacant 14,046,672 Sublease Vacant 1,175,023 demand. The total vacancy rate (direct and sublease space) Total Vacant 15,221,695 dropped to 15.6% from 16.0% last quarter and 18.0% this time Q3 2012 last year. The Seattle Close-In market experienced the largest 20,000,000 swing, dropping an entire percentage point to 19.2%. Lager deals 18,000,000 in that market for the quarter include Bartell Drugs moving into 16,000,000 West Seattle Corporate Center and growth in the University 14,000,000 District neighborhood. The northern submarkets of Downtown Puget Sound Area, Office | MarketView 12,000,000 Seattle still maintain the lowest rates in the region with 5.8% in 10,000,000 Lake Union, and 6.1% in the Canal. Recently announced leases in Downtown Seattle include 72,800 SF leased to Attachmate at 8,000,000 705 Union Station and a 29,600-SF expansion for Double Down 6,000,000 Interactive. The Eastside market maintained a total vacancy rate 4,000,000 of 13.8%. In this market the shift from suburban office to CBD is 2,000,000 pronounced. Vacancy in the Bellevue CBD submarket dropped 0 140 basis points over the quarter to 12%. 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 TOTAL ASKING RENTAL RATES As business confidence rises, central business district asking rates Chart 4: Total Asking Rental Rates are showing stronger growth than the market as a whole. Class A Downtown $31.25 Southend $21.42 Northend $23.94 Regional Avg. $28.14 total (direct and sublease) asking rates for Downtown Seattle rose Seattle Close-In $24.23 Eastside $28.64 Tacoma/Fife $26.74 to $31.14/SF, and Eastside rates jumped to $28.64/SF, 4.3% and $32.00 3.7%, respectively over the last 12 months. The average asking Class A rate in the Seattle CBD reached $31.89/SF, and the $30.00 Bellevue CBD leads with an asking rate of $32.70/SF, 6.3% and 7.5% growth rates, respectively, over this time last year. This trend $28.00 is also displayed in the vacancy rate gap. The Bellevue CBD Class $26.00 A vacancy rate is 11.8% while Class B is 17.3%. These results coincide with absorption trends showing tenants are moving from $24.00 suburban space into central business districts across Puget Sound. $22.00 UNDER CONSTRUCTION Hammers are being swung in several parts of the region due to $20.00 strong tenant demand. Construction is underway for a 173,899 $18.00 SF research building for UW Medicine, and the finishing touches 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 are being put on Phase V for Amazon.com, a 340,563 SF building on Boren Ave North. Another large construction project Chart 5: Under Construction, Absorption and in the area is Homeplate Center, 168,000 SF of Class A office Construction Completions space being built by American Life, a local developer. Spear Street Capital is building 202 Westlake and announced this Total Absorption 342,411 Construction Completions — quarter it had leased all 129,000 SF to Amazon.com. Under Construction 820,896 1,200,000 ABSORPTION & CONSTRUCTION COMPLETIONS The third quarter of 2012 saw a flurry of absorption in Downtown 1,000,000 Seattle and the Bellevue CBD and no construction deliveries. The Denny Triangle/Regrade submarket witnessed the most 800,000 absorption, 214,237 SF this quarter. Amazon.com can be credited with a good deal of the expansion, filling 320,000 SF in 600,000 West 8th, while KPMG moved into 45,000 SF in 1918 Eighth. The Eastside was the only market to experience negative 400,000 absorption (1,132 SF), though the Bellevue CBD took in 111,880 SF of net growth. Expanding tenants include New York Life, who moved into 30,000 SF at The Summit. Global Scholar relocated 3 200,000 into 31,000 SF and Caradigm opened a 68,900-SF office, both 0 at City Center Bellevue. 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12© 2012, CBRE, Inc.
    • MARKET AREA DESCRIPTIONS Downtown Seattle Downtown Seattle consists of 43,006,785 SF (44%) of the office market gross leasable area (GLA). It includes office buildings west of I-5 from the Ship Canal in Fremont to Royal BroughamQ3 2012 near the stadiums. Seattle Close-In The Seattle Close-In market consists of 5,068,271 SF (5%) of the office market GLA. It includes office buildings within the city limits of Seattle, Shoreline and Lake Forest Park, not included in thePuget Sound Area, Office | MarketView downtown submarket. Southend The Southend consists of 9,791,487 SF (10%) of the office market GLA. It comprises all of King County south of Lake Washington. Tacoma/Fife Tacoma/Fife consists of 4,762,704 SF (5%) of the office market GLA. It comprises Pierce County. Eastside The Eastside consists of 30,492,156 SF (31%) of the office market GLA. It comprises all King County markets directly east of Lake Washington, plus that portion of Bothell extending into Snohomish County. Northend The Northend consists of 4,249,981 SF (4%) of the office market GLA. It consists of Snohomish County except that portion of Bothell extending into Snohomish County. CONTACTS For more information about this Local MarketView, please contact: U.S. RESEARCH Carolyn Davis Jim Bowles John R. Miller Steve Penn Research Manager Senior Managing Director Managing Director Managing Director Puget Sound Area Puget Sound Area Brokerage Services Asset Services CBRE CBRE CBRE CBRE 1420 Fifth Avenue 1420 Fifth Avenue 1420 Fifth Avenue 1420 Fifth Avenue Suite 1700 Suite 1700 Suite 1700 Suite 1700 Seattle, WA 98101 Seattle, WA 98101 Seattle, WA 98101 Seattle, WA 98101 t: +1 206 292 6098 t: +1 206 292 6101 t: +1 206 292 6102 t: +1 206 292 6065 e: carolyn.davis@cbre.com e: jim.bowles@cbre.com e: johnmiller@cbre.com e: steve.penn@cbre.com +FOLLOW US GOOGLE+ FACEBOOK TWITTER GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting—a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. DISCLAIMER 4 Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist. cjm 10-26-12 © 2012, CBRE, Inc.