Market Data

Real Estate Grows Steadily in the Evergreen State

Known as the home of Microsoft, Starbucks, and grunge music, Washington also plays host to an active commercial real estate market. Puget Sound has become a hotbed for venture capital investment, allowing high-tech start-ups to absorb vast amounts of space, according to a report by the Bellevue-based Norris, Beggs, & Simpson. The influx of new businesses and residents has affected most property types throughout the state.

Varying Multifamily
Seattle’s multifamily market is experiencing an active sales period. “There has been a lot of activity fueled by tremendous investor interest, however it has been kept in check by the lack of available properties,” says Bruce Kahn, CCIM, of Westlake Associates in Seattle. As real estate investment trusts have slowed down, “most investors are either new or current owners enjoying cash flow from inflation looking for additional properties.”

Not all deals are easy to close, though. “The major factor in our market is the disparity between what sellers think their properties are worth and what buyers are willing to pay,” Kahn says. Average sales prices range between $100 psf and $150 psf and cap rates are in the 6 percent to 7 percent range for well-located urban properties. “Unless buyers are willing to live with no cash flow or extremely large down payments, deals are difficult to make,” he says.

About 7,000 units were added to the market last year, which caused vacancy rates to rise slightly, Kahn says. The city has a 3 percent vacancy rate, while surrounding areas have a 5 percent vacancy rate. Lease rates range from $1 psf to $1.35 psf.

Across the state in Spokane, a slowdown in construction has lowered vacancy rates, says Charley Bartlett, CCIM, of Tomlinson Black Commercial in Spokane. “Newer properties appear to have the lowest vacancy, which is estimated at 5.5 percent to 6.5 percent,” he says. The vacancy rate for older properties ranges from 7 percent to 10 percent.

Multifamily sales also have slowed down, with only 11 complexes selling last year and 14 in 1998. “Most owners are holding property with an anticipation of better times ahead,” Bartlett says. “Values have been flat or slightly falling, especially for pre-1980 vintage [properties].” The average price per unit in 1999 for complexes with 20 or more units was $25,000, while the 1998 average was $34,000 per unit.

Brisk Office
The southern Snohomish County office market just north of Seattle is performing well thanks to a strong local economy. “Thousands of square feet of new office space [are] coming on line, and leasing activity is brisk with strong demand,” says GayLynn Beighton, CCIM, of Chiles & Co. in Seattle. “Microsoft acts like a magnet for associated businesses in the high-tech industries,” she says.

Occupancy rates in the area range from 2 percent in Edmonds to 4 percent in Bothell, Beighton says. Annual lease rates for new class A office space average about $23 psf. “This is a bargain compared with … Seattle to the south where rates are $30 psf to $40 psf for new construction,” she says.

The area also offers workers a solution to Seattle’s traffic problem. “Many business owners who are the decision makers in renting office space live north of Seattle, and south Snohomish County provides offices close to home, alleviating the grueling commute downtown,” Beighton says.

Still, the rise of the office market in southern Snohomish County doesn’t appear to negatively have impacted Seattle’s office market. “Both downtown Seattle and suburban office markets should remain strong,” Beighton says.

In Port Angeles, a rural town with a population of less than 60,000 located at the foothills of the Olympic Mountain range, the office market is bouncing back from a weak period. “After many years of a stumbling economy due to the decline of the fishing and forest products industry, our market is beginning to see a renewed level of activity,” says Daniel E. Gase, CCIM, of Coldwell Banker Commercial Uptown Realty in Port Angeles.

The city is attempting to jump-start the office market by attracting high-tech companies to the area. “A lack of high-speed Internet access has kept the tech companies away,” Gase says. “The recent announcement of fiber-optic installation is causing a high level of enthusiasm.”

Rising Retail
National retailers now are expanding to secondary markets, which boosts retail real estate in cities such as Spokane. Both occupancy and lease rates are up from recent years, says Joseph G. Ward, CCIM, of Pinnacle Realty in Spokane.

Annual lease rates for new big-box space are $11 psf to $14 psf, while second-generation big-box space leases for between $5 psf and $10 psf. New in-line and free-standing space averages between $14 psf and $20 psf, and $8 psf to $12 psf for existing space, Ward says. The occupancy rate is 96 percent despite new construction occurring throughout the area.

Spokane hasn’t witnessed many retail property sales. “Retail centers are hard to buy,” says David Black, CCIM, of Tomlinson Black Commercial in Spokane. “Everyone wants to hold them.” When they do sell, they average between $100 psf and $160 psf with 9 percent to 10 percent cap rates.

Retail markets in Washington’s metropolitan areas continue to perform well, says Marianne Christian-Griffith, CCIM, of Marianne Christian-Griffith Real Estate Consulting in Kirkland, a Seattle suburb. “Continued growth places expansion demands on retail services and there is very little land on which to expand,” she says.

Annual lease rates are up, ranging from $18 psf to $28 psf for suburban space and $25 psf to $45 psf in downtown Bellevue and Seattle, Christian-Griffith says. Occupancy rates have been stable at 96 percent since 1998.

A number of sales have occurred in the state. “It’s still a hot REIT market for all kinds of power centers,” Christian-Griffith says. Recently, AMB Property Corp. sold all its shopping centers to Burnham Pacific Properties.

Industrial Growth
The industrial market between Seattle and Tacoma has been expanding. “The Kent Valley absorbed over a million sf [of industrial] in 1999,” says Terry McAleer, CCIM, of Trammell Crow Co. in Seattle. “Vacancy rates were down from 6.9 percent to 5.7 percent.” In addition to the growth of existing companies, new businesses — especially high-tech companies — have been attracted to the area.

Existing space leases for about 30 cents psf, while new product leases for about 33 cents psf, McAleer says. Sales prices are up and cap rates are low, but little product is available for sale. About 1.5 million sf is expected to come on line this year.

However, McAleer says this rate of expansion won’t continue indefinitely. “Puget Sound is economically healthy, but freeway and land constraints will slow growth down,” he says.

Market Glance
Alaska's Real Estate Pipeline

Alaska’s economy is stable, but it may be in store for a shake-up. “The pending megamerger of BP-Amoco and Arco has certainly created anxiety in the marketplace,” says Steve Booth, CCIM, of Beluga Realty in Soldotna. Some commercial real estate segments in the state are more threatened by this development than others.

Industrial. Bill Schreck, CCIM, of the Schreck Co. in Anchorage, says the industrial market will be tentative until the oil merger occurs. The occupancy rate is stable at about 90 percent. Lease rates for warehouse space range from $9 psf to $10 psf plus utilities, he says.

Not much new construction is occurring in the market, “only build-to-suit that is not otherwise available from existing inventory,” Schreck says. Some users are buying properties, and prices have climbed to $55 psf to $75 psf.

Office. Despite a vacancy rate of 3 percent, no significant office construction is occurring, except for federally funded projects, says Stuart Bond, CCIM, of Bond, Stephens, & Johnson in Anchorage. Average annual rental rates for class A space are $24 psf, “However, it will take at least $30 psf per year to justify new construction.”

About seven large office sales occurred in the last two years with average prices for class A space ranging from $90 psf to $110 psf. Bond says it is relatively easy to obtain financing, usually through local banks or national insurance companies. However, “interest rate increases are starting to impact the market.”

Multifamily. “The multifamily occupancy rate [in the central Kenia Peninsula] appears to be 85 percent to 90 percent,” Booth says. “However, one property manager reported a downward trend in rental rates to minimize vacancy rates.” Monthly lease rates can range from 53 cents psf to 75 cents psf, but average 66 cents psf.

New multifamily construction is nonexistent, Booth says. “At the present time, there does not appear to be a shortage of rental space, and it is difficult for current rents to support new builds for the general market,” he says.

Retail. “The Anchorage retail market is a phenomenon,” says Chris Stephens, CCIM, of Bond, Stephens, & Johnson. “The amount of retail space per person … is about three times the national average.” He partly attributes this to the fact that the city has a relatively young population with a high disposable income.

Monthly lease rates for strip malls average $1.25 psf, while enclosed malls average between $2.50 psf and $3.25 psf, Stephens says. Both rates are increasing. Anchorage’s occupancy rate is 98 percent, which may change when 400,000 sf of new retail space is added this year.

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