Market Data

Regional Outlook(9)

Seattle

Seattle CBD landmark Smith Tower may be transformed from a 37-story office building to 150 residential condos as owner

Walton Street Capital seeks city approvals for the conversion. Walton bought Seattle’s first skyscraper in 2006 along with the adjacent Florence Building for $46.8 million.

Highlights by State

  • Alaska — The first Target store in Alaska is scheduled to open in 2008 in the 600,000-sf Tikahtnu Commons Shopping Center in Anchorage, according to developers CIRI and Brown Development Co.
  • California — Central Los Angeles’s office market is expected to tighten over the next 12 months, with only 115,000 sf of new construction coming online and rental rates that were up 8.9 percent in 2Q07 but still remain a bargain compared with suburban locations, report Colliers International.
  • Hawaii — Honolulu posted the nation’s highest industrial warehouse rent for 2Q07 at $14.28 psf and the lowest industrial vacancy at 2.21 percent, according to Colliers International.
  • Oregon — After a 1Q07 negative absorption of about 30,000 sf, Portland’s office market rebounded in 2Q07 with the strongest net absorption in three years, despite the addition of 375,000 sf of new space, reports Grubb & Ellis.
  • Washington — Locally owned Clise Properties is selling 13 acres of downtown Seattle real estate in Denny Triangle, which could create nearly 10 million sf of new development, reports the Seattle Times.

Hawaii
Hotels Struggle to Compete

There’s trouble in paradise as a combination of a no-smoking ban, a drop in Japanese tourists, and a growing number of alternative accommodations caused Hawaii’s hotel occupancy to fall again in May, making it the 13th straight month of increasing vacancy, according to Hospitality Advisors. In response to a no-smoking ban initiated last November, several large chain hotels have banned smoking completely or severely limited the number of smoking rooms available. Some tourism experts think this may have precipitated the 10 percent drop-off in Japanese visitors. Japan, which has a much more liberal outlook on smoking than the U.S., is Hawaii’s biggest source of tourists, and 95 percent of Japanese visitors stay in hotels, compared with 75 percent of Americans. But the number of mainland visitors also is down, and those who do visit now have additional accommodation choices of time shares, condos, and cruise ships. Economists predict about 7.4 million tourists will visit Hawaii this year, about 100,000 fewer than 2006.

Occupancy Drops; Room Rates Rise

Occupancy and room rates May 2007, compared to May 2006

Island Occupancy Room Rate Per Night
Oahu 58%, down 14.8 points $166, up 10.4%
Maui 63.7%, down 20.9 points $226, up 4.1%
Kauai 62.2%, down 5.3 points $191, up 1.6%
Big Island 51%, down 23.3 points $194, up 4.9%

Source: Pacific Business News

International Beat
Moscow Magic

Investors thwarted by falling U.S. capitalization rates may want to look halfway around the globe to Moscow, where cap rates for property sectors are a little healthier, according to Colliers International’s midyear report. Office cap rates range between 8.5 percent and 9.5 percent; retail, 9.5 percent to 10.5 percent; and warehouse, 10 percent to 11 percent. Construction is booming in all three property sectors and large international players are getting in on the action. Private equity funds and investment banks are buying stock in Russian development companies, and in the capital markets, international banks are entering the Russian market, bringing more stability and transparency to commercial real estate transactions. New construction and rehabilitation added about 490,000 square meters of mostly class B office space to Moscow by midyear. Although six class A buildings were completed by midyear, demand is keeping the city’s class A vacancy rate at a tight 1.7 percent.

San Francisco

Bay Center Offices in Emeryville, Calif., were sold for more than $120 million by original developer TMG Partners to Harvest Properties and Principle Real Estate Investors. The three class A buildings total 327,750 sf and are located adjacent to Interstate 80 on the eastern shoreline of San Francisco Bay.

California
High-Priced Multifamily

What do you get for $18,000 a month, the highest apartment asking rent in California, according to RealFacts? Three bedrooms and three baths in a penthouse apartment at 1221 Ocean Blvd. in Santa Monica, Calif., along with ocean views and access to Santa Monica’s trendy shopping. Similar accommodations came be found at the other four highest priced rentals:

1. 1221 Ocean Blvd., Santa Monica, Calif., $18,000
2. Balboa Bay Club, Newport Beach, Calif., $9,250
3. Crest Royal, San Francisco, $9,000
4. The Medici, Los Angeles, $8,500 (pictured above)
5. Legacy at Westwood, Los Angeles, $7,851

Portland, Ore.
Market Comes of Age

The $291.6 million sale of three Brewery Blocks to JP Morgan Chase & Co. affirms Portland’s place as a hot real estate market and a leader in sustainable design and downtown redevelopment, say Mary Kay West, CCIM, and Chris Johnson, SIOR, two of the four NAI Norris, Beggs & Simpson brokers who represented seller Gerdling Edlen Development in the transaction. The record price — and the initial 80 bidders — “reflects confidence in the ongoing strength of Portland’s economy,” Johnson says. “Mixed-use is becoming more popular with institutional investors as it provides a high-quality, diverse income stream.” The three blocks comprise more than half of the mixed-use development created from the former Blitz-Weinhard Brewery in downtown Portland. The three purchased properties contain a Whole Foods, an office tower, and the Louisa Apartments and are Leadership in Energy and Environmental Design-certified.

Seattle Submarket Industrial Stats

Submarket 2Q07
Vacancy(%)
2Q06
Vacancy(%)
2007 YTD NET
Absorption
Puget Sound 7.38 6.68 2,569,577
Kent Valley 5.84 5.45 869,780
Seattle 4.52 5.84 568,738
Pierce County 13.03 5.83 302,230
Eastside 7.89 10.54 143,845
Northend 9.34 16.99 684,984

Source: Pacific Business News

Transaction Action

Transaction size-weighted average price psf, 3Q07

Market Office Industrial Retail
Honolulu $243 $148 $295
Los Angeles $285 $114 $276
Portland, Ore. $250 $75 $172
Sacramento $232 $92 $218
San Diego $284 $130 $251
San Francisco $324 $118 $250
Seattle $298 $102 $194

Source: RERC/CCIM Investment Trends Quarterly

Orange County, Calif.
Office Still Looks Good

Despite mortgage companies closing, Orange County, Calif., had the 15th consecutive quarter increase in office lease rates in 3Q07, says Jerry Holdner, vice president of market research for Voit Commercial Brokerage in Irvine, Calif. “Lease rate increases are expected to moderate by year-end, with concessions increasing in the short run in the form of limited free rent, especially as new inventory becomes available,” he says. Full-service gross asking lease rates averaged $2.77 psf per month, up 11.7 percent over 3Q06. Due to an increase in new product and negative absorption of 434,504 sf in third quarter, vacancy rates rose to just over 10 percent, a 3 percent increase over 3Q06. Developers added 3.5 million sf of new product in the first three quarters of the year, most in the John Wayne Airport and South County submarkets.

Picture: Opus Center Irvine III is typical of the class A product available in Orange County, Calif.’s John Wayne Airport submarket.

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