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Originally published Wednesday, March 26, 2008 at 12:00 AM

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Seattle office market grabs investors' attention

As one of the few places in the U.S. still with a healthy economy, the Puget Sound region is snagging capital from around the world.

Seattle Times business reporter

Office lease rates

A COMPARISON of weighted average rental rates per square foot for local office space:

Downtown Seattle: $38.47

Downtown Bellevue: $38.57

Suburban Eastside: $30.48

North End: $24.74

South End: $23.08

Source: Cushman & Wakefield

He won't name it, but commercial real-estate broker Gary Guenther says he knows of a second-tier downtown Bellevue office building that was put up for sale recently — and got bites from 20 prospective buyers.

It's just one indication that the Seattle area's strong office market is looking better and better to national and international investors, he and other local brokers say.

"They are looking very aggressively to put their money here," Guenther, a senior vice president with brokerage GVA Kidder Mathews' Bellevue office, told a breakfast meeting of the Bellevue Downtown Association on Tuesday.

Brokers for Cushman & Wakefield sounded the same theme in releasing a report on the local market's first-quarter performance.

"There is a ton of capital waiting to be invested in the Puget Sound region," said John Miller, the Seattle office's managing director.

Yes, credit is tight. Yes, the national economy is slowing.

Even so, the brokers said, Seattle and Bellevue office buildings appeal to investors because the regional office market — and the regional economy — has been relatively insulated from the downturn.

Existing buildings look good because there isn't much land available in the Seattle area for inexpensive new construction, said Tom Bohman, a senior director in Cushman & Wakefield's Bellevue office.

And the weak dollar is drawing foreign interest, associate director Wende Sauvage said.

Director Steve Brunette predicted that deals would start picking up later in the year as credit eases. Potential sellers may be holding back for now, thinking it's to their advantage, he said.

Brunette and Bohman expect buildings to fetch prices a little lower than those of Equity Office Properties Trust's 29-building local portfolio in 2007.

Those sales were fueled by cheap debt, Bohman said. New investors, in contrast, most likely will be pension funds and other institutions with plenty of cash.

After a big run-up last year, office-rental rates leveled off during the first quarter, Cushman & Wakefield's report says. Class A space went for $38.57 a square foot on average in downtown Bellevue, a dime less in downtown Seattle.

Cushman & Wakefield brokers said they don't expect dramatic changes in the office market the rest of the year. Guenther, focusing on downtown Bellevue, agreed.

A year ago, with several speculative office towers under construction, the Eastside city looked like it might face an oversupply of office space soon, Guenther said. That changed quickly when Microsoft and others leased most of those buildings.

Guenther advised tenants whose leases are expiring and want to stay downtown to "increase your budgets because rates aren't going to go down."

"Rates are going to stay high for the next several years," he said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

Copyright © 2008 The Seattle Times Company

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