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Originally published October 5, 2009 at 12:13 AM | Page modified October 5, 2009 at 1:56 PM

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Record number of Seattle offices are empty

Office-vacancy rates in greater downtown Seattle have hit their highest level in at least 20 years, according to brokerage Cushman & Wakefield.

Seattle Times business reporter

More than one-sixth of leasable office space in greater downtown Seattle is vacant — the highest percentage in at least 20 years, brokerage Cushman & Wakefield says.

Seattle's vacancy rate hit 18.5 percent in September, climbing sharply from 14.7 percent three months earlier. The rate never has been higher since the brokerage began tracking the market in 1988, a spokeswoman said.

And it hasn't peaked, real-estate professionals at Cushman & Wakefield and other firms said.

"We're going to hit 20 percent," predicted Sean Barnes, senior vice president in the Seattle office of brokerage Jones Lang LaSalle.

Craig Kinzer, of Kinzer Real Estate Services, predicted the rate will reach 25 percent, a "historic level of vacancy [that] is really going to separate the haves from the have-nots" among downtown landlords.

Key factors in the latest quarterly increase: a stagnant economy, continuing fallout from Washington Mutual's collapse, and the delivery of more new, mostly empty office buildings that broke ground before the market turned south.

More vacancies mean cheaper lease rates for anyone looking for downtown space. But empty offices also mean fewer workers shopping and dining in stores and restaurants.

Downtown Bellevue's total vacancy rate also increased, from 12.7 percent in the second quarter to 14.8 percent, according to Cushman & Wakefield. That's the highest rate in six years, but still far better than the 25 percent-plus rates Bellevue experienced during the dot-com bust early in the decade.

Matt Christian, a senior director with Cushman & Wakefield, said Seattle's fast-climbing vacancy rate comes as no surprise. "We forecast it 12 months ago," he said.

Cushman & Wakefield added two newly completed buildings, totaling more than 560,000 square feet, to its Seattle vacancy calculations during the third quarter: Martin Selig's Fifth & Yesler building and Vulcan's 2201 Westlake. A majority of the space in both hasn't been leased.

And still more mostly unleased buildings are scheduled for completion in the next few months.

Cushman & Wakefield also added the building known until recently as the WaMu Center to its database for the first time, Christian said.

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While the building had emptied slowly after JPMorgan Chase's takeover of Washington Mutual a year ago, it hadn't been included previously because it was occupied by its owner and wasn't being marketed to prospective tenants.

That changed when Northwestern Mutual of Milwaukee bought the tower last month.

Northwestern subsidiary Russell Investments will move its headquarters from Tacoma to the 900,000-square-foot tower next year — but up to half the building remains available for lease.

There's lots more. Jones Lang Lasalle estimates more than 6.8 million square feet in blocks of 50,000 square feet or more in new or existing downtown buildings has become available or will come on the market this year and next.

Supply is only half of the formula — demand is down, too, said Kinzer, who represented Russell in its headquarters search.

Tenants are finding ways to live with less space, he said. For instance, some are "hoteling" workers — reserving, say, 10 desks to be shared by 30 or 40 workers who may spend much of their time traveling or telecommuting.

Not surprisingly, average asking rates for Class A office space dropped last quarter, according to Cushman & Wakefield.

In downtown Bellevue, leases slid from $38.11 per square foot per year in the second quarter to $35.25. In downtown Seattle, they dropped from $33.23 to $31.90.

Downtown Seattle's rates could be deflated further by Northwestern Mutual's purchase of the former WaMu Center, said Barnes of Jones Lang LaSalle.

The insurance giant paid a bargain-basement $115 million for the tower. On a per-square-foot basis, "that's less than buildings in Bothell cost," he said.

Having paid so little, Barnes said, Northwestern Mutual should be able to offer prospective tenants better deals than many other landlords.

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

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