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Originally published January 13, 2012 at 6:29 PM | Page modified January 23, 2012 at 12:13 PM

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Office buildings filling up, rents increasing

Commercial real-estate market still isn't strong enough for purely speculative building, experts say.

Seattle Times business reporter

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With the exception of Amazon.com's South Lake Union headquarters complex, it's been about four years since a developer broke ground on a big new office building in downtown Seattle or downtown Bellevue.

But office vacancy rates are falling and rents are edging up again, according to fourth-quarter reports from several brokerages.

Those trends have analysts talking once again about when and where some developer might pull the trigger on the next big new project. The market still isn't strong enough for purely speculative building, most agree; the next big office building probably will be constructed only after a big-name tenant commits to lease much or all of it.

"It'll be someone who's big enough that they don't have many options," said Matt Christian, a senior director with Cushman & Wakefield/Commerce, "and they want to be in a specific location."

South Lake Union, perhaps. Or downtown Bellevue.

"There are few large blocks of space available there," Patricia Raicht, vice president for Northwest research for Jones Lang LaSalle (JLL), said of the Eastside's commercial hub.

"If you want 50,000 square feet, there are no options for you."

That makes Bentall Kennedy's 15-story Summit III project in Bellevue a likely candidate to be first out of the gate, Kidder Mathews said in its fourth-quarter report. Work on that partly built project, at 108th Avenue Northeast and Northeast Fourth Street, was halted in mid-2009.

Kidder, JLL, Cushman and a fourth brokerage, Colliers International, all reported drops in vacancies in greater downtown Seattle and on the Eastside last quarter.

All expect those declines to continue.

Downtown's vacancy rate hasn't been this low in more than two years, according to Cushman. And the current rate doesn't include big, recently leased spaces that tenants haven't moved into yet, Christian said.

"Net absorption" — which measures the change in how much office space is occupied, regardless of changes in supply — was up nearly 1.2 million square feet in greater downtown last year, according to Colliers. That's more than double the historical average, research analyst Chris Fox said.

Fast-growing Amazon was responsible for most of that gain. In South Lake Union, the online retailer's base, the vacancy rate has fallen by nearly half since the end of 2010, JLL's Raicht said, while asking rents for some top-tier buildings have jumped 10 percent.

If a big new speculative office building is built soon, "the place you would see it would be South Lake Union," said Colliers' Fox.

While growing "new economy" businesses like Amazon are locating in neighborhoods just north and south of downtown, the central core itself is lagging, said Richard Briscoe, a Kidder Mathews vice president.

Its traditional tenants — law firms, accountants, insurances companies — "still probably don't need more space," he said.

The Eastside's fourth-quarter vacancy rate was lower than Seattle's, all four brokerages reported. But Tom Bohman, a senior director at Cushman's Bellevue office, said the rate of decline, while steady, has been slow.

"The demand side is still pretty low," he said, "but if one or two big users come in, we could have a feeding frenzy."

Asking rents for Class A office space on the Eastside averaged $31.38 per square foot per year last quarter, up 20 cents from the preceding three months, according to Cushman.

The corresponding figure for Seattle was $32.96, highest since the second quarter of 2009 but still down substantially from its peak near $40 in late 2008.

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

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