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Originally published October 22, 2008 at 12:00 AM | Page modified October 23, 2008 at 12:37 PM

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Seattle beats rivals in bleak commercial real-estate picture

A national study rates Seattle the top commercial real-estate investment market in the country for 2009 — but says the local market is weaker now than a year ago.

Seattle Times business reporter

We're No. 1. But don't cheer too loudly.

A prominent national forecast released Tuesday ranks Seattle as the country's top commercial real-estate investment market for 2009. It says the local market is weaker now than a year ago — just not as weak as all the other markets.

Next year shapes up as the worst for commercial real estate nationally since 1991-1992, the report says.

The forecast, "Emerging Trends in Real Estate," is prepared annually by the Urban Land Institute, a growth think tank, and the accounting firm PricewaterhouseCoopers. This year's conclusions and rankings were based on surveys and interviews with about 700 developers, investors, lenders and brokers.

On a scale of 1 (abysmal) to 9 (excellent), participants gave Seattle an overall rating of 6.15 for commercial and multifamily housing investment next year. Next, in order, were San Francisco; Washington, D.C.; New York; and Los Angeles.

Last year, when Seattle finished No. 2, its rating was 6.86.

All the top markets have slid, said Jonathan Miller, the report's author. Only in Dallas and Houston did year-over-year ratings improve, he said — and those markets owed their upticks largely to rising energy prices that are headed down again.

The commercial real-estate picture is so bleak nationally that "developers might as well head to the golf course or the mountains," said Stephen Blank, a senior resident fellow with the Urban Land Institute.

"The other alternative for developers is maybe the fetal position," Miller said.

The report calls Seattle "a sturdy market," saying it has become a "magnet for brainpower industries" and a global gateway.

But it also notes that Washington Mutual's demise, Starbucks' contraction and the completion next year of several large new, speculative office towers is expected to push downtown vacancy rates down and flatten rental rates.

Bellevue's office market is thriving, the forecast says, but could suffer if Microsoft starts laying people off.


"Seattle is not immune," Miller said.

Housing demand and home prices are expected to dip, especially in outer suburbs, but they still remain well above national averages, the forecast says. Condo sales and pre-sales should fall dramatically. Job growth is expected to be tepid.

But study participants gave the Seattle area the top "buy" rating in the nation for industrial and distribution property and ranked it second for apartments and retail.

Stuart Williams, a principal with Seattle-area commercial brokerage Pacific Real Estate Partners, was among the 700 interviewed for the study. He said Seattle should weather the downturn better than most markets.

His firm forecasts that downtown Seattle office-vacancy rates will climb no higher than 13 percent — much lower than the peaks hit during the dot-com bust and downturn of the early 1990s.

"If somebody had told me the downtown Seattle vacancy rate would bottom out at less than 15 percent, I'd say that's pretty good," Williams said.

While Washington Mutual is likely to put lots of downtown office space up for lease or sublease, Williams said, other markets — including San Francisco and New York — are likely to suffer more from the financial crisis because banks dominate their downtown office markets to a greater extent.

Eric Pryne: 206-464-2231 or

Information in this photo caption, originally published October 22, 2008, was corrected October 23, 2008. A previous version of this photo caption incorrectly stated "vacancy rates were likely to go down." This information was removed from the caption.

Copyright © 2008 The Seattle Times Company

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