Published February 2003

Brokers: Commercial market at standstill

By Eric Fetters
Herald Business Writer

Snohomish County’s commercial real estate market ended 2002 close to where it began: a 20-percent vacancy rate for office space and hopes for a stable, if not improved, year ahead.

As local brokers with the property firm Cushman & Wakefield presented fourth-quarter statistics and looked ahead to 2003, they recently described a market that’s not moving much in either direction.

Recent lease deals have mostly involved companies moving from one part of the county to another. That won’t change in the near future, said associate broker Brian Toy.

“I think we’ll see more tenants moving around in the market, rather than expansion,” he said.

The office vacancy rate, which stood at 19.9 percent in the third quarter, edged up to 20 percent in the period ending Dec. 31, according to Cushman & Wakefield’s numbers. When 2002 began, the vacancy rate was 20.4 percent, compared with 7 percent in mid-2000.

The average yearly lease rate for premium office space was at just below $24 per square foot for the fourth quarter, down about 95 cents from the end of 2001. The average rental rate for less luxurious office space was approximately $19.60 a square foot, up more than $2 from 2001.

Treading water with a relatively high vacancy rate doesn’t sound enviable, but it could be worse.

In downtown Bellevue, which has much more office space than Snohomish County, more than 25 percent of space remains empty and office lease prices are down $3 from the end of 2001. Downtown Seattle has a vacancy rate just below 15 percent.

Unlike Bellevue and Seattle, where a combined 4 million square feet of office space is up for lease, Snohomish County has just over 652,000 square feet. Of that, more than 400,000 square feet is contained within just three Lynnwood office buildings: the new Cosmos Lynnwood Center and two buildings at Quadrant I-5 Center.

The owner of the two vacant buildings at Quadrant I-5 Center is in the midst of a bankruptcy, and a deal to sell the structures hasn’t come through.

In the industrial space market, the county’s vacancy rate for the fourth quarter stood at 12.6 percent, a full percentage point lower than in the third quarter. That improvement comes despite the fact the Boeing Co. has put several large industrial buildings up for lease.

Account executive Tom Wilson said the cheaper cost of land in Snohomish County and its ability to serve the north half of the Puget Sound area have drawn increasing interest from industrial developers and tenants.

While brokers agreed that the worst is over for the region’s commercial real estate market, demand for leased space isn’t expected to surge dramatically in the near future.

That won’t happen until the millions of empty square feet in Seattle and the Eastside start to fill, Toy said.

“The northend office market has historically been a receiver market for tenants from Seattle and the Eastside when things get a little tight,” he said.

Tom Abbott, senior director at Cushman & Wakefield in Seattle, said businesses also need to begin growing again before they start leasing additional space. Most analysts believe that won’t happen until late 2003 or 2004.

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