“Out here in Seattle, we were living in a bubble.”

These articles are a bit off-topic from the usual news about residential real estate, but I thought they were at least worth a brief mention.

New York Times: In Seattle, Office Vacancy Rate Is Rising Fast

Not long ago, Seattle looked invincible, even as an economic downturn was starting to plague the rest of the country.

High-profile Seattle-area companies like Microsoft and Amazon were adding thousands of jobs, trade with Asia was strong and Boeing was selling thousands of commercial jets. Deemed the best office market in the country in some nationwide reports, the city was attracting real estate investors hungry to buy office buildings and build new projects. It seemed as if nothing could go wrong.

“Out here in Seattle, we were living in a bubble, immune from the rest of the country,” said Bruce Blume, founder of a real estate development firm, the Blume Company.

It was like they thought there was some kind of Seattle… Bubble or something.

The vacancy rate for office space in the central business district reached 10 percent in the third quarter, according to Cushman & Wakefield, still below the nationwide average, but up from 8.4 percent a year ago.

With five new buildings, encompassing about two million square feet, opening next year, the vacancy rate is expected to hit 15 percent. Most of the new space has not been leased.

Sales of office buildings reached $11.47 billion in 2007, some seven times what they were in 2004, according to Real Capital Analytics. Deals so far this year have totaled only $375 million.

Although building prices have tumbled in 2008, it hasn’t been enough to keep investors interested. Since last year, the price to acquire office space has shrunk 32 percent, to an average of $227 a square foot, according to Real Capital Analytics.

From the sounds of it, the commercial real estate market around here is actually getting hit harder and faster than the residential market.

Then again, maybe not? Here’s a competing headline from today’s Seattle Times: Seattle’s commercial real-estate market is No. 1 for 2009

Seattle is the No. 1 commercial real-estate investment market in the country for 2009 — even though it’s in worse shape than a year ago, a new forecast concludes.

It rose to the top spot only because other markets are expected to suffer more from the economic downturn, the report’s authors said.

The forecast, “Emerging Trends in Real Estate 2009,” was released today by the Urban Land Institute and PriceWaterhouseCoopers. It bases its assessment of the overall commercial real-estate situation and individual markets on surveys and interviews with about 700 developers, investors, lenders, brokers and other professionals.

Hmm. I wonder if the data for this report was collected before or after WaMu was bought out and Microsoft announced they were “re-evaluating [their] current hiring plans.”

(Kristina Shevory, New York Times, 10.21.2008)
(Eric Pryne, Seattle Times, 10.21.2008)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

13 comments:

  1. 1
    Denny Retrograde says:

    Great roundup, Tim! The Blume quote is really funny. If HE’S saying we were in a bubble, none of the usual local shills can say boo to that. Well done.

  2. 2
    patient says:

    “It rose to the top spot only because other markets are expected to suffer more from the economic downturn, the report’s authors said.”

    Where do they get this idea from? No supporting data just a statement. Is it just a wild guess based on the perfomance to date? Nope it’s worse, local cheer leaders whose business depends on it.

    “It bases its assessment of the overall commercial real-estate situation and individual markets on surveys and interviews with about 700 developers, investors, lenders, brokers and other professionals.”

  3. 3
    Ben says:

    Tim – another bit of news that is impactful is YHOO laying off 1500 people. This is a sign of things to come I think.

  4. 4
    SM says:

    Good post. It’s funny we are hearing similar things down here in San Francisco about staying alive in this economic downturn. I think being able to survive 2009 is going to be very important. Many brokers are saying its going to be a tough year.

    Sean Murphy, Rofo – San Francisco Office Space
    [editor’s note: business link moved to comment name field per the comment policy]

  5. 5
    deejayoh says:

    Ooh. I love it when you have dueling quotes from the same source in two articles

    From the NYT:

    It’s an abrupt turnaround since last year, when Grubb & Ellis, a commercial real estate brokerage, and the Urban Land Institute both named Seattle as one of the top five office markets in the country for investors.

    From the Times:

    The forecast, “Emerging Trends in Real Estate 2009,” was released today by the Urban Land Institute and PriceWaterhouseCoopers. It bases its assessment of the overall commercial real-estate situation and individual markets on surveys and interviews with about 700 developers, investors, lenders, brokers and other professionals.

    To be fair, the ULI seems consistently bullish on Seattle – but it is funny to see the positioning in the two stories be so different

  6. 6
    S-Crow says:

    CRE is entering into a challenging environment. Up in Sno Co. & Everett area there seems to be quite a few vacancies.

    Some of the Craigslist postings for CRE border on entertainment, thinking they are going to get leasing rates for Class A office space at similar rates to Bellevue and Seattle proper. Many have been posting for months.

  7. 7
    Brian says:

    No crap. When I was looking for office space in Marysville, it drove me nuts. People were looking for absurdly high rents, but they had been vacant for almost a year. just inane.

  8. 8
    Joel says:

    At least those Yahoos won’t have to suffer the indignity of working for Microsoft… or working at all for that matter.

  9. 9
    Herman says:

    My VP of Engineering today told me that he’s getting way more job applications now. He’s trying to fill 15 positions and said he hasn’t seen this many qualified candidates since pre-2005.

    And me, personally, I used to get 100% headhunter calls, and now I’m 50-50 headhunters vs. unsolicited job applications.

    Get ready, folks. It’s coming to Seattle.

  10. 10
    Aaron says:

    $227/sq foot?

    Are we sure we can’t rezone that residential?

  11. 11
    Scotsman says:

    We’re #1!…….. aft-most deck chair on the Titanic!

  12. 12
    deejayoh says:

    I think they changed the headline in the Seatlte Times article, or posted a new one on the same topic (with the same byline!)

    From this morning: Seattle beats rivals in bleak commercial real-estate picture

  13. 13

    YES TIM

    I’d add the Boeing strike(s?) impact(s) and a crashed stock market to the witches brew.

    I see chronic “For Lease” signs all over the place and they’re building more?

    Must be a huge tax advantage to build more and more empty office space?

    Maybe the materials and contractor estimates are real low right now with a tanked construction business and investors are gambling on the future, like Buffet?

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