Second quarter 2009 market reports show that Seattle’s commercial real estate market is not immune to the struggling economy, but compared to the rest of the country, we are performing quite well. Here’s an update on the apartment, industrial, office and retail property types in the Seattle/Puget Sound region:
Apartment: Seattle's strongest property type has seen an increase in vacancy rates with only a small rent decrease, although many owners have begun to offer leasing concessions. The vacancy rate increased to 6.6% from 4.8% last fall, but strong submarkets like Capitol Hill and U-District remain at well under 5%. The average rental rate in the region was $988, down less than 1% from six months ago. The average rental concession was $733 (on a 12-month lease) with about half of the buildings offering a concession.
Industrial: The strongest performing property type after apartments, overall Seattle area industrial vacancy was 7.0%, with overall average blended rental rates of $0.63 psf/month. The 7.0% vacancy rate represents a 90 basis point increase from the previous quarter. Flex buildings averaged 9.6% vacancy, while warehouse buildings were 6.7% vacant. The $0.63 psf/month rental rate represents a 0.7% increase from the previous quarter. Cap rates have increased about 150 basis points from a year ago. The strongest submarkets included the Southend (Auburn & Kent Valley) and close-in Seattle with vacancy rates under 5%.
Office: Office buildings have seen the most stress in 2009, resulting in an overall vacancy rate of 11.2%, according to CoStar. Class C office space has seen the smallest increase in vacancy rate while class A & B vacancy rates have increased between 150 and 200 basis points. The average rental rate was $27.03 psf/yr, a 3.3% decrease from the first quarter 2009. Cap rates have increased by about 90 basis points, averaging 7.46, although few sales have taken place in the last 12 months.
Retail: Retail vacancy has increased 50 basis points from first quarter to 6.1% and rental rates ended the quarter averaging $20.60 psf/year. Since second quarter 2008, retail vacancy has increased steadily from 4.5% to the current 6.1%. As the economy challenges retailers, we expect to see an increase in vacancy rates through 2010. The average rental rate is down over 4% since 1st quarter and over 9% in the last year. Cap rates have increased almost 150 basis points in the past year. Similar to office properties, transaction volume is significantly lower than the previous four quarters.
*Vacancy and rental rates taken from CoStar and the Dupree & Scott local market reports.