An expected increase in business spending in the second half of 2004 should boost the entire Eastside office market, predicts Grubb & Ellis Co., pointing to Microsoft's plans as an example. However, when construction on Washington Mutual's 42-story building begins in 2004, its shadow is expected to last long after the construction cranes are gone.

When the financial institution's employees are consolidated into the new building that is part of a $300-million development with the Seattle Art Museum, more space will be thrown on the Downtown office market, Grubb & Ellis notes in its 2004 forecast report. Washington Mutual now has its workforce spread over 1.3 million sf in the Downtown market.

Grubb & Ellis pegs the vacancy rate at 15.5% in Seattle's CBD while the suburbs are ending 2003 with a 17.8% vacancy rate. For now, the looming prospect of more than one million sf of surplus space is not affecting asking lease rates, according to CB Richard Ellis Inc., which reports an increase of about 4% from the third quarter to $25.95 per sf.

The rosier view of the Eastside is echoed by CB Richard Ellis, which notes vacancy there has dropped three straight quarters, most recently to 15.38%. "With only one 45,000-sf office project currently under construction on the Eastside, this market is poised for continued recovery," according to the firm's view. Meanwhile, asking lease rates for class A Eastside space increased slightly in the fourth quarter to $22.87 per sf, according to CB Richard Ellis.

While Washington Mutual's new building is expected to add supply to the Downtown market, there apparently is no fear of oversupply in the South Lake Union submarket to the east. Vulcan Inc. is planning to build a biotech hub there, Grubb & Ellis notes, and the University of Washington is planning to add another 800,000 sf.