Commercial real estate conditions have improved steadily in thePuget Sound region, fueled primarily by new hiring and a lack ofnew development. During 2010, area employers expanded payrolls by15,900 workers, following the loss of 125,000 jobs in the precedingtwo years. The rate of employment growth is forecast to accelerateto 2.2% (or by 36,000 positions) this year as local businessconditions strengthen. Translating this into the commercial realestate sector, demand for apartments is expected to increase byyear's end, pushing vacancies down and subduing, but certainly noteliminating, distress in that sector. Retail has benefited from alack of new construction, which has resulted in greater leasing anda decline in concessions. Seattle's industrial sector is alsoexpected to make strides, driven largely by an increase in tradeactivity. While the office market is gaining momentum, especiallyin the class A segment, the sector faces some uphill battles due tostill-weak fundamentals.

Distress in Multifamily

Apartment vacancy will tighten further in 2011 as employmentgains surpass the national average and completions slow to one ofthe lowest levels on record. Last year, declining homeownershiprates and the resumption of job growth fueled a surge in apartmentdemand, pulling the vacancy rate in line with the 10-year average,despite the influx in deliveries. This year, operations willimprove as stock additions decelerate and re-employed youngprofessionals migrate to neighborhoods near major employment hubssuch as Capitol Hill, Queen Anne, Ballard and Downtown Tacoma.

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