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SEATTLE, WA-Puget Sound industry is now far more diverse than in days gone by. Nonetheless, a new report from Marcus & Millichap says significant job losses here, particularly in the aerospace and technology industries, are contributing to the region’s economic woes and adding to the troubles of its commercial real estate market.

Gregory Wendelken, Marcus & Millichap’s Seattle regional manager, says on the heels of Boeing’s recent announcement that it will lay off tens of thousands of employees, “it is evident that the region’s ties to the aerospace industry will result in a local economic slowdown.” According to the report, Boeing employs approximately 80,000 Puget Sound residents—representing 4.8% of the total employment base here. As much as 20,000 jobs could be lost in the cut-backs.

Wendelken says softening in Puget Sound aerospace and technology bodes for a regional economic rebound that will lag behind national recovery. The bright lining to his dark cloud of prediction is that he believes the impacts will be “less severe and not as prolonged as it was in previous cycles.” The report says long-term gains in Puget Sound real estate have historically outpaced losses sustained in cyclical downturns. Wendelken adds that while the local commercial real estate markets will be affected by reduced consumer spending—a byproduct of the layoffs, “the prospects for long-term growth are still positive.”

Speaking directly to the office market here, the report says vacancy increased from 3.6% in June to a current rate of approximately 10.5%. Including sublease space, it says market vacancy has hit 14% and vacancies have resulted in softer rents. Since the first of the year, Marcus & Millichap says rents have dropped 5%, with the median price/sf falling 5.5%.

The report says the apartment sector is expected to outperform other income-producing properties. As rents here not having climbed to the exorbitant heights of San Francisco and the Silicon Valley, corrections are expected to be moderate at most. In 2002, Marcus & Millichap says vacancy rates are expected to rise up from the current 5.4% to 6.3%. Nevertheless, rents and vacancies are anticipated to remain in ranges that should allow the region to remain strong. The bottom line to the apartment market, the report says, “Investors continue to be attracted to the Seattle apartment market’s strong fundamentals.”

Retail, however, is expected to “feel the pinch of the softening economy” with layoffs affecting retail spending this holiday season—which Marcus & Millichap says could result in “several store closures in the coming months.” Average retail vacancy here now stands at 4.9% and is estimated to rise a full percentage point over the coming year.

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