BELLEVUE, WA-A new report released by the Seattle and Bellevue offices of Grubb & Ellis says the Eastside office market was “hit the hardest” by a tough third quarter. Vacancies are running as high, rents are dropping—and with nearly two million square feet of space under construction, Grubb & Ellis says, “…the situation is unlikely to improve in the short term.”
According to the research, total vacancies have blown a 3.26-million-sf hole in the Eastside’s 26.3-million-sf market—translating to an average 11.9% rate, including subleases. Kirkland’s 1.96 million sf of office space remains the Eastside’s tightest at 94.9% occupancy. Bellevue’s Central Business District, however, escalated to an astounding 19% vacancy.
Downtown’s 5.06 million sf of office product has been thrashed by an exodus of high-tech companies. Grubb & Ellis says last year Onyx Software became Bellevue’s largest tenant with its lease of 260,000 sf at One Twelfth @ Twelfth. That space now ranks highest on the infamous list of those now standing empty.
While the report does not distinguish between direct and sublease, it does say Downtown is now plagued with just less than one million sf of vacancies. The third quarter compounded the CBD’s problem, piling on another 288,257 sf of negative absorption—more than 85% of the year-to-date total negative absorption of 329,512 sf.
Adding insult to injury, from this quarter through April 2003, 1.925 million sf of new product is schedule for delivery.
Tenants now hunting for space will find a less pricey environment in which to do their comparison shopping. The report says average class A rental rates in the CBD dropped in the third quarter from $36.52/sf to $31.65 sf—a decline of 13.3%. Rents for Interstate 90 Corridor properties dropped their rents and average of $4/sf, or 14.3%, moving down to $27.43/sf from $31.99.
Craig E. Hill, VP of Grubb & Ellis’ Bellevue office, tells GlobeSt these lower rents offer tenants an opportunity to affordably trade up to a better class of space. He speculates such a trend could ultimately result in the bulk of vacancies being left at the doorsteps of B and C properties.
Third quarter statistics are enough to rain on anyone’s parade unless, of course, they are a tenant shopping the market. As reported by GlobeSt last week, Hill says Grubb & Ellis’ Bellevue office has been experiencing a spate of activity. Over the last few weeks Hill has put new tenants into offices that had been sitting vacant for as long as six months. All eyes now look for fourth-quarter results to see if recent transactions indicate a market pulse, or just a blip on the screen.