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KIDDER.COM

ELEVENTH PLACE CENTER

OFFERING MEMORANDUM | 34617 11TH PL S | FEDERAL WAY, WA

The information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Kidder Mathews and should not be made available to any other person or entity without the written consent of Kidder Mathews.

This Marketing Brochure has been prepared to provide summary, unverified information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. Kidder Mathews has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB’s or asbestos, the compliance with State and Federal regulations, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any tenant’s plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable; however, Kidder Mathews has not verified, and will not verify, any of the information contained herein, nor has Kidder Mathews conducted any investigation regarding these matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of the information set forth herein.

This information has been secured from sources we believe to be reliable. We make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Recipient of this report must verify the information and bears all risk for any inaccuracies.

01EXECUTIVE SUMMARY

02PROPERTY DESCRIPTION

03MARKET OVERVIEW

KIDDER.COM

JOEL SHABEL

[email protected]

EXCLUSIVELY OFFERED BY

WILL FRAME

[email protected]

DREW FRAME

[email protected]

TABLE OF CONTENTS

3ELEVENTH PLACE CENTER OFFERING MEMORANDUM KIDDER MATHEWS

01EXECUTIVE

SUMMARYTHE OPPORTUNITY

LOCATION AERIAL

LOCATION MAP


Eleventh Place Center (34617 11th Place South, Federal Way, WA) is a value add or owner/user three-story office/medical office building consisting of ±19,905 rentable square feet on ±34,145 square feet of land.

The property offers a rare ownership opportunity to own a office/medical building in the South King County market. Eleventh Place Center offers floor plates of 7,733 square feet, with numerous services nearby with great access and exposure. Eleventh Place Center is a well positioned and desirable asset. The building is located off 348th and Pacific Highway in Federal Way, and has a parking ratio of 6.9/1,000 square feet. The Metro Bus Line and Link Light Rail are one block from the building. St. Francis Hospital is 3 blocks away.

EXECUTIVE SUMMARY

INVESTMENT SUMMARY

Offering Price $2,650,000

Price / SF $133.13

Land Area .88 AC (38,144 SF)

Year Built 1981

Net Rentable Area ±19,905 SF

Stories 3

Parking 6.9 stalls/1,000 SF

INVESTMENT SUMMARY

Over $125 Million being invested in the new Town Center

Vacancy steadily decreasing and rental rates are rising in South King County

Weyerhaeuser Campus re-purposing will create jobs and bring vendors to the city

S 348TH ST

PA

CIF

IC H

WY

S

SUBJECT PROPERTY

SEATTLE

THE CROSSING

TACOMA

ST. FRANCIS FRANCISCAN HOSPITAL

ELEVENTH PLACE CENTER OFFERING MEMORANDUM KIDDER MATHEWS 5

BELLEUVE

REDMOND

ISSAQUAH

SAMAMISH

RENTON

KENT

BURIEN

LYNNWOOD

EVERETT

KIRKLAND

BOTHELL

MERCER ISLAND

AUBURN

TACOMA

PUYALLUP

FEDERAL WAY

LAKEWASHINGTON

MT. VERNON

WHIDBEY ISLAND

SAN JUANISLAND

OLYMPIA

PUGET SOUND

VASHON ISLAND

MAPLE VALLEY

BREMERTON

SILVERDALE

FRIDAY HARBOR

BELLINGHAM

STANWOOD

CAMANO ISLAND

MARYSVILLE

SUBJECT PROPERTY



02PROPERTY

DESCRIPTIONPROPERTY SUMMARY

SITE AERIAL

FLOOR PLANS

LOCATED AT 34617 11th Place South, Federal Way, WA

KING County

MUNICIPALITY is City of Federal Way

BUILDING SIZE of ±19,905 square feet LAND AREA of .88 ACRES (±34,145 SF)

BUILT in 1981

THREE stories

ZONED OP - Office Park

TYPE OF CONSTRUCTION is masonry

ONE elevator

6.9 STALLS/1,000 RSF for parking

HVAC

ELEVATOR and stair(s) interior access

BUILDING ACCRSS on S 348th Street and 11 Avenue South

PROPERTY DESCRIPTION


S 348TH STREET

SUBJECT PROPERTY

ST. FRANCIS HOSPITAL

PACIFIC HWY



FLOOR PLANS

FIRST FLOOR


FLOOR PLANS

SECOND FLOOR


FLOOR PLANS

THIRD FLOOR


03MARKET

OVERVIEWKING COUNTY MARKET

2019 2ND QUARTER REPORT


MARKET OVERVIEWGREATER SEATTLE AREA

Seattle is the largest city in the four-county metropolitan area known as the Puget Sound region. The area’s other major metropolitan cities include Bellevue, Tacoma, Everett, and Bremerton. Surrounding these are growing cities that include Kirkland, Redmond, Kent, Renton, Bothell, and Issaquah.

CLIMATE

The temperate climate lets residents and visitors enjoy the outdoors year-round. High temperatures in July average just 75 degrees, while low temperatures drop below freezing an average of only 15 days per year. The rainfall keeps the region’s vegetation a lush green, however, it rarely rains heavily and the total average rainfall is 35 inches, less than New York City or Miami.

Outdoor Activities, Culture, Sports

The Seattle area’s natural beauty and mild climate encourage year-round activities such as hiking in the Olympic or Cascade Mountains, kayaking on Lake Union, or cycling on any of the many rails-to-trails paths.

Art and culture are also driving forces in the region. There are 34 museums, 30 performing arts centers, and—at last count—at least 29 professional theatre companies.

Professional sports teams include major league football and baseball as well as soccer and hockey. The region’s professional football team, the Seahawks, won the Super Bowl in 2013. In addition, there is thoroughbred racing, minor league baseball, and the University of Washington Huskies to cheer on.

DEMOGRAPHICS

The region consists of approximately 3,898,720 (2015, U.S. Census Bureau Estimate) residents in King, Snohomish, Pierce, and Kitsap counties. The current figure represents a 1.6% increase over the 2014 as the region added 63,270 new people. This marks the fourth consecutive year of increased annual growth. Positive population growth in the region is expected to continue through the end of the

forecast period. The Puget Sound Regional Council is estimating the area’s population to be 4,479,131 in 2030, an 11.9% increase.

The Seattle-Tacoma-Bellevue metropolitan area (MSA) is clearly the economic engine of Washington State. The MSA ranks 13th among 362 markets nationwide in terms of effective buying income (EBI or after-tax, discretionary spending power). The median household EBI in the Greater Seattle Area is 20% higher than the national median.

Approximately 56% of the population is in the prime workforce age of 25-64. Residents are among the most highly educated in the nation, with more than 35% having at least a bachelor’s degree and one-third of those holding a graduate or professional degree.

Long-term forecasts call for the Greater Seattle area to resume its historic strong growth patterns. The Puget Sound Regional Council expects the area to add approximately 855,000 new jobs by 2040.

EDUCATION

Washington State is home to six public four-year colleges and universities, 34 public community and technical colleges, and more than 300 private colleges, universities, career, and vocational schools.

The University of Washington continues to gain increased national recognition. According to America’s Best Colleges, U.S. News & World Report in 2015, the UW was ranked 52 among all national universities, tied with University of Texas-Austin and Pepperdine University. The U.S. News 2015 graduate school rankings show many of the UW’s graduate programs among the best in the nation. The medical school ranked first among all schools in the country for primary care and the School of Nursing also retained its top ranking for the 27th year. Overall the UW School of Medicine ranked tenth among research medical schools and first among public medical schools. The graduate program in computer science ranked sixth and the college of education graduate program was seventh.

Seattle University is a Jesuit university situated on 48 acres in Seattle’s First Hill and Capitol Hill neighborhoods. The school was founded in 1891 and is the largest independent university in the Pacific

Northwest. The university has a total enrollment of 7,422 students of which 63% are undergraduates. Seattle University employs 1,400 faculty and staff. The U.S. News 2015 rankings place Seattle University 6th among the top universities in the West that offer a full range of masters and undergraduate programs.

TRANSPORTATION

King County has a well-developed transportation system which provides links to all parts of the country and world. Seattle’s port is closer to the main trading partners in Asia than any other major U.S. port and the region’s distribution networks move goods efficiently inland.

The Puget Sound region’s multi-modal transportation system includes two transcontinental railroads, nationwide trucking capacity, three interstate highways, a ferry system, a world-class port and an international airport.

The Burlington Northern Santa Fe (BNSF) and Union Pacific Southern Pacific (UPSP) railroad serve the greater Seattle area. Both railroads have spur lines that span the area, making it possible to deliver almost any type of load. Outside of Puget Sound and across the state, there are over 4,000 miles of operable track.

Truck transportation in Washington State is made possible by over 3,700 interstate trucking companies, including common carrier and

contract companies. The State ranks among the top 10 states in general freight tonnage carried by trucks intrastate. The competition results in favorable negotiated freight rates.

All regional communities are accessible from Seattle over an efficient, well-planned freeway system. The average commute between Seattle and outlying cities and suburbs is 23 minutes (non-peak) and 45 minutes (peak). The region’s highway network is anchored by three main highways:

U.S. Interstate 5 which runs north-to-south from Vancouver, British Columbia to San Diego, California

Interstate 90 which runs west-to-east connecting Seattle with New York

Interstate 405 (Washington) is a 30-mile stretch of freeway that bypasses Seattle east of Lake Washington. I-405 runs from Lynnwood in the north to Tukwila in the south.

Over 23 million passengers annually ride the Washington State Department of Transportation’s Ferry System, the largest in the country and the third largest in the world. This system transports over 10 million vehicles a year, more than any ferry system in the world. The fleet has 20 auto-passenger ferries and two passenger-only ferries. The DOT operates 20 terminals and operates on nine routes.



ECONOMY

While the greater Seattle economy includes a broad range of companies, local business and civic leaders have identified key innovative, knowledge-based industries that drive our economy and are critical to the region’s current and future prosperity.

Aerospace

Clean Technology

Information Technology

Interactive Media

Life Sciences

Aerospace

The Puget Sound region has a proud history and a strong future as a leader in the aerospace industry. In 2015, aerospace supported more than 102,000 jobs (over 7,000 engineers) in the region and includes over 650 companies, making the area the largest commercial aviation center in the country. The largest employer is Boeing Commercial Airplanes which is headquartered in Renton about 15 minutes south of downtown Seattle. The region is home to final assembly operations for the 737, 747, 767, 777, and 787 aircraft. In November 2015 Boeing had 79,334 employees in the Puget Sound region.

Clean Technology

Analysts predict a boom in clean technologies amid an oncoming energy crunch. The alternative-energy industry’s revenues are projected to quadruple to $226 billion by 2017, according to a report by Clean Edge, a Portland-based market-research firm.

There are more than 400 clean technology companies located in the region employing more than 21,000 people. There is a 64% greater concentration of clean technology, or “green,” jobs in the Seattle area than the U.S. average.

Statewide, the clean technology industry accounted for more than 62,000 jobs in the sectors of energy efficiency, renewable energy, reducing pollution and pollution cleanup. The sectors of wind, solar, biomass, wave/ tidal and geothermal energy currently employ more than 17,000. Washington State has long supported clean technology and has the largest coordinated hydro-electric system in the world, providing 73% of the state’s electrical power.

The Washington Clean Technology Alliance (WCTA) was established in 2007 to take full advantage of the opportunities presented by this emerging sector and to ensure Washington’s continued leadership.

The Port of Seattle has world-class facilities and relative proximity to Asia; the port is the fastest route for cargo to and from America’s heartland. The transit time from port cities in Asia to Seattle is eight days, which is 30 hours less than through Southern California ports. The Seattle-Tacoma-Everett port region is the third largest container complex in the country, smaller only than New York/New Jersey and Los Angeles/Long Beach. It is the 8th largest US port in 2015 in terms of TEU’s and cargo activity supports more than 21,000 jobs. The region’s ports serve not only the Pacific Northwest but also the Midwest, East Coast, and Canada. The Northwest Seaport Alliance saw container volumes surpass the 3 million mark in October, a 5 percent increase year to date. Containerized exports fueled the growth, posting a 9 percent gain over October 2014. Import volumes declined slightly, signaling the end of the peak shipping season when retailers increase inventories ahead of the holiday shopping season. Through the first 10 months of the year, imports rose 4 percent to 1,208,091 TEUs, and exports grew 9 percent to 1,102,194 TEUs. Domestic volumes to Alaska and Hawaii remained flat, up 1 percent to 748,769 TEUs. Auto imports also continued to post gains in October—up more than 6 percent year to date to 154,291 units—as the 2016 models began arriving. Meanwhile, year-to-date break-bulk cargo


Information Technology

Many of the most well-known names in the software and information technology industry are located in the Greater Seattle area. The established companies include Intel, Microsoft, Amazon, Nintendo, T-Mobile, RealNetworks, Expedia, and several others.

The strong base of businesses has created the largest employment cluster in the region, supporting nearly 110,000 jobs. The Greater Seattle area has several world-leading strengths in the IT sector. The State of Washington is the largest employer of software publishing workers in the US. Washington ranks first in the country in the creation of new software companies.

Microsoft is the second largest employer in the State of Washington. In addition to the nearly 42,940 employees in the region at the end of 2015, the company historically has had an estimated 3.4 implied employment multiplier. As a result, the company currently also supports nearly 98,000 indirect jobs in the area. Microsoft has also greatly impacted the region through next generation companies. Since Microsoft’s founding, over 250 companies have been spun off through investment and development or from former Microsoft employees.

Amazon continued its strong employment growth through 2015. The online retailer added 9,400 employees worldwide last year, an expansion of more than 38%. The company doesn’t release detailed employment information for the region; however, recent local leasing activity indicates many of the new and 2016 planned hires will be based in the Seattle area.

Amazon leased approximately 460,000 square feet at the 1918 Eighth office tower in downtown Seattle. This lease is in addition to the 1.7 million square foot headquarters in South Lake Union which is apparently already near capacity. They are under construction on 4 city blocks totaling approximately 3 million square feet. Tech companies require approximately 250 square feet per employee. Therefore they plan to house an additional 10,000 employees upon completion of this Amazon campus.

The rich and deep pool of talent has led other industry leading IT companies such as Google to establish the area as an important location for growth. In the Greater Seattle area, Google has a complex of new buildings in Kirkland and offices in the Fremont neighborhood of Seattle. A local manager has indicated that at least 100 positions will be added to the 700 employees already working in the two locations. The local engineers are working on the high priority projects such as the Chrome browser and operation systems and Google Talk.

TOP PUGET SOUND AREA COMPANIES

2019 2nd Quarter ReportWith over 4.1 million s.f. of net absorption during the second quarter 2019, the regional office market continues to tighten despite the number of active cranes. The tech giants continued their aggressive expansions in Seattle and on the Eastside with healthy levels of job growth. Regional office vacancy stands at 5.79%, down from 6.48%. Office vacancy is now at a 10 year low. This is fueled by the net absorption of 4,129,597 s.f. over the second quarter. Apple also announced their intention to add 2,000 jobs in Seattle over the next five years which will propel job growth. Year over year 51,900 new jobs were added to the region. With job growth expected to continue and a tolerable level of new construction, the near term outlook for the regional office market remains positive.

Demand pushed rental rates up during the second quarter. The CBDs are seeing rents in the low $40’s per square foot per year NNN for new construction. The Eastside continues to draw the attention of Amazon, whose minimum commitment to the Bellevue CBD is up to +/-2.7 million s.f.; it will be interesting to see how much office appetite remains for Amazon and other Eastside tenants.

Developers continue to position themselves, prepared for more tech expansion. In downtown Bellevue there are five new office projects that could break ground by early 2020, with two new office projects commenced during the second quarter. Seattle has nine major office projects under construction after delivering nearly 1.9 million s.f. of new office inventory over the quarter. There are eight or more planned spec projects expected to come on line by early 2020.

VACANT SPACE / VACANCY RATE

At the end of the 2nd quarter 2019, the region has a total standing office supply of 207.1 million s.f. per CoStar, up about 2.2 million s.f. from last quarter. Current office vacancy for the region is at 5.79% with just under 12 million of total standing vacant space, including sublet vacancy. This is down 69 bps from the 6.48% mark last quarter and a 105 bp drop from the 6.84% vacancy rate one year ago, and is a 10-year low. The entire region posted positive net absorption for the second quarter led by Seattle’s impressive 3,257,728 s.f. The Eastside added 641,636 s.f. in net absorption with South King County absorbing another 159,306 s.f. Overall, regional net absorption over the quarter was significant at 4,129,597 s.f. This compares to net absorption for all of 2018 at 4.46 million s.f.,

and is the highest quarterly net absorption total in recent history. The next closest was 3.5 million s.f. in the 4th quarter of 2016. The regional availability rate showed no change over the second quarter, ending at 8.54%, compared to 8.57% last quarter and 8.14% at the end of 2018.

NEW CONSTRUCTION ACTIVITY

There were seven major regional office deliveries during the quarter, five of which were in Seattle. The most significant was Amazon’s self-developed Amazon Block 20 project at 1.1 million s.f. Other deliveries of note were Lakefront Blocks (Google) at 302,000 s.f., 15th & Market at 200,377 s.f., the Atrium at 198,000 s.f. and Legacy’s Kelly Springfield Building (WeWork) at 75,400 s.f. Regionally, the Southport Office development delivered its third and final building in Renton totaling 188,616 s.f. and two buildings of Kirkland Urban added 400,000 s.f. of new office supply to the Eastside market. Combined, second quarter deliveries totaled 2,464,393 s.f.. There were five major construction starts, including three projects on the Eastside (Summit III, One Esterra Park & REI HQ) and two in Seattle (Third & Lenora & Tommer Building). Overall, there are currently 14 major speculative office projects underway. Nine are in Seattle and collectively contain 3.3 million s.f. Of these developments, 63% is pre-leased, a rising number considering speculative leases. In the Eastside market, there are four office projects under construction , the furthest along being Spring District Block 16 at 338,000 s.f. and fully committed to Facebook. The Summit III tower is fully pre-leased to Amazon and REI will occupy their HQ development indicating these four projects are

Q2 2019 | SEATTLE | OFFICE | KIDDER MATHEWS RESEARCH

2019

MARKET TRENDS | OFFICE

SEATTLE ABSORPTION | VACANCY | RENTAL RATE | CONSTRUCTION DELIVERIES

With over 4.1 million s.f. of net absorption during the second quarter 2019, the regional office market continues to tighten despite the number of active cranes. The tech giants continued their aggressive expansions in Seattle and on the Eastside with healthy levels of job growth. Regional office vacancy stands at 5.79%, down from 6.48%. Office vacancy is now at a 10 year low. This is fueled by the net absorption of 4,129,597 s.f. over the second quarter. Apple also announced their intention to add 2,000 jobs in Seattle over the next five years which will propel job growth. Year over year 51,900 new jobs were added to the region. With job growth expected to continue and a tolerable level of new construction, the near term outlook for the regional office market remains positive.




At the end of the 2nd quarter 2019, the region has a total standing office supply of 207.1 million s.f. per CoStar, up about 2.2 million s.f. from last quarter. Current office vacancy for the region is at 5.79% with just under 12 million of total standing vacant space, including sublet vacancy. This is down 69 bps from the 6.48% mark last quarter and a 105 bp drop from the 6.84% vacancy rate one year ago, and is a 10-year low. The entire region posted positive net absorption for the second quarter led by Seattle’s impressive 3,257,728 s.f. The Eastside added 641,636 s.f. in net absorption with South King County absorbing another 159,306 s.f. Overall, regional net absorption over the quarter was significant at 4,129,597 s.f. This compares to net absorption for all of 2018 at 4.46 million s.f., and is the highest quarterly net absorption total in recent history. The next closest was 3.5 million s.f. in the 4th quarter of 2016. The regional availability rate showed no change over the second quarter, ending at 8.54%, compared to 8.57% last quarter and 8.14% at the end of 2018.


There were seven major regional office deliveries during the quarter, five of which were in Seattle. The most significant was Amazon’s self-developed Amazon Block 20 project at 1.1 million s.f. Other deliveries of note were

2ND QUARTER

2Q 2019 MARKET HIGHLIGHTS

NET ABSORPTION totaled 4,129,597 s.f.

VACANCY decreased to 5.79%, the lowest region vacancy rate in the last 10 years

CONSTRUCTION 14 major office projects totaling 7.7M s.f.

RENTS increase for Class A in Seattle and Bellevue CBDs

SUBMARKET VACANT SPACE

SUBMARKET MARKET SIZE

2.33M SFEAST KING COUNTY

1.15M SFSNOHOMISH COUNTY

1.36M SFPIERCE COUNTY

4.33M SFSEATTLE CLOSE-IN

2.82M SFSOUTH KING COUNTY






207M SFTOTAL

MARKET SIZE

ABSORPTION VACANCY

RENTAL RATECONSTRUCTION DELIVERIES


81% pre-leased. There could be as many as six new projects underway in Bellevue over the next 12 months with more proposed for Seattle. Fortunately, of the 14 projects currently under construction in the region, 69% has been pre-leased.

RENT FORECAST

All of the regional markets posted rental rate increases over the second quarter. The largest increases in average rent quotes were in South King County and on the Eastside. South King County saw the average rent jump from $28.98/s.f./year last quarter to $29.70/s.f./year currently. The average rent for the Eastside rose to $38.36/s.f./year, up $0.78/s.f. from last quarter’s average of $37.58/s.f. A good portion of the rent increase in Bellevue is from the new space coming on line while the change in the Southend is due to the leasing of lower quality existing space. Seattle has the highest average rent at $42.35/s.f./year which sets the regional high rent mark. Pierce County has the regional average low rent quote at $24.34/s.f., which is $18.01/s.f./year lower than Seattle, or a 43% differential. Current rent in the Seattle and Bellevue CBD submarkets continues to set the bar at $48.34/s.f./year and $48.14/s.f./year, respectively. These submarkets continue to outperform the overall market and are expected to see moderate rent increases through the remainder of 2019. Looking further out, slowing economic and employment growth, and increased delivery of space will moderate rent growth. These factors have led investors to remain cautious in their long-term rent growth projections.

INVESTMENT MARKET

Sales activity was steady over the second quarter, closing with 89 office transactions for a total investment of $1.16 billion. The average transaction unit sale price was $415/s.f. with a corresponding average cap rate of 6.13%. The most significant transactions occurred in the Eastside market, the largest being the $467.5 million purchase of Newport Corporate Center in Bellevue

at $482/s.f., or the T Mobile campus. Amazon also purchased Bellevue Corporate Plaza for $195 million ($766/s.f.), in what essentially is a redevelopment play. The seller has plans for a two tower office project, known as Bellevue 600, including a 34-story office tower and 41-story hotel. It remains to be seen how this development may change with Amazon as the owner. Other notable Eastside office sales this past quarter include Offices At Riverpark in Redmond for $48,100,000 ($449/s.f.), Kirkland 405 Corporate Center, Building B for $15,750,000 ($296/s.f.) and Evergreen Office Park in Bellevue for $32,150,000 ($363/s.f.). Significant Seattle sales included the transfer of West Lake Union Office Center $118,300,000 ($542/s.f.) and the sale of the Colman Building for $37,000,000 ($255/s.f.). In Bothell, Canyon Park Commons 4 traded for $18.3 million, or $275/s.f. for the 66,448 s.f. project. Lastly, EQ Office is closing on U.S. Bank Centre and 999 Third Avenue in Seattle for $1.2 billion, or $621/s.f. by the end of the quarter. This will make it the largest office deal of the year indicating very strong investor confidence and interest in the region.

AREA REVIEW

SEATTLE CLOSE-IN REVIEW

Seattle delivered five office projects over the second quarter 2019 adding 1,875,777 s.f. of new supply resulting in substantial net absorption of 3,244,003 s.f. Office vacancy also trended downward to 4.80%, compared to 5.82% last quarter and 7.06% a year ago. The availability rate also declined, but only by a modest 8.60%, from 8.80% last quarter. Leasing activity in the Seattle market was steady with 155 total deals comprising just under 1.7 million s.f. The CBD accounted for about one third of the new leases


2019










2ND QUARTER


















207M SFTOTAL

MARKET SIZE


2019










2ND QUARTER


















207M SFTOTAL

MARKET SIZE



highlighted by Hulus’ lease of 67,000 s.f. at Madison Centre, Dropbox’s lease of 121,000 s.f. at 2nd & Union, WeWork’s leasing of about 115,000 s.f. at 1201 3rd and 75,400 s.f. at Kelly Springfield on Capitol Hill. Asking rates in the Seattle CBD increased to $48.34/s.f./year, up from $46.44/s.f./year at the end of 2018. Vacancy ended the second quarter at 5.9%, down 220 bps from last quarter’s 8.1%. Most of the peripheral Seattle submarkets also performed well over the first quarter with vacancy rates of 3.7% in Ballard/U District, 1.4% for Capital Hill/Central district and 3.2% in South Seattle. Vacancy in the Queen Anne/Magnolia submarket remains higher at 7.2%.

EASTSIDE REVIEW

Eastside office market inventory stands at just under 51 million s.f., or 25% of the region’s total office supply. It enters the third quarter with the lowest office vacancy at 4.58%, an improvement from 5.11% last quarter. However, the availability rate trended upward to 6.80% currently, compared to 6.40% in the first quarter. Net absorption was 641,636 s.f., up from last quarter’s negative absorption of -298,606 s.f.. Leasing activity was also strong with over 100 deals at just under 1.2 million s.f. in total volume. Bellevue’s CBD office vacancy dropped from to 5.2% to 4.2% over the quarter, while the CBD availability rate inched up from 5.6% to 5.7%. A wave of new CBD office construction is imminent with developers positioning themselves for another Amazon nod. Currently, there are four major office projects under construction. Kirkland Urban North and Central buildings, which were fully committed, are now complete. Wright Runstad’s Spring District-Block 16 at 338,000 s.f., is scheduled for a 1st quarter 2020 delivery and is fully pre-leased by Facebook. REI’s HQ office project at nearly 350k s.f. is also underway in the Spring District. The previously mothballed Summit III office tower in the CBD is also underway containing 377,000 s.f. and fully leased to

Amazon. In Redmond, Capstone’s spec 7-story One Esterra Park office building commenced at 245,000 s.f., with no announced pre-leasing to date.

More cranes are on the way to the Bellevue CBD with at least five office projects planning 2019 or early 2020 start dates. Binary Towers will break ground this summer on the former Cadillac dealership site with two office towers containing 695,102 s.f., with the office portion fully pre-leased to Amazon. Vulcan holds two Bellevue CBD office development sites. The larger of the two is at the Bellevue Transit Center where the light rail station is under construction. A 42-story tower with about 980,000 s.f of office is planned for that site. Vulcan’s other site is at the northwest quadrant of 106th Ave NE and Main St., where it plans a three-tower project with 850,000 total s.f. of office. Both projects have early 2020 starts. Other planned projects include Plus Investment USA’s Elev8 at 466,000 s.f. planned by Skanska and Amazon’s newly acquired Bellevue 600 project. The Eastside submarkets continue to perform well, ending the second quarter with vacancy rates of 7.7% and 4.6% respectively for Kirkland and Redmond. The most significant Eastside office leases are the Amazon leases for Summit III and Binary Towers. Additionally, Costco is moving forward with plans for their nine-story, 620,000 s.f. headquarters expansion in Issaquah, and Microsoft continues the expansion of its main campus in Redmond.

Significant Eastside office sales included the $467,500,000 ($482/s.f.) purchase of Newport Corporate Center (T-Mobile campus), the sale of Offices at Riverpark in Redmond for $48,100,000 ($449/s.f.) and Amazon’s acquisition of the Bellevue Corporate Plaza for $195,000,000 ($766/s.f), or the Bellevue 600 redevelopment site. The current rent for the Eastside is $37.58/s.f./year, up $0.78/s.f./year from last quarter.



Seattle delivered five office projects over the second quarter 2019 adding 1,875,777 s.f. of new supply resulting in substantial net absorption of 3,244,003 s.f. Office vacancy also trended downward to 4.80%, compared to 5.82% last quarter and 7.06% a year ago. The availability rate also declined, but only by a modest 8.60%, from 8.80% last quarter. Leasing activity in the Seattle market was steady with 155 total deals comprising just under 1.7 million s.f. The CBD accounted for about one third of the new leases highlighted by Hulus’ lease of 67,000 s.f. at Madison Centre, Dropbox’s lease of 121,000 s.f. at 2nd & Union, WeWork’s leasing of about 115,000 s.f. at 1201 3rd and 75,400 s.f. at Kelly Springfield on Capitol Hill. Asking rates in the Seattle CBD increased to $48.34/s.f./year, up from $46.44/s.f./year at the end of 2018. Vacancy ended the second quarter at 5.9%, down 220 bps from last quarter’s 8.1%. Most of the peripheral Seattle submarkets also performed well over the first quarter with vacancy rates of 3.7% in Ballard/U District, 1.4% for Capital Hill/Central district and 3.2% in South Seattle. Vacancy in the Queen Anne/Magnolia submarket remains higher at 7.2%.

After deliveries, there are nine major office projects under construction in Seattle at the end of the second quarter comprising 3.26 million s.f., of which 63% is pre-leased to date. The major new deliveries accounted for nearly 1.9 million s.f. of new office inventory among five principal projects, collectively 94% leased. The most significant was Amazon’s 37 floor, Amazon Block 20 project at 1.1 million s.f. The Seattle market accounts for the majority of the region’s new construction at 69%. 333 Dexter is fully pre-leased to Apple at 639,984 s.f. The 722,000 s.f. Rainier Square building is fully leased to Amazon who has made all of it available for sublease. Several other buildings such as 2nd & Union and Third & Lenora have significant pre-leasing. Considering the Seattle market has historically absorbed about 1.7 million s.f. annually, the current amount of new construction seems manageable especially with the amount of committed space. During the second quarter, Selig’s 307,616 s.f. Third & Lenora broke ground along with the smaller Tommer Building. Urban Visions has approvals for their 1.2 million s.f. campus “S” project in SoDo and Amazon remains set to commence its 388,000 s.f. Block 17 project. There were two major closed office sales to report over the quarter including the transfers of the West Lake Union Office Center for $118,300,000 ($542/s.f.) and the Colman Building for $37,000,000 ($255/s.f.). EQ Office will close on U.S. Bank Centre and 999 Third Ave in Seattle for $1.2 billion, or $621/s.f. by the end of the quarter, making it the largest office deal of the year.

EASTSIDE REVIEW

Eastside office market inventory stands at just under 51 million s.f., or 25% of the region’s total office supply. It enters the third quarter with the lowest office vacancy at 4.58%, an improvement from 5.11% last quarter. However, the availability rate trended upward to 6.80% currently, compared to 6.40% in the first quarter. Net absorption was 641,636 s.f., up from last quarter’s negative absorption of -298,606 s.f.. Leasing activity was also strong with over 100 deals at just under 1.2 million s.f. in total volume. Bellevue’s CBD office vacancy dropped from to 5.2% to 4.2% over the quarter, while the CBD availability rate inched up from 5.6% to 5.7%. A wave of new CBD office construction is imminent with developers positioning themselves for another Amazon nod. Currently, there are four major office projects under construction. Kirkland Urban North and Central buildings, which were fully committed, are now complete. Wright Runstad’s Spring District-Block 16 at 338,000 s.f., is scheduled for a 1st quarter 2020 delivery and is fully pre-leased by Facebook. REI’s HQ office project at nearly 350k s.f. is also underway in the Spring District. The previously mothballed Summit III office tower in the CBD is also underway containing 377,000 s.f. and fully leased to Amazon. In Redmond, Capstone’s spec 7-story One Esterra Park office building commenced at 245,000 s.f., with no announced pre-leasing to date.



Area Review

New Construction Absorption

SEATTLE CBD / SURROUNDING AREA

Vacancy (%) Average Rent (Median)

2015 2Q 2019201820172016

1K

2K

3K

4K

5K

6K

7K

8K

2%

3%

4%

5%

6%

7%

8%

9%

10%

$37.62$38.37

$41.48

$39.85

$42.35


EAST KING COUNTY


2015 2Q 20192018201720160

300K

600K

900K

1.2K

1.5K

3%

4%

5%

6%

7%

8%

$34.26$34.60

$37.09 $37.18

$38.86



Seattle delivered five office projects over the second quarter 2019 adding 1,875,777 s.f. of new supply resulting in substantial net absorption of 3,244,003 s.f. Office vacancy also trended downward to 4.80%, compared to 5.82% last quarter and 7.06% a year ago. The availability rate also declined, but only by a modest 8.60%, from 8.80% last quarter. Leasing activity in the Seattle market was steady with 155 total deals comprising just under 1.7 million s.f. The CBD accounted for about one third of the new leases highlighted by Hulus’ lease of 67,000 s.f. at Madison Centre, Dropbox’s lease of 121,000 s.f. at 2nd & Union, WeWork’s leasing of about 115,000 s.f. at 1201 3rd and 75,400 s.f. at Kelly Springfield on Capitol Hill. Asking rates in the Seattle CBD increased to $48.34/s.f./year, up from $46.44/s.f./year at the end of 2018. Vacancy ended the second quarter at 5.9%, down 220 bps from last quarter’s 8.1%. Most of the peripheral Seattle submarkets also performed well over the first quarter with vacancy rates of 3.7% in Ballard/U District, 1.4% for Capital Hill/Central district and 3.2% in South Seattle. Vacancy in the Queen Anne/Magnolia submarket remains higher at 7.2%.

After deliveries, there are nine major office projects under construction in Seattle at the end of the second quarter comprising 3.26 million s.f., of which 63% is pre-leased to date. The major new deliveries accounted for nearly 1.9 million s.f. of new office inventory among five principal projects, collectively 94% leased. The most significant was Amazon’s 37 floor, Amazon Block 20 project at 1.1 million s.f. The Seattle market accounts for the majority of the region’s new construction at 69%. 333 Dexter is fully pre-leased to Apple at 639,984 s.f. The 722,000 s.f. Rainier Square building is fully leased to Amazon who has made all of it available for sublease. Several other buildings such as 2nd & Union and Third & Lenora have significant pre-leasing. Considering the Seattle market has historically absorbed about 1.7 million s.f. annually, the current amount of new construction seems manageable especially with the amount of committed space. During the second quarter, Selig’s 307,616 s.f. Third & Lenora broke ground along with the smaller Tommer Building. Urban Visions has approvals for their 1.2 million s.f. campus “S” project in SoDo and Amazon remains set to commence its 388,000 s.f. Block 17 project. There were two major closed office sales to report over the quarter including the transfers of the West Lake Union Office Center for $118,300,000 ($542/s.f.) and the Colman Building for $37,000,000 ($255/s.f.). EQ Office will close on U.S. Bank Centre and 999 Third Ave in Seattle for $1.2 billion, or $621/s.f. by the end of the quarter, making it the largest office deal of the year.

EASTSIDE REVIEW

Eastside office market inventory stands at just under 51 million s.f., or 25% of the region’s total office supply. It enters the third quarter with the lowest office vacancy at 4.58%, an improvement from 5.11% last quarter. However, the availability rate trended upward to 6.80% currently, compared to 6.40% in the first quarter. Net absorption was 641,636 s.f., up from last quarter’s negative absorption of -298,606 s.f.. Leasing activity was also strong with over 100 deals at just under 1.2 million s.f. in total volume. Bellevue’s CBD office vacancy dropped from to 5.2% to 4.2% over the quarter, while the CBD availability rate inched up from 5.6% to 5.7%. A wave of new CBD office construction is imminent with developers positioning themselves for another Amazon nod. Currently, there are four major office projects under construction. Kirkland Urban North and Central buildings, which were fully committed, are now complete. Wright Runstad’s Spring District-Block 16 at 338,000 s.f., is scheduled for a 1st quarter 2020 delivery and is fully pre-leased by Facebook. REI’s HQ office project at nearly 350k s.f. is also underway in the Spring District. The previously mothballed Summit III office tower in the CBD is also underway containing 377,000 s.f. and fully leased to Amazon. In Redmond, Capstone’s spec 7-story One Esterra Park office building commenced at 245,000 s.f., with no announced pre-leasing to date.



Area Review


SEATTLE CBD / SURROUNDING AREA


2015 2Q 2019201820172016

1K

2K

3K

4K

5K

6K

7K

8K

2%

3%

4%

5%

6%

7%

8%

9%

10%

$37.62$38.37

$41.48

$39.85

$42.35


EAST KING COUNTY


2015 2Q 20192018201720160

300K

600K

900K

1.2K

1.5K

3%

4%

5%

6%

7%

8%

$34.26$34.60

$37.09 $37.18

$38.86


SOUTH KING COUNTY REVIEW

South King County finished the 2nd quarter 2019 continuing positive net absorption at 159,306 s.f. This follows net absorption of 138,269 s.f. last quarter and 452,296 s.f. for all of 2018. Southend office vacancy remains high at 14.80%, down from 15.30% last quarter but above the 11.90% rate at the end of 2018. The last of the three Southport Office Campus towers at 188,616 s.f. was delivered over the second quarter. This spec Class A office projects totals 688,147 s.f. and all three buildings remain available for lease. The only significant project under construction in the Southend market is the 129,000 s.f. headquarters expansion building for Alaska Airlines. There were 56 office lease transactions over the quarter, but only totaling 156,031 s.f., or less than 3,000 s.f. per average deal. Submarket vacancies for Renton/Tukwila and Federal Way/Auburn remain high at 16.2% and 15.0%, respectively. Overall, the South King County market is expected to see modest changes with high vacancy for the remainder of 2019.

SNOHOMISH COUNTY/NORTHEND REVIEW

The Northend office market is the third largest market in the region behind Seattle and the Eastside, at just under 22.4 million s.f. With strong leasing activity and no new construction, Northend vacancy compressed dropping to 5.15% from 5.38% last quarter, and down 133 bps from a year ago. There were 54 new lease deals over the quarter totaling 223,000 s.f. The availability rate also compressed to 7.30% from 7.90% last quarter, foreshadowing a continued decrease in vacancy for the second half of 2019. The Bothell/Kenmore submarket registered a vacancy rate of 6.3% compared to 6.2% last quarter after absorbing 145,289 s.f. Everett CBD reports vacancy of 5.3%, down from 5.4% last quarter. The Northend submarket continues to attract smaller office tenants looking for housing proximity and affordability. At an average rent of $26.95/s.f./year, it is $15.40/s.f./year more affordable than the average rent in Seattle. The largest Northend office sale was Canyon Park Commons 4 project at $18.3 million, or

$275/s.f. Overall, the Northend is a stable office market that continues to show incremental improvement as smaller businesses expand.

PIERCE COUNTY REVIEW

The current Pierce County office market vacancy rate is 6.28%. This is a decrease from the previous quarter at 6.57%, but above the 2018 year-end vacancy of 5.99%. The availability rate has increased to 7.30%, versus 6.50% last quarter. About a third of the office supply is condensed in the Tacoma CBD which has a current vacancy rate of 9.2%, down slightly from 9.5% last quarter. Of some concern is the high CBD availability rate at 10.3% compared to the 7.3% rate at the end of 2018. Leasing volume over the quarter was light with 40 deals averaging 2,300 s.f. in size. Despite the rise in vacancy and lackluster leasing, Pierce County posted positive net absorption of 68,493 s.f., compared to negative absorption of -150,769 s.f. last quarter. The average rent increased slightly from $24.26/s.f./year last quarter to $24.34/s.f./year currently. The most significant office sale was the transfer of The Milton W. Ploeger Building in May for $13,415,000 ($112/s.f.) in the Tacoma CBD. Despite the upward shift in Pierce County vacancy and availability in 2019, the CBD is experiencing resurgence, aided by retail, residential and convention center expansion and with no office projects under construction currently.





The Northend office market is the third largest market in the region behind Seattle and the Eastside, at just under 22.4 million s.f. With strong leasing activity and no new construction, Northend vacancy compressed dropping to 5.15% from 5.38% last quarter, and down 133 bps from a year ago. There were 54 new lease deals over the quarter totaling 223,000 s.f. The availability rate also compressed to 7.30% from 7.90% last quarter, foreshadowing a continued decrease in vacancy for the second half of 2019. The Bothell/Kenmore submarket registered a vacancy rate of 6.3% compared to 6.2% last quarter after absorbing 145,289 s.f. Everett CBD reports vacancy of 5.3%, down from 5.4% last quarter. The Northend submarket continues to attract smaller office tenants looking for housing proximity and affordability. At an average rent of $26.95/s.f./year, it is $15.40/s.f./year more affordable than the average rent in Seattle. The largest Northend office sale was Canyon Park Commons 4 project at $18.3 million, or $275/s.f. Overall, the Northend is a stable office market that continues to show incremental improvement as smaller businesses expand.




SOUTH KING COUNTY


2015 2Q 2019201820172016-200K

0

200K

400K

600K

800K

1K

1.2K

5%

7%

9%

11%

13%

15%

$21.41

$26.94$27.29

$29.13

$29.70


SNOHOMISH COUNTY


2015 2Q 2019201820172016-300K

-200K

-100K

0

100K

200K

300K

400K

500K

4%

6%

8%

10%

$23.00

$23.58

$24.86

$25.98

$26.95


PIERCE COUNTY


2015 2Q 20192018201720160

50K

100K

150K

200K

250K

300K

350K

4%

6%

8%

10%

$20.83

$21.64

$22.15

$22.69

$24.34









SOUTH KING COUNTY


2015 2Q 2019201820172016-200K

0

200K

400K

600K

800K

1K

1.2K

5%

7%

9%

11%

13%

15%

$21.41

$26.94$27.29

$29.13

$29.70


SNOHOMISH COUNTY


2015 2Q 2019201820172016-300K

-200K

-100K

0

100K

200K

300K

400K

500K

4%

6%

8%

10%

$23.00

$23.58

$24.86

$25.98

$26.95


PIERCE COUNTY


2015 2Q 20192018201720160

50K

100K

150K

200K

250K

300K

350K

4%

6%

8%

10%

$20.83

$21.64

$22.15

$22.69

$24.34









SOUTH KING COUNTY


2015 2Q 2019201820172016-200K

0

200K

400K

600K

800K

1K

1.2K

5%

7%

9%

11%

13%

15%

$21.41

$26.94$27.29

$29.13

$29.70


SNOHOMISH COUNTY


2015 2Q 2019201820172016-300K

-200K

-100K

0

100K

200K

300K

400K

500K

4%

6%

8%

10%

$23.00

$23.58

$24.86

$25.98

$26.95


PIERCE COUNTY


2015 2Q 20192018201720160

50K

100K

150K

200K

250K

300K

350K

4%

6%

8%

10%

$20.83

$21.64

$22.15

$22.69

$24.34

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