[gooddirt]

Excerpted from the 10/18 Wall Street Journal Property report:

The commercial real-estate cycle appears to have reached its peak and will begin pulling back in 2007, according to a new survey of industry executives. The Urban Land Institute, a Washington-based nonprofit planning and research group, and PricewaterhouseCoopers surveyed more than 600 developers, investors, brokers, consultants and lenders this summer for an annual report on the industry, dubbed Emerging Trends in Real Estate 2007. The survey suggests commercial real estate is beginning a return to its norm as an income-producing investment rather than the wildly appreciating asset class it has been this decade. The easy lending of the past several years will tighten next year in part because of worries about the economy, surveyed executives said. Investors will have to turn to asset management and operating performance to raise returns as investment inflows slow because of lower return expectations, respondents added. ...

Those surveyed said Seattle is the best office market to invest in right now, with office rents set to rise and supply tight. The city is also sitting in a prime position to benefit from explosive growth in Asia and has the best potential of any American city to become the next "24-hour" hub like New York or San Francisco, according to the report. The report lists five U.S. cities as "global pathways" with bright futures for real-estate investment: New York, Seattle, San Francisco, Los Angeles and Washington. Philadelphia and Chicago are ranked among the worst markets for investment in all property types in the survey. Chicago is being dragged down by economic problems, the "Midwest malaise," the report says, while investors question Philadelphia's future as a global city since it lies between New York and Washington.

[pdxstreetcar]

wow go seattle

[destroybananas]

That's good news. Maybe we'll get a new tallest for the city? :D

[blackc5]

Nice find. Perhaps we will get some new office developments announced soon.

And, hopefully the continued growth in Asia will have more of an effect on Seattle beyond just increased usage of the the Port.

Interesting their comments about Chicago given the current MASSIVE building boom going on there (of course a lot of it is residential).

[InlandEmpire]

wow... great news for Seattle. That is a pretty elite list of cities to be included with. It sounds like a good indicator for future area growth (and hopefully quite a few more scrapers! :tup: ) Sounds like I better buy a house/condo here before things get really expensive!

[Black Box]

I really miss Seattle right now. I'm happy to hear Seattle is doing fine without me right now.

[mhays]

Interesting their comments about Chicago given the current MASSIVE building boom going on there (of course a lot of it is residential).

If Chicago is building offices, then that's part of what's CAUSING the poor investment outlook.

If you've bought an office building, your fervent hope is that others won't build new buildings. If they do, you won't be able to raise rents as much, and you'll have a tougher time leasing your space.

Seattle's office construction market is coming back. But, while Seattle, Bellevue, and Redmond have a dozen office buildings underway, this is a moderate boom so far, and, more importantly, the amount of space in the pipeline isn't very big in percentage terms.

Our lack of buildable land and Seattle's time-consuming entitlement process are very helpful for investors in existing buildings. They create what RE people call "barriers to entry", i.e. keep the supply down and rents high.

[mSeattle]

So it's a bad thing for us who want the city to build up?

[mhays]

No. A good investment market means that owner revenues are expected to rise, meaning ccupancy times rent minus costs (*). That's more good than bad if you like construction. When owners are earning enough in revenue to justify the building's theoretical replacement cost, it's also a good time to propose new construction.

Some of ULI's optimism must be due to the absence of a large amount of new construction (short term) and barriers to entry (long term). Another part is that they seem to expect demand to increase substantially over time.

* A relevant term is cap rate. Cap rate is the owner's nominal net annual income vs. the building's market value. If your building is worth $1,000,000 and your NAI is $100,000, you have a 10% cap rate, which you use to pay your debt service and taxes. (With high vacancies or low rents, your cap rate can be too low to pay the mortgage, which has happened on lots of buildings, such as our City Hall annex, aka Gateway Tower.)

[PDX City-State]

Congrads. Here in Portland even Schnitzer, our very own company, is skipping town to other markets--including yours. Glad to know someone's doing something right.

[JiminyCricket II]

Schnitzer NW is based in Bellevue... And already has a huge portfolio in the Seattle region.

[destroybananas]

^:yes:

[PDX City-State]

Schnitzer NW is based in Bellevue... And already has a huge portfolio in the Seattle region

Right, but is a subsidiary of Portland's Schnitzer Investment Corps. Still, there was an article in a Portland paper last week that they're expanding their portfolio in Seattle and moving into new markets--but aren't building shit in Portland.

[destroybananas]

^hmmm I wonder why? ;)

[MrVandelay]

Seattle area considered tops for owning office property
By Amy Martinez
http://seattletimes.nwsource.com/html/businesstechnology/2003375370_uli09.html
Seattle Times business reporter

http://seattletimes.nwsource.com/ABPub/2006/11/08/2003374491.gif

For the first time, real-estate professionals nationwide have named the Seattle metro area as the most desirable place to buy and own office property, a distinction likely to mean more buildings selling for top dollar in the coming year.

The No. 1 ranking is revealed in a report being distributed today by the Seattle chapter of the Urban Land Institute. It reflects the views of about 600 commercial real-estate brokers, lenders, developers, investors and consultants.

Just over half, or 51.5 percent, said they recommend buying office property in Seattle — the highest percentage among cities including San Francisco, New York and Los Angeles.

The Seattle area, which includes Bellevue, won high marks for a diversified economy, an emerging 24-hour core, connections to Asia, and its position between Puget Sound and mountain ranges.

"There are no steals in Seattle," said Jim DeLisle, a University of Washington real-estate professor who expects sellers of local office property to use the report as justification for demanding record prices.

"The sellers know Seattle ranks high. The buyers know it. You'll see some pretty intense negotiation," DeLisle said.

The report puts Seattle in the top five overall for commercial development and investment prospects, signaling interest in the area's retail outlets, hotels, warehouses, apartments and condominiums in addition to offices.

The report, done annually by PricewaterhouseCoopers and the Urban Land Institute, a nonprofit group in Washington, D.C., is widely regarded as an indicator of where individual real-estate markets are headed.

Seattle's strong showing is expected to generate significant interest from large institutional investors, who have become involved in many major commercial real-estate deals, and could help developers get money for new projects.

"We have investors knocking on our door every week, or sometimes several times a week," said Gregory Johnson, president of Seattle-based developer Wright Runstad, which recently paired with a San Francisco investor to buy the RealNetworks headquarters building in downtown Seattle and the former Safeway property in Bellevue.

"There are a lot of options for firms like us when we're out looking for capital," said Johnson, chairman of the Urban Land Institute's Seattle chapter. The 600-plus-member chapter plans to distribute the report at its meeting this morning in Seattle.

Investors see robust returns in the area's declining office-vacancy rates and rising rents.

New York-based Brickman Associates, a real-estate investment company, turned heads in late September when it agreed to pay a record $575 a square foot for the Civica Office Commons in Bellevue.

Less than four months earlier, Market Place I and II in downtown Seattle went for $560 a square foot to New York-based Tishman Speyer. And the New York pension fund that owns a 49.9 percent stake in Seattle's tallest building, the 76-story Columbia Center, is said to be close to a deal for its portion.

Rosie Rios, managing director at MacFarlane Partners, a San Francisco-based real-estate investment-management firm, said she's looking at Seattle for new opportunities.

Rios said she's a "little gun-shy" about investing in new condo buildings, given the number due in downtown Seattle over the next couple of years, but is interested in apartments, offices and retail projects.

With so much attention on Seattle, some developers and investors are expanding their efforts to Snohomish, Pierce and Thurston counties in hopes of finding a "value buy" and less competition, said Roberta Fuhr, a Bellevue-based senior vice president at KeyBank.

"There may be five to 20 qualified bids on any good property," Fuhr said.

As investors pay more for local office buildings, they're likely to charge more for rent. That's especially true for tenants that negotiated lower rents after the dot-com bust five years ago.

"As they renew their leases, rents are going to have to be higher to substantiate investments," said Oscar Oliveira, a broker at Colliers International in Bellevue.

[MrVandelay]

Tight Seattle office space now landlord's market
By Amy Martinez
http://seattletimes.nwsource.com/html/businesstechnology/2003498161_cre280.html
Seattle Times business reporter

http://seattletimes.nwsource.com/ABPub/2006/12/27/2003498122.gif

Seattle's commercial real-estate market tightened in the final three months of this year, a sign that leverage in lease negotiations is shifting from businesses that rent office space to those that own it.

The office vacancy rate in downtown Seattle fell to 9.8 percent in the fourth quarter, a report released Wednesday by the Grubb & Ellis brokerage firm showed.

That was down from 13.4 percent a year ago.

A vacancy rate below 10 percent marks the point at which it becomes a landlord's market and developers begin discussing plans for new buildings, said Nick Pappa, a research analyst at Grubb & Ellis.

Landlords are now able to raise rents as leases come up for renewal.

The average asking annual rent for premium Class A office space in downtown Seattle increased to $29.46 a square foot from $26.39 a year ago, according to the Grubb & Ellis report.

The vacancy rate is down dramatically in the Bellevue central business district, where only 4.4 percent of office space sat vacant in the fourth quarter, compared with 10.2 a year ago.

Office vacancy rates in the region soared after the 2000 dot-com bust and have yet to return to pre-recession levels as measured by Grubb & Ellis.

Brokers say the current demand for office space is driven by job growth across a broad range of business sectors and reflects a more thoughtful approach.

"Back in 1999 and 2000, it was kind of a race to take up space, and businesses took more than they needed," said Tim Smith, an Eastside broker at Grubb & Ellis.

"Now, businesses are taking up exactly what they need," he said.

The report, however, did raise a cautionary note about the amount of speculative office space under construction.

Developers in downtown Bellevue are proceeding with three projects totaling 1.7 million square feet, despite having no tenants signed.

At least three speculative office buildings are planned for the downtown Seattle area.

Paul Allen's Vulcan Real Estate began work last month on 2201 Westlake, which will include 300,000 square feet of office space in the South Lake Union neighborhood.

Early next year, Schnitzer Northwest plans to start construction on a 233,000 square-foot building at Ninth Avenue and Stewart Street, while Touchstone is set to begin work on a 510,000-square-foot building in the Denny Triangle.

The report predicts that downtown Seattle's office vacancy rate could drop to 5 percent in the next two years.

But if there's no "significant preleasing activity" at the three buildings, the rate could rise a few percentage points, the report noted.

Touchstone President Douglas Howe said he believes demand for office space in downtown Seattle will be enough to fill the new buildings.

"We're honestly confident that there's not a large supply coming online in late 2008, 2009, compared with what demand will be," Howe said.

Developers of speculative office buildings in Bellevue also remain confident, said Oscar Oliveira, a broker at Colliers International.

"They're all hungry, but they're not scared yet," Oliveira said.

"There's still plenty of time, and our economy is strong. I think if there were any signs that our fundamentals were going in the wrong direction, there'd be more concern," Oliveira said.

[der Reisender]

had no idea Bellevue rates per sq ft were higher than Seattle, how long has it been like that and why?

[mhays]

Bellevue's buildings tend to be newer. I suspect the same quality space in the two downtowns would rent for a similar amount.

Seattle and Bellevue will probably continue to trade places periodically on who has higher rents and lower vacancies.

[Hoodrat]

:D Bump

[Black Box]

I'm rooting for both Seattle and Bellevue, we're so at the hip these days, but I'd like to see even more commercial construction in downtown Seattle. Oh, and more upscale retail. I'm waiting for it. I was at Pacific Place the other day and I am so glad that Pottery Barn is out and looking for another place and that Barney's will occupy a larger and more visible location. Hey, Hoodrat, how is life in the Stadium District? Do you ever hit up Stadium Video? Oh, and I love the back bar of the Harvester.

[mhays]

Downtown Seattle will see new office construction soon. We have over a dozen proposed projects and some are gearing up. These range from moderately-sized high-rises to shorter buildings on the perimeter.

Actually a few are under construction now -- 333 Elliott, Block 40, King County...

[mSeattle]

When is that one going to start that's next to the Cosmo?

[Hoodrat]

Born in Bremerton in 73. I lived there until 85. My family then moved to Tacoma. I moved out and remained in Tacoma until 97. I then lived in Seattle (First Hill and Rainier Valley) for 9 1/2 years. I moved back to Tacoma this September.

When I left Tacoma in 97 it was still pretty sleepy. The new museums had either just opened or were still u/c. I enjoyed living there before, but this town got alot more fun while I was away. I don't miss the B+I at all, the pet store there was funky...I felt sorry for the animals there.

Black Box: The bar at the Harvester is cool, But I think it's "ambiance" has been somewhat tainted due to the smoking ban. Havn't been to Stadium Video yet (blame Netflix), I used to go there alot when I lived here before. There's a taqueria down the street thats pretty good.

[Black Box]

Born in Bremerton in 73. I lived there until 85. My family then moved to Tacoma. I moved out and remained in Tacoma until 97. I then lived in Seattle (First Hill and Rainier Valley) for 9 1/2 years. I moved back to Tacoma this September.

When I left Tacoma in 97 it was still pretty sleepy. The new museums had either just opened or were still u/c. I enjoyed living there before, but this town got alot more fun while I was away. I don't miss the B+I at all, the pet store there was funky...I felt sorry for the animals there.

Black Box: The bar at the Harvester is cool, But I think it's "ambiance" has been somewhat tainted due to the smoking ban. Havn't been to Stadium Video yet (blame Netflix), I used to go there alot when I lived here before. There's a taqueria down the street thats pretty good.

Whoa, you answered my questions in a different thread. Oh well, BUMP. Where in Tacoma did you grow up?

[Hoodrat]

Oops, too many vicodin ( I hurt my back helping a friend load a granite slab into their kitchen). I think I had 2 different SSP pages on my desktop at the same time...

...anyway, I previously lived at my folks house
http://www.geigervictorianbnb.com/

It was pretty fun as a teenagers...we used to do mushrooms and trip on the wallpaper.

[Hoodrat]

Hey, Hoodrat, how is life in the Stadium District? Do you ever hit up Stadium Video? Oh, and I love the back bar of the Harvester.
Actually, this is the right thread:haha: ....this is getting too off topic for me though ;) .

[Black Box]

Ouch, sorry to hear that. Yeah, it must be the Vicodin. I'm now totally off topic.