The Eastside and Northend Industrial/Flex Markets were

relatively quiet in the first quarter of 2011, with a rise in vacancy

in the Eastside and minimal change in the Northend. The

Eastside market, in particular, has seen significant tenant activity

and growth in the high tech and bio tech sector, with a multitude

of tenants continuing to scour the market for expansion space.

Rental rates, vacancy, absorption and concessions were mostly

unchanged during the first quarter, which can be an early

indicator of market stability. As we head into the second quarter

activity continues to be steady, which bodes well for further

growth and an anticipated recovery.

During the recent recession, one of the primary methods used

by landlords to combat falling rental rates on their properties

was to offer additional concessions. Most landlords were giving

more than would normally be offered in both free rent and tenant

improvements to entice tenants and maintain reasonable rental

rates. Since the margin now needs to be closed, it is anticipated

we will see a decline in concessions before rental rates start to

rise again.

Looking ahead to later in 2011 we forecast the markets

will strengthen as occupancies occur for leases signed this

quarter and market momentum continues. Tenants currently in

the market are looking for space down the road as well, with

occupancies to occur in 2012 or 2013.

The recent Boeing tanker contract award, along with Boeing

ramping up production across their entire line is great news for

the Eastside and Northend Industrial Markets. Boeing is also

bringing more of their work back in-house, which is expected to

help the Eastside and Northend Industrial Markets significantly.

It is expected that there will be noticeable growth among the

vendors and suppliers that service Boeing in 2011-2012.

There is continued optimism that absorption is around the

corner and market growth is likely. Although it may be slow, the

Northend and Eastside Industrial/Flex Markets will eventually

benefit greatly from Boeing’s ramp up. For right now though, we

will have to settle for stability and moderate growth.

EASTSIDE AND NORTHEND INDUSTRIAL/FLEX SUBMARKETS MAP

(425) 974-4000 www.pacif ic-re.com SEATTLE | BELLEVUE | TACOMA | PORTLAND

1Q’11 PUGET SOUND MARKET REPORT

Eastside & Northend Industrial/Flex Market

STABLE AND GROWING

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Eastside Industrial Submarket

Northend Industrial Submarket

(425) 974-4000 www.pacif ic-re.com SEATTLE | BELLEVUE | TACOMA | PORTLAND

1Q’11 PUGET SOUND MARKET REPORT

Eastside and Northend Industrial Market

Market Area 1Q 2010 2Q 2010 3Q 2010 4Q 2010 2010 1Q 2011

Bothell - - (17,096) (2,998) (20,094) (45,356)

Woodinville (9,312) 48,213 (60,658) 33,796 12,039 27,517

Kirkland 8,667 1,019 48,200 (3,878) 54,008 (5,480)

Monroe (26,262) 15,646 26,925 2,318 18,627 (4,917)

Redmond 39,921 (41,961) (34,139) 4,878 (31,301) 1,148

Bellevue 44,807 52,599 (17,922) (43,489) 35,995 (98,691)

Issaquah 1,790 (2,540) - 2,190 1,440 (2,757)

EASTSIDE INDUSTRIAL 59,611 72,976 (54,690) (7,183) 70,714 (128,536)

Everett (45,322) 111,190 54,107 110,737 230,712 (15,353)

Mukilteo (39,185) (26,092) (124,594) 8,333 (181,538) 30,651

Lynnwood 1,481 10,202 (4,977) 15,165 21,871 (14,442)

NORTHEND INDUSTRIAL (83,026) 95,300 (75,464) 134,235 71,045 856

Historical Leasing Activity Historical Total AbsorptionMarket Area 2010 Leases 2010 SF YTD 2011 Leases YTD 2011 SF

Bothell 2 24,311 2 9,000

Woodinville 46 313,272 11 62,905

Kirkland 18 98,863 1 7,125

Monroe 13 94,970 1 4,100

Redmond 20 115,136 8 188,180

Bellevue 29 221,443 7 45,046

Issaquah 5 18,220 1 2,540

EASTSIDE INDUSTRIAL 133 886,215 31 318,896

Everett 39 643,109 3 9,201

Mukilteo 9 31,970 1 3,705

Lynnwood 14 60,244 - -

NORTHEND INDUSTRIAL 62 735,323 4 12,906

Historical Total VacancyMarket Area 2004 2005 2006 2007 2008 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011

Bothell 18.8% 18.1% 13.6% 2.8% 0.3% 0.0% 0.0% 0.0% 1.6% 1.8% 6.0%

Woodinville 14.1% 11.9% 8.1% 4.9% 4.6% 10.9% 11.1% 10.2% 11.3% 10.7% 10.2%

Kirkland 32.0% 12.7% 3.1% 10.8% 3.7% 14.4% 13.8% 13.7% 10.7% 10.9% 11.3%

Monroe 3.6% 3.6% 8.1% 10.4% 8.9% 24.2% 25.8% 24.8% 23.1% 23.0% 23.3%

Redmond 10.2% 9.5% 5.0% 3.9% 4.3% 8.9% 7.9% 9.0% 9.9% 9.7% 9.7%

Bellevue 6.5% 4.1% 22.2% 12.2% 5.2% 5.4% 3.9% 2.0% 2.7% 4.2% 7.5%

Issaquah 42.2% 32.5% 22.5% 10.1% 6.4% 6.9% 6.7% 7.0% 7.0% 6.7% 7.1%

EASTSIDE INDUSTRIAL 13.9% 10.4% 10.3% 7.4% 4.7% 10.2% 9.9% 9.4% 9.8% 9.8% 10.5%

Everett 18.0% 15.9% 18.7% 9.2% 11.2% 15.7% 16.3% 14.9% 14.2% 12.8% 13.0%

Mukilteo 17.2% 16.0% 13.9% 10.8% 9.4% 11.6% 13.4% 14.6% 20.2% 19.8% 18.4%

Lynnwood 6.7% 12.0% 7.0% 7.0% 4.8% 7.5% 7.4% 6.9% 7.1% 6.3% 7.1%

NORTHEND INDUSTRIAL 16.0% 15.3% 15.8% 9.1% 9.9% 13.7% 14.4% 13.6% 14.2% 13.1% 13.1% Prio

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The Eastside and Northend Industrial Markets consist of ten submarkets,

with 724 buildings and a total of 28,944,690 SF. The overall vacancy rate

in the Eastside Market edged up slightly from the end of 2010, while

remaining even in the Northend Market. Asking rental rates remain

farily consistent with 2010 rates. The largest number of signed leases,

year to date, have been in the Woodinville and Redmond submarkets,

while Woodinville and Mukilteo have seen the largest gains in positive

net absorption since the beginning of the year.

Eastside and Northend Industrial OverviewINVENTORY ABSORPTION AVERAGE RENT & EXPENSES CONCESSIONS

Market Area Buildings SF Direct Vacancy Sublet Vacancy Total Vacancy 1Q YTD Shell Office Shell

Bothell 31 1,096,891 4.4% 1.6% 6.0% (45,356) (45,356) $0.50-$0.60 $1.00-$1.20 4-6 months

Woodinville 136 5,395,595 9.9% 0.3% 10.2% 27,517 27,517 $0.45-$0.60 $0.95-$1.20 4-6 months

Kirkland 43 1,576,880 10.0% 1.3% 11.3% (5,480) (5,480) $0.45-$0.60 $0.95-$1.25 4-5 months

Monroe 48 1,590,449 21.0% 2.3% 23.3% (4,917) (4,917) $0.40-$0.55 $0.95-$1.15 4-7 months

Redmond 104 3,829,067 9.2% 0.5% 9.7% 1,148 1,148 $0.50-$0.60 $1.00-$1.25 3-6 months

Bellevue 69 2,909,088 7.5% 0.0% 7.5% (98,691) (98,691) $0.50-$0.65 $1.10-$1.25 3-5 months

Issaquah 14 719,574 7.1% 0.0% 7.1% (2,757) (2,757) $0.50-$0.65 $1.10-$1.25 3-6 months

EASTSIDE INDUSTRIAL 445 17,117,544 9.9% 0.6% 10.5% (128,536) (128,536) $0.45-$0.65 $0.95-$1.25 3-7 months

Everett 157 7,859,901 12.6% 0.4% 13.0% (15,353) (15,353) $0.45-$0.60 $1.10-$1.25 3-6 months

Mukilteo 59 2,201,977 18.4% 0.0% 18.4% 30,651 30,651 $0.50-$0.65 $1.10-$1.25 3-6 months

Lynnwood 63 1,765,268 6.3% 0.8% 7.1% (14,442) (14,442) $0.50-$0.65 $1.10-$1.25 3-6 months

NORTHEND INDUSTRIAL 279 11,827,146 12.7% 0.4% 13.1% 856 856 $0.45-$0.65 $1.10-$1.25 3-6 months

HISTORICAL VACANCY RATES

2005 2007 2009 20112006 2008 2010

16.0%

12.0%

8.0%

14.0%

4.0%

10.0%

6.0%

Vacancy Rates

(425) 974-4000 www.pacif ic-re.com SEATTLE | BELLEVUE | TACOMA | PORTLAND

1Q’11 PUGET SOUND MARKET REPORT

Eastside and Northend Flex OverviewINVENTORY ABSORPTION AVERAGE RENT & EXPENSES CONCESSIONS

Market Area Buildings SF Direct Vacancy Sublet Vacancy Total Vacancy 1Q YTD Shell Office Shell

Bothell 56 2,704,864 20.3% 1.4% 21.7% 9,948 9,948 $0.50-$0.60 $1.10-$1.25 1-3 months

Woodinville 13 409,282 8.7% 4.4% 13.1% 20,564 20,564 $0.50-$0.60 $1.00-$1.25 3-6 months

Kirkland 43 1,264,755 22.3% 0.0% 22.3% (21,515) (21,515) $0.50-$0.65 $1.10-$1.25 1-3 months

Redmond 129 4,036,594 13.9% 0.9% 14.8% (28,012) (28,012) $0.50-$0.65 $1.10-$1.25 2-4 months

Bellevue 47 1,219,958 16.2% 0.0% 16.2% (8,516) (8,516) $0.50-$0.65 $1.10-$1.25 3-5 months

Issaquah 12 267,600 4.4% 0.0% 4.4% 1,916 1,916 $0.50-$0.65 $1.10-$1.25 3-5 months

EASTSIDE FLEX 300 9,903,053 16.5% 0.9% 17.4% (25,615) (25,615) $0.50-$0.65 $1.00-$1.25 1-5 months

Everett 18 1,191,111 10.7% 8.4% 19.1% 8,606 8,606 $0.50-$0.60 $1.05-$1.25 3-6 months

Mukilteo 13 594,296 13.3% 0.0% 13.3% - - $0.50-$0.60 $1.05-$1.25 3-6 months

Lynnwood 29 468,564 12.4% 0.0% 12.4% (8,199) (8,199) $0.50-$0.60 $1.05-$1.25 3-6 months

NORTHEND FLEX 60 2,253,971 11.8% 4.4% 16.2% 407 407 $0.50-$0.60 $1.05-$1.25 3-6 months

Market Area 1Q 2010 2Q 2010 3Q 2010 4Q 2010 2010 1Q 2011

Bothell 6,782 36,050 36,087 (26,113) 52,806 9,948

Woodinville (1,269) (3,758) (35,660) 515 (40,172) 20,564

Kirkland 21,106 10,192 (1,560) (8,657) 21,081 (21,515)

Redmond (5,347) (33,978) (46,613) (12,515) (98,453) (28,012)

Bellevue (15,308) (1,588) 27,864 7,562 18,530 (8,516)

Issaquah (1,613) 4,533 1,000 (1,547) 2,373 1,916

EASTSIDE FLEX 4,351 11,451 (18,882) (40,755) (43,835) (25,615)

Everett (3,806) - (140,221) 4,476 (139,551) 8,606

Mukilteo - - 42,534 (76) 42,458 -

Lynnwood (13,813) 1,338 18,535 759 6,819 (8,199)

NORTHEND FLEX (17,619) 1,338 (79,152) 5,159 (90,274) 407

Historical Leasing Activity Historical Total AbsorptionMarket Area 2010 Leases 2010 SF YTD 2011 Leases YTD 2011 SF

Bothell 42 223,637 5 11,856

Woodinville 6 8,194 6 7,083

Kirkland 18 58,040 5 13,068

Redmond 82 231,921 14 44,466

Bellevue 35 106,785 6 12,726

Issaquah 4 8,797 1 1,916

EASTSIDE FLEX 187 637,374 37 91,115

Everett 6 25,180 1 5,286

Mukilteo 10 232,645 - -

Lynnwood 24 42,109 3 2,311

NORTHEND FLEX 40 299,934 4 7,597

Historical Total VacancyMarket Area 2004 2005 2006 2007 2008 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011

Bothell 25.9% 23.3% 19.1% 14.8% 21.5% 23.1% 22.7% 21.4% 20.1% 21.1% 21.7%

Woodinville 8.4% 2.8% 8.0% 9.8% 9.6% 8.3% 8.6% 9.5% 18.1% 18..1% 13.1%

Kirkland 18.3% 17.1% 13.9% 12.7% 16.1% 22.2% 20.6% 19.8% 19.9% 20.6% 22.3%

Redmond 26.7% 24.8% 11.6% 8.4% 7.6% 11.7% 11.9% 12.7% 13.9% 14.2% 14.8%

Bellevue 10.0% 8.8% 8.7% 11.4% 10.5% 17.0% 18.3% 18.4% 16.1% 15.5% 16.2%

Issaquah 33.6% 1.9% 4.7% 13.5% 8.6% 6.0% 6.6% 4.9% 4.5% 5.1% 4.4%

EASTSIDE FLEX 22.7% 19.9% 13.3% 11.2% 12.9% 16.5% 16.4% 16.3% 16.5% 16.9% 17.4%

Everett 13.6% 15.9% 10.2% 14.9% 8.8% 8.1% 8.5% 8.5% 20.2% 19.9% 19.1%

Mukilteo 58.6% 36.6% 16.2% 15.3% 13.7% 20.5% 20.5% 20.5% 13.3% 13.3% 13.3%

Lynnwood 20.1% 17.2% 11.3% 7.2% 6.7% 12.1% 15.0% 14.7% 10.8% 10.6% 12.4%

NORTHEND FLEX 28.5% 25.0% 19.9% 10.4% 9.7% 12.2% 13.0% 12.9% 16.4% 16.2% 16.2% Prio

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The Eastside and Northend Flex Markets are comprised of nine

submarkets, with 360 buildings and a total of 12,157,024 SF. The overall

vacancy rate in the Eastside Market edged up slightly from the end of

2010, while remaining even in the Northend Market. Asking rental rates

remain farily consistent with 2010 rates. The largest number of signed

leases, year to date, has been in the Redmond submarket and the

Woodinvillesubmarket saw the largest gain in positive net absorption

since the beginning of the year.

Eastside and Northend Flex Market

HISTORICAL VACANCY RATES

2005 2007 2009 20112006 2008 2010

25.0%

15.0%

5.0%

20.0%

0.0%

10.0%

Vacancy Rates