EASTSIDE AND NORTHEND OFFICE SUBMARKETS

1Q’11 PUGET SOUND MARKET REPORT

TECH BOOM

Eastside and Northend Office Market

S SNOHOMISH COUNTY

MILL CREEK/WOODINVILLE

EDMONDS/LYNNWOOD

NORTHGATE/N SEATTLE

KIRKLANDREDMOND

ISSAQUAH

520 CORRIDOR

BELLEVUE CBDSUBURBAN BELLEVUE

I-90 CORRIDOR

MERCERISLAND

S EVERETT/HARBOR POINTE

EVERETTCBD

BOTHELL

90

405

5

5

520

SEATTLEBELLEVUE

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

The Eastside and Northend Office Markets experienced a

significant rise in activity in the first quarter of 2011. The CBD,

along with many of the suburban Eastside markets, has seen

significant growth in the high tech and bio tech sectors as

vacancy in these markets has remained relatively flat over the

last year.

The year got off to a healthy start, with many new leases

being signed and a large number of tenants touring prospective

spaces in the CBD, Issaquah, Redmond and Bothell. The I-90

Corridor was the most active submarket in the first quarter,

with its excellent access, large blocks of vacant available space

and building efficiencies. This market should continue to gain

strength and grow as the 520 Bridge toll will force companies to

choose a location that will be economical for their employees.

Rental rates, vacancy, absorption and concessions were

mostly unchanged during the first quarter, which can be an early

indicator of market stability. One gauge of local market strength

continues to be illustrated by the growing number of pending

transactions. We anticipate increased signs of stabilization and

positive rental growth as we head into the second quarter.

The benefits of the year’s earlier activity should start to fully be

realized as we head into the third quarter, with recently signed

tenants beginning to occupy their new spaces. In addition, we

anticipate continued market momentum as companies with

2012 or 2013 lease expirations start to look for space.

One of the major issues that will impact the Eastside office

market will be the diminishing supply of large blocks of

contiguous space. Major tenants – those requiring 75,000 SF or

more - will find it increasingly difficult to identify spaces that

adequately meet their size requirements. As the high tech and

biomedical industries continue to grow, the demand for larger

spaces will continue to increase. Their movement in the market

will have a trickle -down effect on other industry segments

requiring larger, contiguous work spaces. Current capacity is not

able to support this type of growth and with very few, if any, new

projects in the pipeline the more desirable large blocks of space

will continue to diminish.

The true vacancy in the Eastside and Northend Markets can

be best illustrated by the number of small spaces spread

throughout the various submarkets. As market demand returns

and space requirements rise, development of downtown office

product and suburban business parks should start to return to

support the expansion.

The Eastside Office Market will anxiously await the outcome of

the possible AT&T/T-Mobile merger, which could greatly affect

the market if a space consolidation is needed, or if a massive

expansion occurs.

LEGEND

Eastside Office Submarkets

Northend Office Submarkets

1Q’11 PUGET SOUND MARKET REPORT

The Eastside Office Market consists of nine submarkets, with 666

buildings and a total of 34,700,529 SF. The overall vacancy rate is nearly

even with where it ended in 2010, while average asking rental rates have

gone up in nearly all submarkets. Overall, year to date net absorption

is on pace with 2010, with the largest gains in the first quarter in the

Kirkland and Bothell submarkets.

HISTORICAL VACANCY RATES & RENTAL RATES

2005 2007 2009 20112006 2008 2010

18.0% $35.00

12.0%$20.00

6.0%

15.0% $30.00

$25.00

0.0% $0.00

$5.00

9.0%$15.00

$10.00

3.0%

Eastside Office Market

Eastside Office OverviewINVENTORY ABSORPTION AVG CLASS A RENT & EXPENSES (FS)

Market Area Buildings SF Direct Vacancy Sublet Vacancy Total Vacancy 1Q YTD Rent NNN

Bellevue CBD 51 8,404,237 13.2% 1.6% 14.8% 7,642 7,642 $34.52 $9.75Bothell 72 3,865,553 18.4% 1.9% 20.3% 56,301 56,301 $27.00 $8.00520 Corridor 76 3,112,139 10.8% 0.1% 10.9% 20,630 20,630 $27.37 $7.00I-90 Corridor 58 4,798,470 15.2% 0.8% 16.0% 1,590 1,590 $31.05 $8.50Issaquah 39 1,790,277 10.4% 2.6% 13.0% 17,533 17,533 $27.82 $7.50Kirkland 112 4,034,108 16.7% 1.4% 18.1% 50,221 50,221 $30.31 $8.00Mercer Island 20 438,616 14.7% 0.2% 14.9% 3,664 3,664 $32.00 $9.00Redmond 68 3,814,326 19.0% 1.4% 20.4% 20,288 20,288 $28.53 $7.00Suburban Bellevue 170 4,442,803 13.5% 0.8% 14.3% (104,585) (104,585) $35.00 $8.50EASTSIDE OFFICE 666 34,700,529 14.8% 1.3% 16.1% 73,284 73,284 $30.40 $8.14

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

Bellevue CBD (191,343) (50,899) 81,147 37,295 (123,800) 7,642 Bothell 37,381 (35,567) 70,787 (25,991) 46,610 56,301 520 Corridor (18,227) (2,390) (8,388) 44,697 15,692 20,630 I-90 Corridor 126,193 11,797 231,887 (85,126) 284,751 1,590 Issaquah (25,336) (16,431) (48,569) (2,883) (93,219) 17,533 Kirkland 31,084 49,563 (16,464) (78,489) (14,306) 50,221 Mercer Island (3,589) (21,177) 4,882 15,633 (4,251) 3,664 Redmond (123,411) 54,638 144,764 61,787 137,778 20,288 Suburban Bellevue 12,483 9,977 (22,694) 19,394 19,160 (104,585)EASTSIDE OFFICE (154,765) (489) 437,352 (13,683) 268,415 73,284

Historical Rents (FS) Historical Total AbsorptionMarket Area 2007 2008 2009 2010

Bellevue CBD $37.87 $39.06 $35.02 $32.67Bothell $25.81 $26.14 $23.54 $23.58520 Corridor $28.04 $28.59 $26.15 $24.51I-90 Corridor $34.61 $35.50 $31.04 $30.37Issaquah $31.42 $31.65 $29.95 $29.04Kirkland $31.22 $32.96 $27.57 $27.18Mercer Island $29.42 $30.40 $26.65 $26.63Redmond $28.74 $28.91 $25.11 $24.45Suburban Bellevue $29.20 $29.88 $26.02 $24.65EASTSIDE OFFICE $30.70 $31.45 $27.89 $27.01

Asking Lease Rates by Class (FS)LEASE RATES (FULL SERVICE) OPERATING EXPENSES* (PSF)

Market Area Class A Class B Class C Class A Class B Class C

Bellevue CBD $34.52 $26.96 $20.51 $10.75 $9.75 $8.75Bothell $27.00 $23.65 $19.17 $9.00 $8.00 $7.00520 Corridor $27.37 $24.03 $14.10 $8.00 $7.00 $6.00I-90 Corridor $31.05 $27.63 $20.00 $9.50 $8.50 $7.50Issaquah $27.82 $29.50 $22.72 $8.50 $7.50 $6.50Kirkland $30.31 $24.96 $23.98 $9.00 $8.00 $7.00Mercer Island $32.00 $23.92 $18.94 $10.00 $9.00 $8.00Redmond $28.53 $22.71 $18.35 $8.00 $7.00 $6.00Suburban Bellevue $35.00 $25.05 $17.77 $9.50 $8.50 $7.50EASTSIDE OFFICE $30.40 $25.38 $19.50 $9.14 $8.14 $7.14 *Ex

pen

ses

are

app

roxi

mat

e

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

Bellevue CBD 16.3% 9.6% 5.5% 6.9% 10.5% 13.4% 15.7% 16.3% 15.3% 14.9% 14.8%Bothell 20.0% 15.1% 16.1% 26.2% 27.8% 22.9% 22.0% 22.9% 21.1% 21.7% 20.3%520 Corridor 12.7% 12.3% 8.9% 3.5% 6.5% 12.0% 12.6% 12.7% 13.0% 11.5% 10.9%I-90 Corridor 14.1% 9.0% 5.8% 6.7% 15.0% 16.9% 15.8% 14.9% 16.5% 16.1% 16.0%Issaquah 3.3% 2.0% 3.0% 5.9% 2.3% 6.5% 7.9% 4.9% 13.9% 14.1% 13.0%Kirkland 14.0% 7.4% 10.6% 6.8% 12.6% 19.0% 18.2% 17.0% 17.4% 19.3% 18.1%Mercer Island 3.6% 1.2% 1.8% 4.9% 10.1% 14.8% 15.6% 20.4% 19.3% 15.7% 14.9%Redmond 23.2% 13.2% 9.7% 7.8% 12.0% 21.8% 25.1% 23.6% 19.7% 19.9% 20.4%Suburban Bellevue 11.1% 7.7% 10.1% 8.3% 9.7% 11.6% 11.4% 11.1% 12.5% 12.1% 14.3%EASTSIDE OFFICE 14.9% 9.7% 8.7% 9.0% 12.6% 15.8% 16.5% 16.4% 16.2% 16.2% 16.1% Pr

ior

year

s as

of

4Q

Rental Rates (FS) Vacancy Rates

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

1Q’11 PUGET SOUND MARKET REPORT

The Northend Office Market consists of seven submarkets, with 295

buildings and a total of 8,645,620 SF. The overall vacancy rate is even

with where it ended in 2010, while average asking rental rates have

edged down slightly. Year to date net absorption is heading into positive

territory, with the largest gains in the first quarter in the Woodinville/

Mill Creek submarket.

Northend Office Market

Northend Office OverviewINVENTORY ABSORPTION AVERAGE RENT & EXPENSES (FS)

Market Area Buildings SF Direct Vacancy Sublet Vacancy Total Vacancy 1Q YTD Rent NNN

Everett CBD 57 1,708,912 7.4% 0.0% 7.4% 3,935 3,935 $22.14 $4.50

Lynnwood/Edmonds 92 2,791,113 23.6% 0.1% 23.7% 7,947 7,947 $22.72 $5.50

Woodinville/Mill Creek 27 671,368 20.6% 0.0% 20.6% 42,238 42,238 $20.57 $4.50

N Snohomish County 19 361,271 6.7% 0.0% 6.7% (1,950) (1,950) $20.50 $4.50

S Snohomish County 7 227,227 9.3% 0.0% 9.3% - - $20.50 $4.50

S Everett/Harbor Point 43 1,237,737 9.4% 1.7% 11.1% 5,343 5,343 $19.80 $4.50

North Seattle/Northgate 50 1,647,992 10.9% 0.6% 11.5% 18,134 18,134 $22.01 $5.00

NORTHEND OFFICE 295 8,645,620 14.6% 0.4% 15.0% 75,647 75,647 $22.10 $5.19

Market Area Q1 2010 Q2 2010 Q3 2010 Q4 2010 2010 Q1 2011

Everett CBD (14,091) (3,679) (17,901) (25,161) (60,832) 3,935

Lynnwood/Edmonds (47,880) 12,372 (5,431) 13,135 (27,804) 7,947

Woodinville/Mill Creek 7,584 1,465 16,830 7,190 33,069 42,238

N Snohomish County (1,034) (4,070) 3,144 (1,685) (3,645) (1,950)

S Snohomish County 3,811 - (10,168) 5,099 (1,258) -

S Everett/Harbor Point (7,773) 22,849 (12,110) 2,549 5,515 5,343

North Seattle/Northgate 1,865 (1,712) 16,847 (14,326) 2,674 18,134

NORTHEND OFFICE (57,518) 27,225 (8,789) (13,199) (52,281) 75,647

Historical Rents (FS) Historical Total AbsorptionMarket Area 2007 2008 2009 2010

Everett CBD $24.54 $23.32 $23.43 $23.29

Lynnwood/Edmonds $24.23 $24.15 $22.70 $22.33

Woodinville/Mill Creek $26.80 $25.89 $23.26 $22.72

N Snohomish County $25.83 $24.87 $21.58 $21.42

S Snohomish County $26.87 $27.60 $20.41 $28.09

S Everett/Harbor Point $22.46 $22.62 $22.26 $21.92

North Seattle/Northgate $26.80 $25.61 $23.12 $22.49

NORTHEND OFFICE $25.36 $24.87 $22.39 $23.18

Asking Lease Rates by Class (FS)

LEASE RATES (FULL SERVICE) OPERATING EXPENSES* (PSF)Market Area Class A Class B Class C Class A Class B Class C

Everett CBD - $26.47 $17.80 - $5.00 $4.00

Lynnwood/Edmonds $25.34 - $20.09 $6.50 - $4.50

Woodinville/Mill Creek - $23.02 $18.11 - $5.00 $4.00

N Snohomish County - $22.00 $19.00 - $5.00 $4.00

S Snohomish County - $22.00 $19.00 - $5.00 $4.00

S Everett/Harbor Point - $23.29 $16.31 - $5.00 $4.00

North Seattle/Northgate $23.62 $22.48 $19.94 $6.00 $5.00 $4.00

NORTHEND OFFICE $24.48 $23.21 $18.61 $6.50 $5.00 $4.07 *Ex

pen

ses

are

app

roxi

mat

e

Historical Total VacancyMarket Area 2004 2005 2006 2007 2008 2009 Q1 2010 Q2 2010 Q3 2010 4 2010 Q1 2011

Everett CBD 5.0% 6.7% 6.5% 8.9% 5.6% 4.1% 4.9% 5.1% 6.2% 7.7% 7.4%

Lynnwood/Edmonds 17.0% 17.0% 17.7% 18.9% 16.3% 23.0% 24.7% 24.3% 24.5% 24.0% 23.7%

Woodinville/Mill Creek 5.2% 7.9% 10.2% 12.8% 29.3% 30.8% 30.7% 30.5% 28.0% 26.9% 20.6%

N Snohomish County 5.1% 2.8% 3.4% 3.1% 4.4% 5.1% 5.4% 6.5% 5.7% 6.1% 6.7%

S Snohomish County 1.0% 11.0% 13.3% 12.6% 12.0% 8.7% 7.1% 7.1% 11.5% 9.3% 9.3%

S Everett/Harbor Point 13.8% 16.3% 10.7% 9.4% 9.5% 12.0% 12.6% 10.8% 11.7% 11.5% 11.1%

North Seattle/Northgate 9.3% 11.2% 11.5% 9.5% 11.2% 12.8% 12.7% 12.8% 11.8% 12.7% 11.5%

NORTHEND OFFICE 11.1% 12.3% 11.9% 12.4% 12.6% 15.2% 16.0% 15.7% 15.8% 15.9% 15.0%

Prio

r ye

ars

as o

f 4

Q

HISTORICAL VACANCY RATES & RENTAL RATES

2005 2007 2009 20112006 2008 2010

$27.50

14.0%

$24.50

10.0%

16.0%

$26.00

6.0% $20.00

12.0%

$23.00

$21.508.0%

Rental Rates (FS) Vacancy Rates

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