Seattle Office Market

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

90

520

5

QUEEN ANNE/MAGNOLIA

LAKE UNION

DENNY REGRADESEATTLE CBD

PIONEER SQ/WATERFRONT

CAPITOL HILL/CENTRAL DISTRICT

S SEATTLE/SODO

BALLARD/U DISTRICT

ElliottBay

Lake Washington

WEST SEATTLE

SEATTLE

1Q’11 PUGET SOUND MARKET REPORT

The Seattle Office Market saw a significant jump in activity in

the first quarter of this year, illustrated by a sizeable increase in

the number of tenants touring the market for additional space,

fewer available large blocks of space and nearly 345,000 SF of

net absorption.

Market velocity is beginning to tick upward in Seattle.

Although the first quarter ended with 16.2% vacancy, there

were a total of nearly 180 signed leases and investment activity

has started to return to healthier levels, as occupancy in high

functioning assets continues to rise.

South Lake Union continues to outpace the rest of the Seattle

market in terms of new development and will continue to be the

primary area of growth in the Puget Sound region.

One new South Lake Union tenant that will have a significant

impact the vacancy rate in the second quarter is Amazon.com.

With the continued progression of Amazon.com’s 1.7 million SF

headquarters, the tech giant will take occupancy (544,000 SF)

of Phase IV of their project in 2Q 2011. In addition to their own

campus they recently signed a lease for 460,000 SF at one of the

CBD’s newer buildings, 1918 Eighth.

Another well known name taking up residence in the

South Lake Union neighborhood is the Bill & Melinda Gates

Foundation. This 590,000 SF two-building campus sits just

west of the Amazon.com headquarters and is also slated for

completion in the second quarter. This exciting new facility

will be a draw for many national and international philanthropic

groups.

The availability of large blocks of space in the Seattle CBD

market has been steadily declining, making it increasingly

difficult for large companies to find suitable space. While the

Seattle CBD office market does have a 14.5% vacancy, there

are only 4 buildings that are able to offer 100,000 SF or more

of contiguous space. Columbia Center offers the largest space

at 186,000 SF. Nearly 41% of the available 2,000,000 SF of

availability in the CBD is comprised of spaces that are 50,000 SF

or smaller.

Biotech, technology and medical companies have led

the charge in the Puget Sound’s recovery and are leasing or

purchasing most of the large blocks of space in the area from

the CBD to Fremont. Aside from the large users, smaller groups

have been expanding as well. In Fremont alone, three tech

tenants are increasing their space needs by more than 8,000 SF

each. Overall, the South Lake Union and Fremont areas have

been the stalwarts in the Seattle office market, with continued

growth and a high level of tenant activity.

There is much anticipation for the rest of 2011 in the Seattle

office market as we continue to see many tenants entering the

market and nearly 1,000,000 SF of absorption already slated

for the second quarter of this year. Overall, with 16.2% vacancy

and rental rates stabilizing, the Seattle office market looks to be

enjoying a quicker recovery than what was initially anticipated.

SEATTLE REVIVAL

SEATTLE OFFICE SUBMARKETS MAP

INVENTORY ABSORPTION AVERAGE RENT & EXPENSES (FS)Market Area Buildings SF Direct Vacancy Sublet Vacancy Total Vacancy 1Q YTD Rent NNN

Seattle CBD 103 25,161,152 13.3% 1.2% 14.5% (79,448) (79,448) $28.90 $9.45Ballard/U District 84 3,166,922 6.3% 4.4% 10.7% 62,624 62,624 $25.42 $8.00Belltown/Denny Regrade 83 5,566,588 12.6% 1.0% 13.6% (20,748) (20,748) $24.50 $8.25Capitol Hill/Central District 84 4,643,628 7.3% 0.1% 7.4% 4,152 4,152 $27.00 $8.00Lake Union 102 7,931,918 24.3% 1.4% 25.7% 287,826 287,826 $34.45 $9.45Pioneer Square/Waterfront 97 6,050,336 19.3% 1.4% 20.7% 97,705 97,705 $23.84 $8.50Queen Anne/Magnolia 73 3,875,806 18.1% 0.1% 18.2% 41,310 41,310 $26.67 $8.50South Seattle 71 2,836,768 18.6% 0.0% 18.6% (49,750) (49,750) $22.98 $8.00SEATTLE OFFICE 697 59,233,118 15.0% 1.2% 16.2% 343,671 343,671 $26.72 $8.52

Seattle Office Overview

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

Seattle CBD 65,210 (140,078) 229,388 320,815 475,335 (79,448)Ballard/U District (63,698) (16,787) (2,393) 78,031 (4,847) 62,624 Belltown/Denny Regrade 41,206 182,460 (40,792) (7,401) 175,473 (20,748)Capitol Hill/Central District 191,401 24,976 30,320 22,719 269,416 4,152 Lake Union 117,562 509,498 144,692 98,069 869,821 287,826 Pioneer Square/Waterfront 80,232 (3,664) (232,194) (14,602) (170,228) 97,705 Queen Anne/Magnolia (16,586) (18,245) 4,559 (1,035) (31,307) 41,310 South Seattle (24,369) (2,512) 53,491 22,632 49,242 (49,750)SEATTLE OFFICE 390,958 535,648 187,071 519,228 1,632,905 343,671

Historical Rents (FS) Historical Total Absorption

Market Area 2007 2008 2009 2010

Seattle CBD $35.37 $33.37 $29.49 $29.16Ballard/U District $35.59 $31.10 $28.83 $28.06Belltown/Denny Regrade $29.25 $30.56 $26.16 $24.80Capitol Hill/Central District $35.08 $31.05 $30.00 $29.53Lake Union $32.52 $38.31 $31.29 $32.20Pioneer Square/Waterfront $25.92 $28.97 $26.34 $25.69Queen Anne/Magnolia $25.81 $35.80 $21.55 $27.66South Seattle $22.74 $22.95 $23.61 $23.25SEATTLE OFFICE $30.29 $31.51 $27.16 $27.54

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

Seattle CBD $28.90 $23.51 $17.18 $9.45 $8.45 $7.45Ballard/U District $25.42 $22.23 $20.27 $8.00 $7.00 $6.00Belltown/Denny Regrade $24.50 $22.70 $21.20 $8.25 $7.25 $6.25Capitol Hill/Central District $27.00 $24.47 $18.50 $8.00 $7.00 $6.00Lake Union $34.45 $25.23 $18.50 $9.45 $8.45 $7.45Pioneer Square/Waterfront $23.84 $22.44 $19.23 $8.50 $7.50 $6.50Queen Anne/Magnolia $26.67 $21.49 $22.00 $8.50 $7.50 $6.50South Seattle $22.98 $21.36 $13.00 $8.00 $7.00 $6.00SEATTLE OFFICE $26.72 $22.93 $18.74 $8.52 $7.52 $6.52

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

Seattle CBD 13.4% 12.5% 10.4% 10.4% 11.0% 15.9% 15.6% 16.2% 15.3% 14.0% 14.5%Ballard/U District 5.4% 4.7% 3.4% 2.7% 12.6% 11.9% 14.0% 14.5% 14.6% 14.4% 10.7%Belltown/Denny Regrade 14.1% 12.0% 9.7% 9.2% 8.1% 16.4% 15.7% 12.4% 13.1% 13.2% 13.6%Capitol Hill/Central District 11.2% 10.6% 7.3% 4.1% 4.3% 13.5% 9.1% 8.6% 7.5% 7.2% 7.4%Lake Union 18.3% 16.1% 11.6% 5.7% 6.4% 8.2% 25.5% 22.4% 22.3% 20.9% 25.7%Pioneer Square/Waterfront 13.9% 11.9% 8.7% 7.2% 12.4% 15.6% 14.2% 18.4% 22.2% 22.4% 20.7%Queen Anne/Magnolia 17.7% 15.9% 8.5% 7.6% 5.8% 15.6% 16.1% 16.6% 16.4% 16.5% 18.2%South Seattle 9.9% 9.7% 12.7% 9.6% 10.0% 10.9% 17.3% 18.6% 16.7% 15.9% 18.6%SEATTLE OFFICE 13.3% 11.9% 9.2% 8.6% 10.1% 16.4% 16.2% 16.4% 16.3% 15.6% 16.2% Pr

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4Q

The Seattle Office Market consists of eight submarkets, with 697

buildings and a total of 59,233,118 SF. The overall vacancy rate has

edged slightly upward since the end of 2010, while average asking

rental rates have declined. Overall, year to date net absorption is on

pace with last year, with the largest gains in the Lake Union and Pioneer

Square/Waterfront submarkets.

HISTORICAL VACANCY RATES & RENTAL RATES

2005 2007 2009 20112006 2008 2010

18.0% $32.00

12.0%

$28.00

6.0%

15.0%$30.00

0.0% $24.00

9.0%

$26.003.0%

Rental Rates (FS) Vacancy Rates

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

Seattle Office Market

1Q’11 PUGET SOUND MARKET REPORT