Seattle loses ground as top site for commercial real-estate investors

Seattle still ranks among the nation's top 10 commercial real-estate investment markets, according to a prominent national forecast being released today.

But it has fallen farther over the past year than almost anyplace else.

Heading into 2009, metropolitan Seattle was rated No. 1 for commercial and multifamily-housing investment among the nation's top 50 markets in the annual forecast prepared by the Urban Land Institute, a growth think tank, and the accounting firm PricewaterhouseCoopers.

The new forecast for 2010 ranks Seattle eighth, a drop of seven places. Only Tucson, Ariz., which slipped 10 spots, experienced a bigger fall.

On a scale of 1 (abysmal) to 9 (excellent), the report gives Seattle an overall score of 5.31, down from 6.15 a year ago.

That 0.84 drop was the largest of any market.

The scores are based on surveys and interviews with about 900 developers, lenders, investors and brokers.

Richard Kalvoda, a PricewaterhouseCoopers principal involved in the research, said Seattle topped the charts a year ago because survey participants expected it wouldn't be hit as hard as other markets by the real-estate downturn.

And now? "The fundamentals have just deteriorated more than was anticipated," Kalvoda said.

Participants probably didn't foresee Microsoft layoffs, he said, or JPMorgan Chase vacating so much of Washington Mutual's downtown Seattle office space.

But Seattle remains a top-10 investment market, Kalvoda said, because it's a "global gateway" with geographic and political barriers that limit new development.

Nationally, the new report anticipates another dismal year for commercial real estate in 2010, with average property values down more than 40 percent from their mid-2007 peaks — the steepest decline since the Great Depression.

Retail and office properties will be hit hardest, says the report, "Emerging Trends in Real Estate."

Washington, D.C., is the top-ranked market for 2010, followed by Northern Virginia, because "its dominant employer — the federal government — never shrinks." They are among just four markets whose scores improved from last year.

The report's thumbnail forecast for Seattle says the recession and bank troubles will "harpoon" the local market next year. It notes WaMu's collapse and the completion of several office towers that remain mostly unleased could drive the downtown office-vacancy rate above 20 percent.

It already has topped 18 percent, according to several firms that track such data.

Corporate heavyweights — Microsoft, Boeing, Costco, Starbucks and Amazon — should stabilize next year, the forecast adds, but are unlikely to expand.

Seattle's industrial-property vacancy rate is likely to increase as international trade slows, the report says. But study participants gave the local market the second-highest "buy" rating in the nation for industrial and distribution properties.

Seattle had the fourth-highest "buy" rating for apartments, which the report calls a relative bright area. The report forecasts modest vacancy increases, with new rentals are coming on the market.

Seattle should bounce back faster than many markets once the economy recovers, the forecast says.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com