Seattle sees slight drop in empty offices

The numbers vary, but the message they convey is the same:

Downtown Seattle's office vacancy rate, which peaked six to 12 months ago, is on its way back down again, according to fourth-quarter market reports from four brokerages.

The decline is far from dramatic. Three of the four brokerages pegged the drop at less than 1 percentage point from both the previous quarter and the end of 2009.

Vacancies remain much higher than they were two years ago, before the economic downturn hit downtown with full force.

But brokers agree the trend, however mild, is a signal to both landlords and tenants that the market is starting to turn.

"We're going to finally see some recovery in 2011," said Matt Christian, a senior director at Cushman & Wakefield/Commerce, "but it's going to take a while."

His firm calculated Seattle's total vacancy rate last quarter at 20.8 percent. Grubb & Ellis said it was 16.8 percent, while Colliers International put it at 16.6 percent and Kidder Mathews at 13.9 percent.

Each firm has its own assumptions and methodology.

Kidder Mathews, for instance, includes owner-occupied buildings in its calculations; the others don't. Cushman & Wakefield limits its analysis to buildings between Lake Union and Pioneer Square. Others use different boundaries.

Any continued drop in downtown vacancy rates this year probably won't be dramatic, brokers say.

One reason: Demand for office space generally lags a year or so behind employment growth, which is slowly recovering.

"But there are a lot of people packed into small spaces now," said Leigh Callaghan, a senior vice president with Colliers. "When companies do choose to expand, demand could really explode."

Asking rents for top-end space last quarter were virtually unchanged. Cushman & Wakefield/Commerce said the average was $30.50 per square foot per year, up 7 cents from three months earlier.

Grubb & Ellis pegged the average at $32.04, up 2 cents from the third quarter.

In contrast to Seattle's small decline, Cushman, Colliers and Kidder Mathews reported downtown Bellevue's total vacancy rate rose slightly or remained flat in the fourth quarter.

Cushman calculated it at 16.5 percent, unchanged from the previous quarter, but up more than 2 percentage points from a year ago.

As in Seattle, lease rates in Bellevue's central business district were virtually unchanged, according to Cushman & Wakefield/Commerce.

Richard Briscoe, a Kidder Mathews vice president, attributed much of Bellevue's increase to "sticker shock." Inexpensive leases that tenants signed years ago are expiring, he said, and today's rents "are cheap, but they're not as cheap."

So tenants are renewing, but often taking a little less space, Briscoe said.

The rest of the Eastside is faring somewhat better, said Tom Bohman, a senior director in Cushman & Wakefield/Commerce's Bellevue office. "Businesses are more optimistic about 2011. It feels like we've turned the corner."

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