Brokerage Outlook: Washington

• Seattle Industrial

• Seattle Multifamily

• Seattle Office

Seattle Industrial Bruininks Submitted by Brian Bruininks, principal with The Andover Company/CORFAC International. Posted 09/26/07. What area is your expertise? • I will be discussing the Seattle/South King County and North Pierce County Metropolitan areas. What trends do you see presently in industrial development in your area? • New construction has been strong since mid-2004, with an estimated 3.2 million square feet under construction, and another 4.5 million square feet planned. Since mid-2004 there has been strong absorption, especially in the large distribution sector. Primary demand has been for new, highly-efficient double-loaded distribution buildings. Constraints on land supply and increased construction costs have forced developers and larger users alike to consider outlying areas in Pierce and Thurston counties. What type of industrial product is doing well in your area? • Warehouse/Distribution. Flex has also rebounded in the past 12 months. Who are the active industrial developers in your area? • Panattoni Development Corp., Opus Northwest, Schnitzer West, AMB, Tarragon, Northwest Building Corp., Segale, Knapp Development, RREEF/Capstone. More recently, Prologis and First Industrial have announced projects in the greater Puget Sound area. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • ING/Panattoni’s Auburn North Distribution Center (400,000 square feet) completed in mid-2006 confirmed strong demand from users requiring highly functional, double-loaded buildings. This speculative project was 100 percent pre-leased to two tenants prior to completion. Where is the majority of development taking place? Why is this area doing well? • The majority of development is occurring in the Kent Valley and Pierce County, which is along Seattle/Tacoma’s main distribution corridor and within close proximity to two major deep water ports. What area do you expect to be the next big industrial development market? Why? • Major development will continue in the Sumner area. Significant construction should also take place in the Fife/Puyallup areas, Fredrickson and the Port of Tacoma. A new market has emerged in Lacey, Washington, spurred in large part by the addition of The Home Depot’s 700,000-square-foot distribution facility and Target’s 2 million-square-foot regional distribution center. However, Lacey’s recent adoption of a plan to restrict single buildings to 200,000 square feet or less will impact the number of larger box users looking in the Lacey area. Please describe the industrial leasing activity in your area. • Seattle’s diversified economy, high employment rates, strong port activity, and overall consumer demand has driven vacancy rates below 6 percent in the Kent Valley, the Pacific Northwest’s largest distribution market. The Kent Valley acts as a primary barometer of economic health and overall user demand. Please describe the industrial sales activity in your area. • Heavy demand from investors, users and increasing rents and construction costs, have contributed to escalating real estate values.  What impact do current interest rates have on the industrial market? • We expect a rise in interest rates to cause a leveling-off of both cap rates on investment projects. Sale prices on user sales should continue to climb due to increased construction costs. Demand for quality industrial real estate will remain strong despite moderate increases in rates. What industries do you expect to expand in 2007 to absorb a great deal of industrial space? • What areas will be affected? Consumer product companies in both durable and non-durable goods sectors should continue to lead the way. A large percentage of these goods are coming from Asia and pass through the Seattle/Tacoma area. Would you like to make any additional observations about the industrial market in your area? • We expect overall demand from users and investors to remain strong. The Seattle/Tacoma market has become a major acquisition target of many large institutions, despite heavy cap rate compression that rivals other strong West Coast industrial markets. Look for continued rent growth, especially in the wake of recent major acquisitions.

Seattle Multifamily Submitted by Tim Ufkes, partner with the Seattle, Wash., office of Hendricks & Partners. Posted 9-15-06. What area is your expertise? • My expertise is the King County apartment market, mainly in the Interstate 5 corridor. Most of my work is done in Seattle, Tacoma and Olympia, but I have also done extensive work in Redmond, Bothell, Bellevue and the Tri-cities area. While each market has special characteristics, King County, and for that matter, Washington's apartment market are currently experiencing a rapid expansion. What trends do you see presently in multifamily development in your area? • The apartment market in the Pacific Northwest rides the ebbs and flows of the aerospace and high-tech industries. The apartment market benefits when Boeing and Microsoft are going well. As these two employment giants create more jobs, demand increases on the industries that support Boeing's and Microsoft's employees. With both companies planning for the long run and adding new facilities, apartment developments are being proposed in close proximity to those facilities. In addition to seeing clusters of apartment developments surrounding Boeing and Microsoft, the bulk of the permitting activity is taking place in downtown Seattle, with many units being proposed as parts of a mixed-use project and designated as luxury product. Who are the active multifamily developers in your area? • Kemper Development Co., Lorig Associates LLC and Stellar Holdings are all active in multifamily development in the Seattle area, but in different segments of the market. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • Kemper Development Co. is currently focusing on downtown Bellevue as an area to develop. Allocating much of its resources to the area, its prized development is the 1.1 million-square-foot mixed-use project Lincoln Square. Lorig Associates LLC and Stellar Holdings are working together in North Seattle on two different apartment projects: a 127-unit complex for seniors and a mixed-use project, scheduled for build out in 2008, which will have 278 apartment units, 109 condominiums and 52,000 square feet of retail. Where is the majority of development taking place? Why is this area doing well? • The majority of development is taking place in downtown Seattle and Bellevue. In downtown, already an established central business district, developers are trying to attract people to the lock-and-leave lifestyle that will put them close to their offices. Developers in Bellevue are trying to capitalize on the mixed-use trend. Office space is being claimed quickly in the new CBD, and developers want to make sure that people are going to have a place to live close to work. What area do you expect to be the next big development market? Why? • I think that you are going to see continued success developing in Seattle and Bellevue markets. Based on recent statistics and long-term trends, both cities appear to be still expanding. If this expansion continues there is no reason to believe that development will transition to other areas within the market; however, if these markets slow, expect development to transition towards Issaquah, where one of Microsoft's newest facilities is located. With the facilities expected size and the number of employees that it can support, the city added an off-ramp just for the new campus. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • The area that is doing the best in terms of apartment leasing is the Redmond/Bothell area. Over the past few years, rents have continued to accelerate while apartment vacancies have gotten tighter. Microsoft's global headquarters is in Redmond and is in the midst of $1 billion expansion. In the Redmond submarket, average rents were at an all time high of $1,066, an increase of 6.5 percent year-over-year. Average rents in the Seattle market as a whole grew by 4.5 percent year-over-year, up to $872 in the year ended in June 2006. This is 100 basis points higher than the markets long-run historical average. Please give a measure of apartment vacancy rates. • The Seattle apartment market is currently in a rapid expansion. Apartment vacancies tightened in the second quarter of 2006, decreasing to 5.0 percent, which is 40 basis points below its long-run historical average. South Seattle saw the best increase in occupancy rates, increasing 2.9 percent. Please give a measure of condo sales activity in the area. • Condo projects are in-vogue in the for-sale housing market that has become progressively more difficult to enter. That being said, condominiums are following the lead of single family residences and seeing the median price appreciate quickly. In the second quarter of 2006 the median price of condominiums rose 22 percent and out-paced single family residence in price appreciation for the first time ever. What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in 2006? • Current interest rates are compressing apartment yields in the market. However this is not an "end of the world" sign. The market perceives that the Federal Reserve is content to hold on interest rates. Through the October/November meeting, the prediction is that the Federal Funds overnight rate will remain at 5.25 percent. What this means for the market is that this is a good time to be both a buyer and a seller. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? • Seattle is experiencing stellar job growth. The best indicator that the job market is stabilizing is the fact that the Seattle economy is diversifying. The market is not only relying on Boeing and Microsoft, but is capitalizing on Costco Wholesale Corp. being another leader in the number of people that it employs. The market is also very attractive to biotech companies looking for skilled employees because the region is considered to be one of the most educated in the nation. With outstanding job growth and shrinking unemployment, the apartment market can only benefit. Would you like to make any additional observations about the multifamily market in your area? • After the tech crash, many people have been uneasy about getting back into the Seattle apartment market. But that being said, Seattle's redevelopment has been carefully planned out and is not based on only one sector of the economy. Aerospace, tech, biotech, trade and transportation, are all contributing factors to the continued success of the economy. As the economy continues to be successful, the apartment market will continue to see increases in occupancy and rental rates. This will be even truer if for-sale prices continue to increase rapidly. The apartment market is strategically positioned to benefit from outstanding economic conditions.

Seattle Office Hemphill Submitted by Michael Hemphill, principal of The Andover Company/CORFAC International. Posted 09/14/07. What is your area of expertise? I will be discussing office leasing and investment sales in Seattle. What trends do you see in the office development in your area? New construction is extremely strong in downtown Seattle (2.8 million square feet) and downtown Bellevue (2.4 million square feet) because of the low vacancy rate and solid job growth in both markets. Downtown Seattle has only a 7.5 percent vacancy level out of 60 million square feet and downtown Bellevue’s vacancy rate is only 6.5 percent for 37 million square feet. The South King county office market is the softest with a 13 percent vacancy rate for 16 million square feet. What type of office product is doing well in your area? Office buildings that offer amenities in the project such as fitness, conferencing, retail and restaurants have had tremendous success in leasing. Tenants in the Seattle market are becoming more sophisticated and they want these extra amenities for their employees. Who are the active office developers in your area? The Opus Group, Schnitzer West, Vulcan, Kemper Development, and Hines are active in our area. Please name one or two significant office developments in your area. What impact will these projects have on the market? The Bravern and Advanta office projects are being developed by Schnitzer West in the Bellevue office world. The Bravern totals 500,000 square feet of office and Advanta totals 624,000 square feet of office. Both buildings have been pre-leased by Microsoft on a long-term lease. This large pre-lease has pushed office rents in the Bellevue market up by 10 percent. Where is the majority of development taking place? Why is this area doing well? Downtown Seattle and downtown Bellevue office markets is where the majority of development is taking place. People want to live in the Seattle area and want amenities close to where they work and live. Both Seattle and Bellevue have massive midrise condominium projects under way which will allow people to live close to where they work. What area do you expect to be the next big development market? Why? The Bellevue and Eastside market because of its prestige. It’s also a fun and safe place for employees to work and live. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? Downtown Seattle and downtown Bellevue are very strong in office leasing. The north Seattle and south King County suburban markets are weaker. What impact do current interest rates have on the office market? What prediction do you have for interest rates and their effect on the market? Current interest rates have contributed to very low cap rates and extremely high sale prices for sellers. I predict interest rates will rise in the future and cap rates will stabilize. What is the status of job growth/employment rates and what bearing will it have on the office market? Employment growth in the Seattle metropolitan area is projected at 3.0 percent for 2007. The unemployment rate in the Seattle area is only 4.5 percent. This economy is solid and producing jobs that generate a need for office space. Is there any type of office tenant absorbing a majority of the space? Companies with strong growth in the Seattle area are Microsoft, Boeing, Amazon.com, Weyerhaeuser and Providence Healthcare. Retail sales, construction and software publishing are also strong.

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