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Snohomish County business
Office, industrial vacancy rates expected to remain high in 2004

By Jane Hodges
Times Snohomish County bureau

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Without a new tenant interested in leasing a large office space, real-estate executives say the Snohomish County office and industrial real-estate market will continue to experience high vacancy rates during 2004.

The county closed the year with a fourth-quarter office vacancy rate of 18.2 percent, down from 20 percent at the end of 2002 but still higher than vacancy rates in 2001 and 2000, according to Cushman & Wakefield of Bellevue. Colliers International put 2003's fourth-quarter office vacancies at 17.2 percent.

In the industrial market, according to Cushman & Wakefield, the county closed last year with a 16.8 percent fourth-quarter vacancy rate, sharply higher than the 12.6 percent rate at the close of 2002. Colliers said the 2003 fourth-quarter vacancy rate was 21.9 percent.

Vacancies in Puget Sound-area counties started climbing in late 2001 as a result of the local and national economy's response to the high-tech crash and Sept. 11 terrorist attacks. Both office and industrial vacancy rates have remained high.

Gary Bullington, a director at Cushman & Wakefield, said the Snohomish County market's total square footage of commercial space is far smaller than markets in surrounding counties. That means a single large vacancy or new lease signing can skew rates dramatically.

Bullington and Hugh Winskill, a research analyst at Colliers, noted that Snohomish County's real-estate market is no different from those in other counties in facing a status-quo year.

Though there are glimmers of hope — such as a long-range business-corridor plan in Lynnwood, continued work on downtown Everett and potential for Boeing's forthcoming 7E7 jetliner final-assembly plant to attract partner firms to the area — the overall economy's rebound will ultimately determine what happens, they say.

"Until some large tenants come along, we'll keep clipping away (like this)," Winskill said.

"It's a high vacancy rate, 17.5 percent almost (according to Colliers data), but that's concentrated in large spaces around Lynnwood."

Bullington said building owners with vacancies have had a hard time filling them. He noted that 300,000 square feet at the Quadrant I-5 Center in Lynnwood opened up two years ago, when Boeing vacated offices, and only 60,000 square feet of that space has since been filled.

But the county still has some drawing power for manufacturing. Cypress Semiconductor moved 150 employees to a building at the Opus Northpointe office facility near Lynnwood last year Travis Industries, which builds fireplaces and wood-burning stoves, has moved its Kirkland and Woodinville offices into a combined facility in the Harbour Pointe area of Mukilteo.

Bullington said the vacancies have made builders hesitant to start construction without substantial commitments from tenants. He works with Opus, which has secured advance permits for building and further grading at its Northpointe site. If a tenant signs, expansion could occur quickly, in 10 months rather than 18.

Opus plans to break ground on a 67,000-square-foot building, Bullington said, but won't start work without a tenant willing to lease at least 25 percent of the space.

Bullington said it's unclear when business will start to rebound, but he's optimistic, partly because of Boeing's decision to assemble the 7E7 in Everett. Based on conversations with real-estate colleagues who've helped the auto industry with its manufacturing partnerships, he said he expects more aerospace companies to cluster around Boeing's Everett plant.

"The rule of thumb is you don't want to be more than 20 minutes away," he said. "I think in 2004 we'll see business start coming back."

Jane Hodges: 425-745-7813 or jhodges@seattletimes.com

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