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Vacancies Plummet as Rents Soar in ‘Landlords’ Market’

SEATTLE (June 27, 2006)

As the office vacancy rate crashes to 7.3 percent from a 22 percent high in 2004 and the cost of Class ‘A’ space approaches $29 per square foot, Bellevue’s Central Business District is experiencing an office market not seen since 2001, according to a report by the Seattle office of Grubb & Ellis Company (OTC: GBEL), one of the nation’s leading providers of integrated real estate services.

According to the company’s Second Quarter 2006 Report on Office Market Trends, it has become a landlords’ market not only in Bellevue, but also along the I-90 corridor, which at 5.3 percent is enjoying the lowest vacancy rate of any submarket in the region. Cumulatively, vacancy rates on the eastside have dropped to below 10 percent for the first time in five years.

“It has been clear for some time that downtown Bellevue’s market is heating up and rates are rising, which fuels the grab for space and allows landlords to be in the driver’s seat,” says Grubb & Ellis Vice President and Sales Manager Craig Hill. “Except for the completely pre-leased Lincoln Square, new construction in Bellevue will not come on-line until 2008 at the earliest. This will continue to tighten the market as economic conditions promote more hiring and employment growth.”

Downtown Seattle’s office vacancy rate fell for the fifth consecutive quarter to 12.1 percent—a five-year low—as its Class ‘A’ asking rates jumped $1.17 to $27.93, according to the Grubb & Ellis report. Continuously tightening, Seattle’s office market has a much larger inventory than in Bellevue, which will suppress extreme changes.

Trends that emerged over the past 18 months have continued in the second quarter. Positive economic conditions and job growth drove the market and landlords continue to gain more negotiating leverage in prime areas. Tenants will struggle to find space and see increased asking rates in some submarkets. In others, such as downtown Seattle and eastside submarkets outside of the Bellevue CBD and I-90 Corridor, landlords will find a level playing field and tenants will no longer enjoy the advantages they have had for several years. Vacancy rates and rental rates have reached levels not seen since the beginning of the recession and these trends should continue for the foreseeable future, according to the report

Other Highlights of Grubb & Ellis’ 2Q06 Report

Macro Trends

  • The market wide vacancy rate fell to a five-year low of 11.9 percent, marking the fifth consecutive quarter of declining vacancy
  • Over 780,000 square feet of space was absorbed, the fifth consecutive quarter of positive net absorption, and the eight time in the last nine quarters
  • Class ‘A’ asking rates rose to $26.91 per square foot, the highest rate since the fourth quarter of 2002, breaking a nearly three year cycle of rents hovering between $25 and $26 per foot.  The quarter-over-quarter jump of $1.03 represented a 3.9 percent increase in asking rent
  • Class ‘B’ asking rates rose for the ninth consecutive quarter to $20.43 after bottoming out in the first quarter of 2004.  Class ‘B’ asking rates are at their highest level in nearly four years

Micro Trends
Downtown Seattle

  • Positive net absorption was 162,292 feet
  • Class ‘B’ asking rates jumped above $20 per foot for the first time in three years

Eastside

  • Over 300,000 square feet of positive net absorption occurred, the eighth time in the last nine quarters that the eastside has experienced positive absorption

Grubb & Ellis Company

Grubb & Ellis Company is one of the world’s leading full-service commercial real estate organizations, providing a complete range of transaction, management and consulting services.  By leveraging local expertise with our global reach, Grubb & Ellis offers innovative, customized solutions and seamless service to owners, corporate occupants and investors throughout the globe.  For more information, visit the Company's Web site at www.grubb-ellis.com.

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