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Puget Sound Business Journal (Seattle) - by Reynolds Haas
To many, Seattle continues to be the fairest city of them all. Thanks in part to a strong regional economy backed by the likes of Microsoft, Starbucks, and Boeing, the Pacific Northwest has remained somewhat insulated from the changes in lending and the condition of the capital markets, keeping Seattle on the list of hot spots for investors.
In fact, investors perceive our region to be one of the strongest commercial real estate markets in the U.S. In late 2007, the Urban Land Institute and PricewaterhouseCoopers once again reported Seattle as the most attractive national office market among the 15 largest U.S. metro areas including Boston, Philadelphia, San Francisco and New York.
As in 2005 and 2006, the number of commercial transactions, sales volume and average price paid per square foot have again made Seattle's commercial real estate and investment market the beneficiary of very strong transaction statistics.
Here's a closer look:
In 2007, agents posted 31 deals with closing prices of more than $5 million. In 2006, there were 28, compared with 27 in 2005, 16 in 2004, and only five in 2003.
The Columbia Center sale gets the top sale award for largest office sale in 2007, coming in at $621 million. The buyer, Beacon Capital Partners, purchased this 1,527,107-square-foot building from The Blackstone Group for nearly $407 per square foot. The 983,600-square-foot Wells Fargo Center was also purchased from The Blackstone Group by Beacon Capital Partners for a little more than $402 million. Both the Columbia Center and the Wells Fargo Center were part of a 28-property portfolio.
The 901 Fifth Avenue Building, a two-property deal consisting of 542,481 square feet, came in as the third top sale, purchased by Kennedy Wilson from Beacon Capital Partners for $300 million, or $553.01 per square foot; and Park Place was sold by Walton Street Partners to Transwestern Investment Co. for $116 million or $373.43 per square foot.
Other strong transactions included the sale of the 131,142-square-foot Market Place, from Tishman Speyer to BlackRock for $83 million, or $633 per square foot; GE Asset Management's purchase of the 295,515-square-foot Exchange Building from Crescent Real Estate Equities for $80 million, or $273 per square foot; and TIAA-CREF's purchase of the 133,777-square-foot World Trade Center from Wright Runstad for $71 million, or $530 per square foot.
So how do these mega-deals and others add up in dollars for 2007? Total office sales volume for 2007 was $1.68 billion. This is a significant jump from the sales volume numbers for 2006 and 2005. Those totals were $1.01 billion and $1.11 billion respectively. Sales volumes for 2004 and 2003 -- $766 million and $261 million respectively -- hardly register in comparison.
All this activity propelled per-square-foot prices to $359.35, a very different average than the $250 foot high we saw, not so long ago, in 2006.
Some of the additional noteworthy Seattle market office sales include the 197,135-square-foot 5th and Bell Building sold by Touchstone to Hines for $69 million, or $354 per square foot; Bay West Group's 229,325-square-foot Atrium Building, also sold to Hines for $56 million, or $436 per square foot.
In 2006, 15 office buildings in Seattle sold for more than $300 per square foot, six office buildings sold for more than $300 per square foot in 2005, while just two surpassed that mark in 2004 -- the IDX Tower at $402 per square foot, and 1000-1100 Dexter Avenue North at $310 per square foot. In 2003, Millennium Tower was the sole property to surpass the mark at $324 per square foot.
So who are we attracting, anyway? Admirers near and far, apparently. Just a short flight away, San Francisco-based Shorenstein purchased 2601 Elliott Avenue, while several time zones didn't stop a German fund from the Metzler acquisition of the 5th and Pine Building in 2005.
In summary, Seattle's office investment sales once again reached new highs. With 31 sales combining for $1.68 billion in sales volume on the year, the average sale price exceeded $54.2 million. These large investment transactions are directly related to the strong number of investors with equity who continue to look for a pricey piece of our coveted finite for-sale properties. Combined with lack of other investment alternatives, this makes for continued strength in the Northwest sector.
What is in store for 2008? Although we have seen some significant changes in lending due to the condition of the capital markets, the office real estate front appears to have steady investment interest and capital coming our way.
Office vacancy rates and landlord concessions in our class A and B buildings will continue to decline as rental rates spike. This is partly due to the increasing cost of construction, and lengthy government processes that are restricting new buildings from coming to market.
Seattle will continue to be a lucrative market for owning and investing in the office sector.
REYNOLDS HAAS is a senior vice president with Colliers International, Seattle office. He can be reached at 206-223-0485 or
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