November 30, 2000

Real Estate Buzz: Kent Valley sees sublease increase, too

Subleases aren't pushing up just downtown office vacancy rates, but also those of Kent Valley warehouses, says leading industrial broker Wilma Warshak.

"If the vacancy rate is 5 percent, half of it is subleases, and that's becoming something to look at," the Colliers International broker said in an interview.

Unlike downtown, the valley's increase doesn't stem from the dot-com shakeout and depression in tech stocks -- at least not directly, Warshak said.

As the shakeout continues, companies that serve Internet firms also begin to feel the pinch, she said.

Warshak

The creation of new data centers in industrial space was gobbling up space earlier in the year but has quickly slowed, mainly because of limitations on the electric power supply, Warshak said. The economy overall is also heading into a slowdown, she said.

"This could be a general reflection of the economic expansion slowing down a bit," she said. "There's a whole range of reasons."

The biggest sublease, 312,000 square feet of warehouse space in Renton, is by a dot-com, the home grocery company called Webvan.

But Warshak said that sublease wasn't a result of the shakeout, per se.

California-based Webvan earlier this year bought its Bellevue-based competitor, Homegrocer.com. Homegrocer had already set up the Renton warehouse, while Webvan had set up one in Kent. After buying Homegrocer, Webvan didn't need the Renton warehouse.

The next-largest is 192,000 square feet put up for sublease by the distribution company A&M Warehousing, in Valley Centre Corporate Park in Auburn.

Two months ago, Kent Valley's industrial vacancy rate was estimated at 2.5 percent by the brokerage CB Richard Ellis.

That rate is very healthy -- perhaps even too tight for optimal market health Warshak said. A rise to 5 percent would create "some fluidity," allowing tenants a little more space to choose from, she said.

Thus, the increase in sublease space doesn't alarm Warshak yet. "But the concern is whether this indicates a trend" that, if it continued, would start pushing vacancies up to unhealthy levels.

Kidder Mathews & Segner industrial broker Chris Corr said the market remains quite strong.

"Let's wait and see," he said. "The amount is a small percent above where we were in the hottest real estate cycle we've ever seen."

A counterbalance arises from a downturn in the start of construction of new industrial projects, Corr said. Less new space will be coming on line, so if the demand also decreases, the net result could be even, he said.

"It's the land," Corr quipped. "They're not making it."

Things are Ducky for Paul Allen

Paul Allen's latest South Lake Union purchase netted the Microsoft co-founder 1.3 acres at the corner of Boren Avenue North and Republican Street, King County property records show.

Allen paid $7.85 million for the land at 526 Boren, occupied by Ducky's Office Furniture, records show. An Allen spokeswoman said his operating company, Vulcan Northwest, has no immediate plans for the one-story, 36,788-square-foot industrial structure other than for Ducky's to continue operating there. Records identify the former owner as Savage Wholesale Building Materials.

The purchase brings Vulcan's South Lake Union holdings, to about 27 acres. Vulcan's roughly four-acre purchase from the city remains pending.

Unico offers tenants Flexcar

Unico Properties became the first downtown Seattle office landlord to sign up with Flexcar, the new car-sharing service.

The roughly 12,000 people who work in the eight downtown office buildings that Unico manages can drive one of the shared cars during the day to meetings or for running errands. They can get to and from work in the mornings and evenings via mass transit, ride-sharing, walking or biking, instead of in their own cars. This method would, in theory at least, reduce traffic congestion and pollution, and could save money.

The initial deal with Unico places four Flexcars in the parking garages of Unico Buildings -- two in Puget Sound Plaza and two at Two Union Square.

"The number of cars and locations will increase as individuals sign up to use the service," Unico said.

Flexcar would charge businesses and individuals a membership start fee and then both a per-mile and per-hour fee for car use after that.

Business start fees are about $50; individuals are $25, said William del Valle, Flexcar's membership development director. Members then pay a fee each time they use a car, with the fees varying with the length of each trip.

"Each member will have a key and will just need to call ahead to ensure a vehicle is available," del Valle said.

Unico manages the University of Washington's Metropolitan Tract properties as well as One and Two Union Square, which a state pension fund owns. The properties combined total 3.5 million square feet of offices and house more than 700 businesses.

Unico views Flexcar as an added amenity to offer tenants, said John Miller, the company's Metropolitan Tract manager.

"We've already had a lot of people calling about it and we haven't even put out the information yet, so I think it's really going to take off," said Miller.

Flexcar, which President Neil Peterson started last year, has 25 cars in Seattle.

The company's parent firm, Seattle-based Mobility Inc., recently began raising $2.5 million to fund expansion into three cities next year. Mobility wants to reach 3,000 members next year and 333,000 in five years.

CenterPoint keeps leasing up

Some 500 United Airlines employees will move from downtown Seattle to former Boeing office space in the CenterPoint Corporate Park in Kent, CenterPoint developer Intracorp said.

United signed a lease for 31,098 square feet at CenterPoint. It is one of five new signings for a total of 113,000 square feet, putting the 763,000-square-foot office complex well past half-leased.

United will move reservation call center operations from 2033 Sixth Ave. in Belltown to CenterPoint. Broker Wyk Parker of Colliers International represented United.

The other new leases are:

• Alaska Airlines for 45,835 square feet. Alaska and its sister company, Horizon Air, will move about 300 employees from near Sea-Tac International Airport. Dave Magee of Cushman & Wakefield represented Alaska.

• The state Department of Health for 19,102 square feet.

• The beverage distributor Odom Corp. for 9,252. Odom sold its South Seattle offices and warehouses and will place its 25-employee headquarters in CenterPoint. Chris Moe of Kidder Mathews & Segner represented Odom.

• Intersil Corp. for 8,081 square feet. Ed Hogan of CB Richard Ellis represented Intersil.

"We've built some serious momentum here and we expect it to continue well into next year," said CenterPoint general manager Jack Rader.

Trendwest opens Reno time-share

Redmond-based Trendwest Resorts earlier this year bought the landmark Colonial Inn in Reno, Nev., and has completed converting it into 64 time-share condos with a swimming pool and gym.

Trendwest operates its resorts under the Worldmark name, so the inn is now Worldmark at Reno. The facility brings Trendwest to 40 resorts around the world.

Previous columns:

• Real Estate Buzz: Vulcan, Harbor teaming up on S. Lake Union housing, 11-16-2000
• Real Estate Buzz: Downtown office buildings selling slowly, 11-09-2000
• Real Estate Buzz: Law firm eyes Tech Tower's top floors, 11-02-2000
• Real Estate Buzz: Sublease space -- get it while it's hot, 10-26-2000
• Real Estate Buzz: Overbuilt? Locals dispute FDIC report, 10-19-2000
• Real Estate Buzz: Dog years versus developer years, 10-12-2000
• Real Estate Buzz: More spec space coming to Lynnwood, 10-05-2000
• Real Estate Buzz: InterNAP may take huge lease at Wosca, 09-28-2000