STEVE INSKEEP, host:
Now Boeing's move comes as Seattle already faces a tough real estate market. Nationwide, commercial real estate prices fell close to nine percent in the early part of the year. That's according to Moody's Investor Service. The Pacific Northwest, which was somewhat insulated from that kind of trouble, is not insulated any more.
Deborah Wang of member station KUOW reports from some of Seattle's empty downtown office space.
DEBORAH WANG: There's a buzz of activity at this brand new office building at the edge of downtown Seattle. Workers are rushing to put in flooring, install lighting and polish up the elevator doors. At any other time, this 28-storey office tower would probably be a big draw. It's got great views, a health club, day care center. There's even concierge service. But on the eve of its grand opening, it's nearly empty. Not a single office tenant has signed a lease.
Mr. DOUGLAS HOWE (President, Touchstone Corporation): What we've experienced is the fear, paranoia, procrastination.
WANG: That's Douglas Howe, the president of Touchstone Corporation, which owns the building. He says it was first conceived back in 2006 at the height of the boom. It was built on spec, without any signed deals. But then Seattle was hit not just by the recession, but also by the collapse of Washington Mutual, which was headquartered here. That emptied out hundreds of thousands of square feet of downtown office space.
Mr. HOWE: Those two factors have created what I call kind of a perfect storm for office space. We're oversupplied for all the wrong reasons.
WANG: And it's not just Touchstone's problem. Altogether, some two million square feet of brand new class A office space is set to open up in downtown Seattle this year, and about the same amount next year, as well. Matthew Gardner is a principal with Gardner Economics, a land use consulting firm.
Mr. MATTHEW GARDNER (Principal, Gardner Economics): We're going to be delivering an awful lot of space to the marketplace, and as such, when we have an economy, which is currently contracting, I certainly expect vacancy rates to be well north of 20 percent by the end of the year.
WANG: And as vacancy rates go up, landlords are having to make incredible deals.
How hard do you've have to work to keep people?
Mr. JOHN LAMB (Chief Financial Officer, UNICO, Seattle): In this environment, very hard.
WANG: That's John Lamb. He's a chief financial officer for UNICO, one of the biggest commercial landlords in downtown Seattle. Lamb says in some circumstances, UNICO will reduce rents by up to 30 percent, and even give tenants several months rent free.
Mr. LAMB: We're about 90 to 91 percent occupied, which, you know, is a healthy number. But it doesn't mean that some of our tenants coming up for renewal may not be enticed by another landlord to go somewhere else. So we're working very hard to keep absolutely everyone that we have.
WANG: And that means offering all sorts of unusual perks to tenants.
Unidentified Woman: Just let your thoughts (unintelligible). Bring you attention, your awareness to your breast.
WANG: Tenants here have been treated to free yoga classes, taught in an empty retail space that once held a high-end furniture store.
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WANG: UNICO has also set up farmers markets, a bicycle repair shop and an office tower lobby. It shows free outdoor movies in the summer and gives away reusable grocery bags. Lamb says those are the kind of funky things that tenants seem to like.
Mr. LAMB: When their lease renewal comes up, all those memories come back and they say, hmm, I really like this environment.
WANG: You want to have a warm and fuzzy feeling about you.
Mr. LAMB: Exactly. Not easy to do in today's business climate, but that's what we're trying to do.
WANG: Lamb believes vacancy rates here will continue to rise and expects some business buildings to end up in foreclosure. That's already happened in places like Las Vegas and Orange County, California. Across the U.S., the delinquency rate on commercial property loans is at its highest level in 15 years according to a New York-based research firm, and isn't expected to peak until the year 2011.
For NPR News, I'm Deborah Wang in Seattle.
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