EOP's Market Share Will Be Felt Upon Recovery

BELLEVUE, WA—EOP’s $7.3-billion merger with Spieker Properties gives EOP 10.4 million sf of office space throughout greater Seattle and the Eastside–some 19.8% of the market–giving existing and potential tenants options that other building owners in the region don’t have.

In the key Eastside city of Bellevue, EOP already reigned supreme with four of seven central business district towers in its portfolio. Estimates place its market share at more than 60%. With the merger, EOP now has Eastside dominance beyond the CBD.

While such control firmly places EOP in the catbird seat, it may be a few years before the effects of that control of the market are fully realized. Pete Hollomon, a broker with the Bellevue office of CB Richard Ellis tells GlobeSt: “Equity’s dominance in the market, or their control, is not going to have as much of an effect until we get back into a tight market. What’s driving the market right now is the sub-lease space, which is being discounted and keeping owners honest. Once vacancy rates fall back below 5%, Equity’s control as an owner will be a big factor in driving and picking rental rates. They would have the ability to keep pushing up rates and moving the market.”

According to CB Richard Ellis’ second quarter 2001 report, the Bellevue CBD is home to 4,910,558 sf of office product, of which 11.29% currently stands vacant. Overall, the Eastside, which includes such areas as Woodinville, Kirkland and the Interstate-90 corridor, has 9.29% of its more than 24.5 million sf of space standing vacant. A negative 201,284-sf absorption that piled onto the wagon during the second quarter was just so much salt in a wounded market.

The experts seem to agree that no amount of control will allow rates to be increased in this market. Says Hollomon, “Owners are now either holding firm on their rents or reducing them. As of the end of the second quarter, CBRE’s report places the average full service rate on the Eastside at $29.80 per sf.

Hollomon says once the market begins to tighten up again, another major advantage he places in EOP’s court will be the ability to provide a flexibility to its tenants that other property owners will be unable to match. “Equity will be able to provide more flexibility for growth by offering to move them to other floors or other buildings under their control. This will be a big factor for them.”