Business

Vacancies plague Federal Way commercial property owners; economy hampers ability to attract tenants

The blackened windows and empty parking lots of vacated storefronts and commercial spaces have become a familiar site. But Federal Way's leasing market is showing improvements.

Trying to fill barren space in Federal Way has been a difficult and ongoing task the past few years. The majority of the city's vacancies are in the form of office space. But deserted storefronts don't go unnoticed. Several factors contribute to the city's recent vacancy rates. However, the commercial market looks to be turning around.

"There is definitely some movement in the positive direction," said Patrick Doherty, the city's economic development director.

Office space

Federal Way has seen staggering office sector vacancy rates in recent years. The city reached an all-time high of just over 40 percent in 2009, according to information provided by Mark Clirehugh, GVA Kidder Mathews senior vice president. The prior year's vacancy rate was 31.34 percent, and even now, multiple vacancies exist. Federal Way features roughly 917,865 square feet of available office space, according to the city's economic development webpage.

The city's residents and visitors notice the empty commercial spaces. Auburn resident Ron Crabtree visits Federal Way often. Cleared out retail and office space bothers him, but he doesn't feel it's a problem specific to Federal Way. Crabtree blames the economy.

"It's a shame," he said.

Miles Elzinga and Curran Hunt, both 20, also notice the vacancies, though they are not specifically bothered by them. They too put the blame on the economy.

Two main factors are contributing to vacancies in office space. First, the rough economy makes securing tenants difficult, Doherty said. Second, Federal Way has suffered tremendously as timber giant Weyerhaeuser has contracted, vacating thousands of feet of office space in recent years.

"It's just a lot of space at a bad time coming onto the market," Doherty said.

Despite difficulty filling existing space, new construction has sprung up in the city and region, resulting in an overbuilt market, Doherty said. Where negotiations used to be fairly speedy, they now take longer as potential tenants, knowing property owners are hurting, attempt to score the best deal possible. Several of the city's buildings are dated and need repairs or upgrades. Lastly, potential tenants aren't always aware of the opportunities available in Federal Way, Doherty said.

Market recovery

Some tenants are realizing the perks of locating in Federal Way. Parties are showing increased interest in leasing or buying office space specifically, Doherty said. This year, the Federal Way School District purchased a building with more than 70,000 square feet at 33330 8th Ave. S. Other negotiations for space hovering around 75,000 square feet are in the works, Doherty said. Due to a lack of signed contracts, he was unable to reveal which businesses may soon call Federal Way home.

The city's market began bouncing back late last year. The recovery started in the third quarter of 2009 and continues into 2010, according to information provided by GVA Kidder Mathews, a commercial real estate firm based in Tacoma. GVA manages the leasing of 32 Federal Way properties, 27 of which comprise of office space.

Retail space

The retail sector is not bouncing back quite as quickly. There are plenty of retail vacancies — approximately 272,200 square feet, according to the city's website. But it accounts for a small percentage of the city's total commercial vacancies, Doherty said. Some of the empty storefronts are downtown in Celebration Center, Pavillions II Centre and SeaTac Village, all owned by Harsch Investment Properties. The properties dominate three corners of South 320th Street and Pacific Highway South.

Harsch switched brokerage firms, dropping West Coast Commercial Realty (out of Seattle), and listing its properties with First Western Properties (out of Tacoma) in mid-October. First Western now leases a total of 10 Federal Way properties. Harsch and West Coast Commercial were both unwilling to comment on why the switch was made or if Federal Way is a particularly hard market to lease retail space.

First Western believes its established relationships with other brokers as well as regional and national tenants will help attract businesses to Federal Way, said Justin Holmes, First Western Properties broker.

"Our job is to come in and hopefully fill some of those holes," he said.

Check it out

South King County's overall 2010 third quarter commercial vacancy rate is currently sitting at 14.42 percent, down from 15.45 percent last quarter, according to GVA Kidder Mathews submarket statistics. A big contributor to the decrease was the Federal Way School District's purchase of the vacant 60,000 square foot building located near the south end of Celebration Park.

However, South King County is still lagging in its recovery behind the areas of Seattle, East King County, Snohomish County and Pierce County, according to GVA. This is true despite its market size of roughly 18,232,934 square feet, which is dwarfed by areas such as Seattle, which offers a market size of 71,854,777 square feet.

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