Market Report – April 2008

Dear Clients and Friends,

The economy of Washington State is stronger than most. Even with lost contracts, Boeing still has plenty of orders in its pipeline, and Boeing still runs the state economy. Thurston County's unemployment rate has risen to about 5%, which if a Democrat were in the White House, would be considered "full employment"…but since it is a Republican, it is a catastrophe…

No bad news yet for the commercial real estate market in Thurston County. We still have a strong market, folks are out looking for space to lease, and there is no lack of buyers. Rates have climbed a bit, but not enough to stop deals from happening. Commercial delinquencies are below 0.5% nationally, with not much increase expected. Lenders are using Debt Coverage Ratios of 1.2, which is pretty standard (i.e. each loan dollar must be covered by $1.20 of NOI).

The meltdown in residential financing doesn't seem to be that critical for commercial real estate, although there is a repricing issue. There may be signs of a liquidity issue, but I think that for creditworthy buyers and reasonably high quality investments, money is available. Cap rate adjustments have been mild, although it would seem that they would rise for B and lower properties. They haven't, mainly because supply is still tight.

For multifamily: not many "incentive" packages, and vacancies still low. We don't have an overbuilding problem (with a supply average of 91 units a year for the entire county) so it is no surprise that vacancies are low and cap rates remain at around 6%.

For Thurston County as a whole, average rents for all sizes is $786.00 a month, ranging from a low of $523.00 for a studio in Lacey to $1,060.00 for a 3/2 also in Lacey. Olympia and Tumwater fall in between, with no great variation between them. As for new units, after going several years with no new apartments coming on line, there were 410 units in 2007 (mostly Lacey) and 103 through March of 2008, all in Lacey. Tumwater has some very nice units coming on line shortly, but has just raised quite substantially some of its impact fees on housing.

Hawks Prairie is still going strong. Lots of new retail activity beginning north of the freeway. Several national credit tenants are signing up on my acreage at the new main entrance to Cabelas and Gateway, between the two roundabouts. This will pick up as the year progresses.

Olympia has a "new" city council. I understand things are improving in the building department. That is good news indeed. I feel that there is a new mentality of common sense development present now: that the City should be able to accommodate growth as well as conserve its very unique environment. It can happen, but it will take a continuing "hands-on" approach that our jurisdictions don't do so well at.

Capital Gains be a football after the next election cycle. I hope the democrats look at history and rightly decide to leave rates alone. If they do monkey with them (it's in their DNA), they should at least index gains to inflation and adjust for years of ownership. I agree that 13 months may not represent a "long term" investment, but today's tax law makes no distinction between the 13 month and the 20 year hold. Seems odd, doesn't it?

                                                       Priscilla S. Terry, CCIM, ed.