A vibrant office market is an economic treasure for the Eastside. Transactions occur, research and development is conducted, local national and international transactions are made and countless other critical business activities occur.

The demand for commercial office space is a function of employment, accessibility, transportation, and cost. Although the number of unemployment claims has declined from 78,000 during the first quarter of 2010 to 58,000 during the second quarter, there has still been a negative impact on the demand for office space. Accessibility to residential housing for employees within 20-30 minutes is one important factor driving demand. Another, and more important, factor is the occupancy cost to business.

The Eastside has 30,143,000 total square feet of office space. This represents 71.4 percent of the Seattle office market. The Bellevue CBD comprises the largest Eastside share of the total office space with 7,941,142 square feet. Unfortunately 17.0 percent, or 1,349,994 square feet, are currently vacant. The vacancy rate for the local office market should be less than 7 percent.

The market absorption of office space is an important local economic indicator. On the Eastside during the first half of this year, 629,051 square feet (46.7 percent), of additional vacancy occurred. Most of this growth in vacancy was a result of new office space completed and available, and not the loss of tenants. There is at least one encouraging research finding – the rate of increase in vacancy is slowing down.

The Seattle CBD, by comparison, is far grimmer; with a net negative absorption double that of the Eastside. It is very important to note that, without question, the Bellevue CBD is ahead of Seattle in terms of office space absorption, with 535,983 square feet of new leases. In contrast, downtown Seattle’s performance was the worst in the Puget Sound Region with a 1,175,671 net loss in the same period.

Class A average asking rates are another important variable. By definition, Class A is the premium office space such as the Lincoln Square and the Symetra Building. Usually these are the concrete and steel newer buildings. Class B and C office have lower lease rates. The Eastside average lease rate is $28.7, with the Bellevue CBD at $31.74—the highest in the entire Puget Sound Region?

So why does the office market with the highest class A rates also reflect the highest market growth? Office space is not a pure commodity. Location, quality of construction, public safety and security are far more important than just the lease rate.

The decline in the number of visible construction towers on the Eastside this year reflects the decline in new office construction. Eastside property and lending firms are waiting for vacancy rates to decline before beginning further construction. In fact, on the Eastside, only 165,320 square feet have been added in the first six months of 2010. This compares to 1,608,238 square feet in Seattle, a figure that has the potential of inhibiting any short-term rebound in the commercial construction arena. The Seattle Mayor’s tax initiatives and polices may cause further relocation decisions in favor of the Eastside market.

Jim Hebert is the president and founder of Hebert Research, Inc., an international real estate, land use, and statistical research firm in Bellevue.