Economic growth is strong throughout the state of Washington, and long-term prospects are good for both the Puget Sound and the Spokane areas.

Equitable's 1995 Emerging Trends ranks Seattle among its markets to watch and refers to the city as "no longer a one-horse town," since Microsoft and related technical firms entered what used to be Boeing's territory. "Explosive Microsoft and related technical companies undergird a healthy regional economy, which is diversifying and becoming more resilient," the report continues.

This upbeat mood translates into good news for the real estate market, as well: the industrial market witnessed high demand for space; office vacancies at year-end 1994 were the lowest they had been in years and lease rates began to rise; investor interest in apartments was high; and the retail market tightened as 1994 saw aggressive moves by retailers.

"In the Puget Sound area, across the board," says Kirk Johnson, managing director for Trammell Crow Co. in Washington, "it's returning to a landlord's market very quickly."

A blow that could have been disastrous for the area -- a downsizing at Boeing -- was softened as Microsoft and related technical firms entered the market. In fact, 97,000 sq. ft. of the 169,000 sq. ft. vacated by Boeing along Interstate 90 during the fourth quarter was quickly released, according to CB Commercial. And Microsoft, assisted by Trammell Crow Co., has begun construction of a 700,000 sq. ft. office facility in Redmond on a site it bought during first quarter '94.

It was largely due to the influx of these high-tech concerns, plus growth at the ports of Seattle and Tacoma, and the opening of distribution and warehousing facilities by national companies, that Seattle's CBD and suburban industrial markets ranked Nos. 1 and 2, respectively, on the list of top industrial markets by Viewpoint 1995, published by Minneapolis-based Valuation International Ltd.

Year-end 1994 industrial vacancy rates for the Puget Sound area averaged 5.86%, according to CB Commercial. Tacoma was the tightest submarket, with 2.4% "available."

"The industrial market is constrained by the lack of buildable industrial land," says Johnson, whose firm is participating in development of 1.3 million sq. ft. of industrial space this year.

The Puget Sound office market absorbed 517,889 sq. ft. during 1994, according to CB Commercial. Seattle absorbed 164,092 sq. ft., while the Eastside absorbed 68,301 sq. ft., and the Southend and Northend markets had combined absorption of 34,045 sq. ft.

"Weak but improving" is how Leibsohn & Company/New America Network characterizes the downtown office market. Class-A rental rates range from $15 to $25 per sq. ft., with 10.8% vacancy, and Class-B rents range from $12 to $18 per sq. ft., with 11.1% vacancy, Leibsohn reports.

Having multiple options for future consideration is no longer a given for tenants seeking office space in the Seattle marketplace, according to Peter B. Truex, senior vice president and district manager of Grubb & Ellis, Seattle. Large tenants are positioning themselves now for space requirements two and even three years away, and smaller users must become increasingly aware of the changing climate, Truex warns.

In the apartment market, 1994 was the year of the institutional buyer, according to Gregory Laycock, of Grubb & Ellis' investment properties division. Purchases by REITs and pension funds generated volume in excess of $595.8 million for a total of 13,604 units in the Puget Sound area, Laycock reports.

The most prominent deal was the sale of the Executive Life Apartment Portfolio to Equity Residential Trust, a Chicago-based real estate investment trust headed by Sam Zell. The portfolio consisted of eight Puget Sound properties and sold for approximately $100 million. Another major institutional transaction, according to Laycock, was the purchase of four properties by Essex Property Trust for $45.125 million from JMB/Heitman.

This strong activity caused prices to continue their rise. The RREEF funds, based in San Francisco, purchased Bellaire Place for $74,000 per unit, well above replacement cost. And Stamford, Conn.-based GE Capital bought The Heights at Bear Creek for $21.4 million -- the highest price paid by an institution for a property in the tri-county area in 1994, according to CB Commercial.

Vacancies in the metro area stood at 4.9% for 1994, according to Grubb & Ellis, which expects those rates to fall to 4.6% this year and 4.2% in 1996.

Similarly low is the vacancy rate in the metro area's retail market. Viewpoint 1995 reports Seattle's vacancy rate at 5.2%, with a 1.2% vacancy rate for mall space. In fact, Seattle heads Valuation International's list of top retail markets, followed by Minneapolis and San Francisco.

Retail rents downtown range from $17 to $40 per sq. ft., according to Leibsohn. Community power center rents range from $8 to $17 per sq. ft., and regional mall space goes from $20 to $60.

As far as construction activity goes, CB Commercial reported that there were 12 projects proposed or under construction in downtown Seattle, with a total estimated cost between $1.13 billion and $1.26 billion. Chief among the projects are:

* a $350 million to $400 million project at Sixth and Pine for Frederick Nelson, which represents a move by Nordstrom and a number of small retailers;

* the $100 million, 2,500-seat Seattle Symphony Hall at Second and Union;

* the $13 5 million aquarium expansion at Waterfront piers 62 and 63; the $25 million, 24,000 sq. ft. Nike Town at Sixth and Pike, plus an additional 41,000 sq. ft. of retail, including Planet Hollywood;

* a $40 million to $50 million, 321-unit apartment project at Eighth and Olive, next to the Camlin Hotel;

* the $165 million to $225 million Federal Courthouse with 600,000 to 750,000 sq. ft. of space at 1-5 between Spring and Marion;

* the $130 million convention center expansion at Eighth and Pike, doubling the size to 200,000 sq. ft.; and

* the $8.5 million rehabilitation of the Pacific Hotel at Fourth and Marion into 113 units of low-income housing.

An interesting project under way is Northwest Landing, a 3,000-acre planned community being developed by the land management division of Weyerhaeuser Real Estate Company in DuPont, Wash., between Tacoma and Olympia. When completed, the community is slated to include homes for 10,000 and jobs for 12,000 people.

State Farm Insurance is due to complete a $40 million, 364,000 sq. ft. office this summer at Northwest Landing. Westblock Products, Inc., Lone Star Northwest and Puget Power also have purchased sites in the community.

On the other side of the state, Spokane is going like gangbusters, too.

Since 1988, more than 70 companies have expanded or relocated to the area, according to the Spokane Area Economic Development Council.

Recent additions to the area include: Egghead Software, which is consolidating 10 customer service offices from around the nation to a 115,000 sq. ft. building formerly occupied by Hewlett Packard at Meadowwood Business Park; The Student Loan Marketing Association (Sallie Mae), which leased 30,000 sq. ft. downtown for a regional student loan servicing facility; and Principal Financial Group, which leased 12,000 sq. ft. of office space near downtown for a pension customer service center.

"One of the things we're seeing is there's room for maybe some spec building," says Meri Berberet, director of marketing and research for the Economic Development Council. "Some users are building their own space."

Pentzer Development Corporation, a wholly owned subsidiary of Washington Water Power Company, saw opportunity in the area's growth and completed its first spec building, the $1 million Euclid Business Center, a 22,800 sq. ft. office and industrial complex at the company's 575-acre Spokane Business and Industrial Park, 15 miles east of downtown.

In addition, Central Premix and The Munson/Bagco Partnership recently purchased parcels totaling 14 acres at the business park.

Year-end 1994 office vacancy rates stood at 14.1% downtown and 6.8% in suburban submarkets, for a total vacancy of 9.9%, according to the BOMA Office Market Review, with Kiemle & Hagood Company, which is a member of BOMA/Spokane, as the data correspondent.

Average rent for Class-B office space downtown was $14-14, according to the report. Rent for Class-B space was $12.85.

The BOMA report mentions other reasons for optimism, indicating that over the past year, construction activity and absorption have increased, financing has been easy to obtain for some properties, fee management opportunities have increased and sales activity by owners/lenders has remained stable.