Sept. 29 (Bloomberg) -- Washington Mutual Inc.'s failure probably means more empty office space in its home market of Seattle, where the vacancy rate is rising for the first time in four years.

``Clearly, it won't be good,'' said Matt Griffin, managing partner of Pine Street Group LLC, the Seattle-based developer of Washington Mutual's 42-story headquarters, completed in 2006. ``The question is: How many jobs will they decide to put on the market?'' Joseph Evangelisti, a spokesman for JPMorgan, said it's too early to comment about job losses at WaMu.

JPMorgan Chase & Co. on Sept. 25 acquired Washington Mutual's assets for $1.9 billion after the U.S. government seized the thrift in the largest bank failure in the country's history. JPMorgan acquired WaMu's $310 billion of assets and $188 billion of deposits, its headquarters building and the network of about 2,300 branches. The takeover made JPMorgan the biggest U.S. bank by deposits and gave it branches in Washington, California and Florida.

Washington Mutual owns about 1.2 million square feet at its headquarters and leases another roughly 600,000 square feet in Seattle, said Stuart Williams, a principal at commercial brokerage Pacific Real Estate Partners Inc. The bank already has sublet or offered for sublease some of that 600,000 square feet, he said.

`Not Good'

``Their impact on the real estate market is a 2 percent swing in vacancy'' at most, said Williams. ``It's not good but it's hardly catastrophic. This is not Boeing in the '80s going from 120,000 to 30,000 employees.''

The vacancy rate in Seattle's central business district of 37.5 million square feet rose this year for the first time in four years, according to Cushman & Wakefield Inc. Vacancies climbed to 10 percent of the market as of Sept. 30, from 8.8 percent at the end of 2007, according to the real estate broker and research firm.

The failure of WaMu comes as commercial real estate brokers anticipate more vacant space in Seattle following Liberty Mutual Group's $6.2 billion takeover of Seattle-based property and casualty insurer Safeco Corp. Seattle-based coffee retailer Starbucks Corp. said in July it plans to cut another 1,000 jobs on top of as many as 12,000, or 7 percent of its workforce.

Boston-based Liberty Mutual completed the Safeco purchase on Sept. 22 and Safeco Chief Executive Officer Paula Reynolds left the company. Safeco leases about 500,000 square feet in two buildings downtown, according to Williams. He said the insurer had already reduced the amount of space it leased when it moved its head office downtown prior to its sale.

`Lean and Mean'

``They are keeping the Safeco name and brand so that suggests they're going to keep a major function out here,'' Williams said. ``They're pretty lean and mean as it is.''

Demand from tenants including Microsoft Corp., Amazon.com Inc. and the Bill and Melinda Gates Foundation will help offset vacancies, Williams predicted.

``Factoring in WaMu and a little bit of Safeco giving back and a little bit of Starbucks, you're talking about a 15 percent vacancy rate,'' excluding new leases that will be signed, said Williams. ``There are a lot of growth engines still in the area.''

Before the credit crisis began last year, the Seattle area's employment growth lifted rents and property values, attracting investors from around the world. The city was named the most promising for real estate investment for two years running by the Urban Land Institute. The Seattle metropolitan area, led by companies such as Microsoft and Expedia Inc., added about 126,000 jobs in the past three years, according to the Bureau of Labor Statistics.

Building Deals

In August 2007, Tishman Speyer Properties LP, a New York- based real estate investor, sold two Seattle office buildings beside Pike Place Market to BlackRock Inc. for $83.1 million, or 48 percent more than it paid for them the previous year.

Blackstone Group Inc. bought 17 office buildings in Seattle in February 2007 as part of its record $39 billion buyout of Equity Office Properties Trust, then immediately sold them along with 19 other buildings in Washington, to Beacon Capital Partners Inc. for $6.35 billion.

A unit of Bahrain-based bank Investcorp bought the Civica Office Commons complex in a Seattle suburb for $175.7 million, or a then record $462 a square foot, in March 2005, then sold it 18 months later to Brickman Associates for 24 percent more than it paid.

Talks Postponed

When the credit markets seized up in mid-2007, investments slowed worldwide. Clise Properties Inc., a Seattle family-owned real estate developer, broke off talks last April to sell 12.5 acres of land (5 hectares) north of downtown because the offers fell short of the company's $600 million target.

Clise had held negotiations with several potential buyers, including Emaar Properties PJSC of Dubai, the largest publicly traded developer in the Middle East and Africa.

``The world has changed dramatically in terms of the ability to finance these kinds of deals,'' said Al Clise, the U.S. company's chairman, at the time.

WaMu has occupied its new headquarters, touted for its environmentally friendly design and garden terrace on the 17th floor, for just two years. The building at 1301 Second Ave., next to the Seattle Art Museum, was completed in 2006 at a cost of about $370 million. The bank employed about 5,000 people at the headquarters.

Seattle suffered its last big rise in commercial vacancies after the 2000 dot-com bust and Sept. 2001 terrorist attacks, when the city's downtown office vacancy rate climbed to 15.2 percent in 2004. Vacancies had gotten as low as 3.2 percent in 1999 at the height of the Internet boom.

``Most people have been factoring in that they (WaMu) would give back a lot of their space since the beginning of the year,'' Williams of Pacific Real Estate said. ``We showed them giving back half their space and now we're probably showing them giving back 75 to 80 percent. Our assumption is JPMorgan, which doesn't have a presence here, will maintain a fair amount of space.''

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

Last Updated: September 29, 2008 13:18 EDT