Streets lined with retailers and restaurants create excitement, with window displays, shoppers walking in and out of stores, and people wandering the neighborhood. Everyone loves to walk in neighborhoods with exciting streets but no one wants to walk streets lined with vacant storefronts.

Vacant stores seem to jump out at you. They can be the result of changing demographics in a neighborhood, competition from better retail areas or shopping centers, neighborhood neglect and difficult economic times.

Today's vacant stores are primarily the result of the recession. Only time and economic recover will bring retailers and restaurants back to vacant stores.

Community asset

Can vacant stores be an asset to their neighborhood until permanent tenants are found?

Cities, community groups and property owners can learn from mall managers how to turn vacant spaces into productive assets. Malls have specialty leasing programs to temporarily fill vacancies until permanent tenants are found.

A specialty leasing program, or temporary tenant program, leases vacant spaces to tenants and sometimes provides spaces free to community groups.

One example of malls' specialty leasing program are the kiosks and carts that line the center of malls during the Christmas season. They are occupied by new businesses testing a concept or established retailers wanting to capitalize on the Christmas selling season.

Everyone benefits from these temporary tenants. The retailers are successful, landlords get rent for the kiosks and we have dozens of unique specialty retailers to shop.

Another component of a specialty leasing program is finding temporary tenants or other users for stores that are vacant until permanent tenants are found. Some temporary tenants are incubator businesses or startups testing a concept without a major investment in store finishes and signing a long-term lease. Established retailers will lease space for a short term to sell excess inventory or make special purchases for the store.

Temporary tenants lease space for a limited period and install basic improvements expecting to capitalize on a selling season and or low rent.

Upscale versions of temporary tenants are “pop up” stores. This is a relatively new concept. A pop up retailer will lease space for six months or a year or two and build out the store to their typical standards with the expectation of selling a lot of merchandize. Pop up and temporary tenants pay rent but usually at a discount, offsetting some of the landlord's lost income from vacant spaces.

There are other uses for vacant spaces when retailers cannot be found. Existing stores can be offered the opportunity to decorate vacant store windows with their merchandize and promote their location. This lets mall merchants promote their merchandise in another section of the mall and or lets retailers on one street promote their stores on another block.

Another use for vacant spaces is offering them to non-profit groups. These groups decorate the windows with information about their services, and ideally staff the spaces to provide their services. A third alternative is to offer vacant spaces as temporary galleries or artist work areas.

The details

A license agreement, not a lease, is used when vacant spaces are leased to temporary tenants and community groups. The agreement has a 15- to 30-day cancellation provision to accommodate permanent tenants. Landlords lose money on vacant spaces, money needed to cover expenses and mortgage. It is only fair that temporary users move out when a rent paying permanent tenant is found. Permanent businesses are better for the street and the neighborhood than temporary tenants.

Vacant spaces are provided to tenants or other users as-is. When the user is a non-profit or community group, no rent is charged, but they pay utilities and return the space in clean condition.

Finding uses for vacant spaces in a mall is simpler because one company owns the mall and has a specialty leasing coordinator who administers the program.

In a neighborhood there are different owners for almost every building and no one to coordinate such a program. Finding organizations to use vacant spaces is not as easy as it may seem. While every organization would like free space, another location can pose logistic and staffing challenges.

Merchandising vacant storefronts with temporary and pop up retailers, community groups and the arts community adds excitement and activity to the streets. Existing business no longer have vacant stores next to them, streets become interesting again with more pedestrian traffic, and vandalism and graffiti is reduced or eliminated.

A city, landlords and neighborhood groups can work together to create their own program to turn vacant stores into community assets.

Colliers International reports office vacancy rates fell on the Eastside and in Seattle during the second quarter.

The Kent Valley industrial market didn't fare as well, with vacancy rates continuing to rise. Colliers said the vacancy rate fell slightly in Pierce County, which saw increased activity during the quarter.

The office vacancy rate in Seattle dropped nearly 200 basis points during the quarter to 15.7 percent, though that's still above the nearly 14 percent rate of a year ago. The quarterly drop is misleading, according to the brokerage, because Amazon.com is starting to move to its new headquarters in the South Lake Union area while continuing to occupy its old space on Beacon Hill.

The vacancy rate on the Eastside fell nearly a full percentage point to just over 15 percent. That's nearly 2.5 points higher than a year ago.

The Eastside recorded positive net absorption of 231,000 square feet. Positive net absorption occurs when the total amount of space in a market decreases during a set period. During the first quarter, the Eastside had 175,000 square feet of negative absorption.

“The Eastside office market during [the second quarter] has shown that the trend of quarterly vacancy increases is waning,” states Colliers' report. “Although the market is still volatile... the current trend appears to be showing that there is light at the end of the tunnel.”

Here are some other office market highlights:

• The Northend vacancy rate jumped half a point to nearly 20.5 percent.

• The South King County vacancy rate jumped almost 150 basis points to about 23.75 percent.

• The Pierce County market remained relatively flat with little change in vacancy, which is now at 13 percent. The vacancy rate of Class A space, however, is less than 2 percent, though Russell Investments building, which is being renamed the 909 A Street Building, will be coming to the market when Russell moves its headquarters to Seattle.

Industrial markets

The vacancy rate in Kent Valley's industrial market edged up a bit to nearly 7.9 percent, or more than 300 basis points over a year ago. The submarket's absorption was negative to the tune of 138,000 square feet. Even so, tenant activity was widespread, with four large deals totaling 422,000 square feet being done during the quarter.

Kent Valley rental rates remain flat, and landlords are offering deals to entice new users or keep existing ones.

Construction activity will continue to be suppressed, according to Colliers, due to weak demand, rising vacancies, a lack of financing and low lease rates.

The Seattle close-in market also saw vacancy rates rise, up 34 basis points to nearly 5.9 percent. A year ago, the rate was 4.3 percent.

Permanent closure of the South Park Bridge, which carries 20,000 vehicles a day, will be a blow to South Seattle businesses. It's estimated to increase freight delivery times by 15 minutes. Colliers says businesses will consider leaving South Park.

King County is closing the old bridge due to safety concerns.

In Pierce County, the vacancy rate fell more than half a point to just under 8.4 percent. There was 281,000 square feet of positive net absorption. Two deals totaling 326,000 square feet were done during the quarter.

The market is growing with some development. There is one speculative project, the 143,000-square-foot Fife Portal Industrial Park.

The Eastside and Northend vacancy rates fell slightly to 9.2 percent and 8.8 percent, respectively.

The property, 1101 N. Northlake Way, is at least the second waterfront property that Seattle-based Gull has bought this year after selling a lot near Safeco Field for $17.8 million. The other was Iron Springs Resort on the Washington coast. Gull is refurbishing the resort.

Seller Suzanne Dills has owned the property for 20 years. The marina has 60 slips, and the 10,000-square-foot office building is fully leased. “As far as I know [Gull will] keep it as is,” she said.

Gull Senior Vice President of Real Estate Bill Low was not available for comment.

Yakima-based Opportunities Industrial Center of Washington will receive about $3 million, Oregon Human Development Corp. of Tigard, Ore., will get nearly $2 million and the Community Council of Idaho in Caldwell, Idaho, will receive $1 million.

The program provides training and employment services to migrant and seasonal farmworkers.

Legacy Partners Commercial on Thursday sold Seattle Tower for $15.4 million less than it paid for the historic downtown Seattle office building in 2006.

The buyer is LaeRoc Funds of Hermosa Beach, Calif. Peter Morgan, LaeRoc's executive vice president of acquisitions and finance, said it purchased the 27-story building at 1218 Third Ave. on behalf of a California limited partnership that has investors from around the country.

The sale price is $20.7 million, Morgan said. That's $128.24 per square foot for the 161,412-square-foot building, which was constructed in 1928.

Morgan would not say why LaeRoc bought the building. When asked if he thought LaeRoc got a good price, he responded, “Yes we do.”

Seattle Tower is its first purchase here, and Morgan said LaeRoc is looking to buy other office buildings and shopping centers in this metropolitan area.

The building is 77 percent occupied. Asking rents are $24 to $26 per square foot, full service, according to OfficeSpace.com.

The office vacancy rate for all classes of space in downtown Seattle is 21.4 percent, according to Cushman & Wakefield-Commercial.

This is the first sale of a significant downtown Seattle office building since Milwaukee-based Northwestern Mutual purchased what was then Chase Center from JPMorgan Chase & Co. in September of 2009. Northwestern, the parent company of Russell Investments, paid $115 million for the 863,000-square-foot, 42-story building.

However, some in the industry said that was not a true investment sale because Russell is an owner-user and JPMorgan acquired the building in the collapse of Washington Mutual last year.

Steve Brunette, Cushman & Wakefield-Commerce director of investment sales, said the Seattle Tower sale price reflects the precipitous drop in rents since their pre-recession highs.

Also, he said, vacancies have risen and expectations of future rents are down. The price also reflects that banks are lending less and have more stringent underwriting, and that equity partners are less willing to take on risk, he said.

“This is inevitable,” said Brunette. “This is what has to happen. I also say that asset prices go up and down, and world doesn't have to end.”

Brunette estimates that the value of institutional-grade office buildings in the greater Seattle area has fallen 25 percent to 40 percent from the pre-recession peak.

Ann Chamberlin, a principal with Pacific Real Estate Partners, said she understands the Seattle Tower buyer and seller agreed to the price in 2009.

“For that quality of product in that location and for that particular building, I think that's a great price,” she said. “It a tremendous buy for the new owners.” Chamberlin said she believes the market has gotten stronger since the deal was agreed to, with more potential buyers and more capital.

Foster City, Calif.-based Legacy purchased Seattle Tower in 2006 for nearly $36.1 million from Seattle-based Trinity Real Estate and Helix Investment Partners of Chicago.

Trinity Principal Richard Leider said on Thursday the new price reflects “that vacancies have fallen dramatically and rents have dropped significantly (and) unfortunately right now we appear to be at the bottom of the current cycle.”

He said he doesn't know why Legacy chose to sell now.

“If you step back, at the bottom of the cycle usually is a good time to buy, but not a good time to be selling,” he said. “It just suggests that they must be fairly motivated as a seller to be selling at this point in the market.”

Among Legacy's other Seattle area holdings is the five-story P-I building at 101 Elliott Ave. W., which it bought for $40 million from the Sabey Corp. of Seattle in 2007. Legacy put it and Seattle Tower on the market, unpriced, more than a year ago.

Peter Llorente, a Legacy partner and senior vice president, said at the time the decision was made on a “portfolio basis.”

He didn't return a call for comment on Thursday.

Joe Lynch, a partner with GVA Kidder Mathews, which had the P-I listing, said, “We tried to sell it last year in 2009 and we didn't achieve the pricing we wanted so we took it off the market.”

Lynch said he thinks the market has since improved.

Kidder Mathews is the new property manager for Seattle Tower, he said.

Legacy Partners Commercial operates throughout the western United States. Its office investment funds have spent more than $350 million buying properties in the Puget Sound region since 2005.

Earlier this month, Legacy sold Legacy I-90 — a fully leased, two-building office property in Bellevue — for $27 million.

TA Associates Realty of Boston and Newport Beach, Calif., paid $300 per square foot for the 28-year-old buildings.

Legacy bought the property four years ago from Benaroya Co. for $22.44 million.

The credits will be invested in commercial and mixed-use projects in areas that the federal government has deemed economically distressed. Potential investment areas are parts of North Seattle, downtown, manufacturing and industrial centers, Capitol Hill, the Central District and large swaths of the Rainier Valley.

City officials say the credits will be invested in multiple projects over the next 18 months. Seattle's Office of Economic Development will manage the investment of the credits through a city-created entity, the Seattle Investment Fund LLC.