This is the fourth in a series of in-depth analyses of submarket-level trends that we’ve observed in recent years.
By: Capital Markets Team
The Eastside used to be a two-trick pony with Microsoft in Redmond and Boeing on I-90, but it has changed dramatically. Microsoft branched outside of Redmond and other large tech firms are establishing a significant footprint in the area. Google planted a flag in Kirkland, Amazon in downtown Bellevue, and an undisclosed social media company in Bellevue and Redmond. This massive expansion has led to vacancy decreasing in these submarkets, and a ripple effect of increased rental rates and limited blocks of available space throughout the Eastside.
Of the total 50.5M SF of Eastside office space, the vacancy rate sits at 4.2% and continues to decrease. Due to limited speculative development (approximately 146,000 SF of spec projects are currently under construction), and large tech firms including Amazon (Summit III), an undisclosed social media company (Spring District Block 16 & 24) and Microsoft (Esterra Park) preleasing 95% of the total 3.3M SF under construction, the Eastside will remain a competitive market for the foreseeable future.
Major Tenants and Market Growth
Five years ago Expedia announced it was relocating its headquarters to Seattle, at the same time three new office towers, totaling 1.5M SF, were nearing completion. There were also rumors around that time that Microsoft might be reducing its footprint in the Bellevue CBD and consolidating at its Redmond campus.
Microsoft ultimately renewed most (maybe all) of its leases in the submarket, Expedia kept a large satellite office at Skyline Tower, and Amazon backfilled 400,000+ SF of Expedia space in Tower 333. Centre 425, Lincoln Square South, and 929 Office Tower were all stabilized shortly after delivery.
The forecast for downtown Bellevue was a little bleak for about 3-6 months, but then it became obvious the market was going to be supply-constrained and more development would be needed.
We expect the major tech tenant’s percentage of the market to be over 35% by the end of 2020.
Downtown Bellevue has been transformed by three major trends, namely the continued growth of the Bellevue Collection, the development of major residential projects and tech tenants occupying space in the market.
While the impact of COVID-19 may remain uncertain, the Eastside market is seeing unprecedented leasing and preleasing activity by tech firms who have thrived during this pandemic. These tenants, Amazon, Google, Microsoft, and an undisclosed social media company, provide a stable foundation on the Eastside and precipitate continued growth especially as their industry peers look to establish a presence in the area.
Building images from CoStar
Aerial images from M Walmsley
Data by Kinzer Partners and CoStar