Colliers International recently released a bundle of reports detailing fourth quarter commercial real estate activity in Bellevue and on the Eastside. If you follow development activities in Bellevue’s Central Business District (CBD), these reports offer a wealth of information related to vacancy rates, available square footage, and the costs associated with leasing office space downtown.
According to Colliers International, during the fourth quarter of 2016:
- The vacancy rate in Bellevue’s CBD was 10.8 percent, with a total inventory of approximately 10.3 million square feet. The average rate for Class A office space in the CBD was $44.05 per square foot;
- A Skyline Review report of 21 high-rise buildings in Bellevue’s CBD showed the vacancy rate among these buildings was 6.6 percent, with a total inventory of nearly 5.9 million square feet. The average rate for Class A office space in these buildings was $44.76 per square foot.
- Five buildings in Collier’s International’s Skyline Review were fully leased: Summit I (11 stories, 231,000 square feet), Bravern Tower I (13 stories, 250,992 square feet), Bravern Tower II (23 stories, 496,984 square feet), Tower 333 (20 stories, 414,960), and Centre 425 (19 stories, 345,821 square feet). The 10-story U.S. Bank Plaza was almost fully leased, with one floor (14,520 square feet) available.
- Meanwhile, two buildings offered the most space among this group of buildings included in the Skyline Review report: Lincoln Square II (31 stories, 102,596 square feet available) and 929 Office Tower (20 stories, 325,361 square feet available)
425 Business recently reached out to Colliers International senior research associate Bobby Shanahan for a deeper dive into the data.
425 Business: What does 2017 look like in terms of available office space in Bellevue’s CBD? Is it going to be difficult for businesses to find space for lease? Are there any new buildings or projects under way that will create additional office space?
Shanahan: The narrative for downtown Bellevue’s office market has done a complete turnaround in 2016. At the start of the year, articles were being put out saying that the sky is falling in Bellevue following the announcement of Expedia’s pending move to Seattle; Microsoft’s lack of appetite on taking more space in the CBD after putting one of the Bravern subleases on the submarket; and a general lack of demand, essentially for not having the Seattle address. The Bellevue CBD had the delivery of over 1.5 million square feet over the past year or so, and yet, the CBD vacancy has remained in check, around 10 percent or so.
In 2016, we witnessed Amazon lease its first office building outside of the city of Seattle at Schnitzer West’s Centre 425, taking away 345,000 square feet of incoming supply; Valve doubled its Bellevue office footprint to 225,000 square feet; Pokemon almost doubled its footprint to over 100,000 square feet; and WeWork leased (81,000 square feet of) space for its first Eastside Seattle coworking office.
Now, the narrative has shifted (from) whether there is any demand for space in the Bellevue CBD, to whether or not there is enough space. We will be tracking office sites for further development to see if any owner/developer is bold enough to strike while it’s hot in this recently-Amazon-infused submarket.
425 Business: According to Colliers International’s reports, two buildings in Bellevue’s CBD appear to have the most available office space for lease: Lincoln Square II and 929 Office Tower. Why are these the top two buildings in terms of available space? Do you expect those buildings to fill in 2017?
Shanahan: Lincoln Square II delivered at the end of 2016, but is already 72 percent leased to tenants such as Valve, Pokemon, WeWork, Steve Ballmer, Stifel Financial, Samsung, and D.A. Davidson. We expect this tower to be stabilized (reach 90 percent leased by the end of 2017). This property has received the most tenant attention of any other CBD office tower under construction in the Seattle region. 929 Office Tower, on the other hand, has received much less attention. It’s all about location! Not as well located or connected as Lincoln Square, 929 nabbed its anchor tenant, Salesforce, which finally moved into its new space in late January 2017, moving over from South Lake Union in Seattle. There are other deals being done here, but it has been complete for over a year now and is still only about 40 percent leased.
425 BUSINESS: You mentioned 2016 has been quite a year, and it looks like momentum should spill over into 2017, despite forecasts for a coming slowdown. Can you elaborate on that forecasted slowdown?
Shanahan: We track the Puget Sound Economic Forecaster, and they have been forecasting a slowdown for the past couple of years. But job growth has continued to blow past forecasts. In 2017, they anticipate “additional Boeing job cuts, a reduced hiring rate at Amazon, and a leveling off of construction.”
The Puget Sound region is on track to have experienced a year of 3.1 percent overall job growth in 2016, and the forecasts for 2017 and 2018 are 1.8 percent and 1.3 percent, respectively. However, there have already been some puzzling and somewhat troubling job announcements regarding layoffs and closures as we start 2017, so we will remain on top of that to constantly keep our gaze on the horizon.
We are expecting that some industries will be hurt harder than others over the next few years. We can’t keep growing at the rate that we are, but no slowdown seems imminent just yet. With Seattle remaining an affordable office market and residential market compared to the Bay Area, we should continue to see a combination of growth from California-based tech companies, such as Facebook, Google, Salesforce, Apple, Snapchat, etc.; and Washington-based companies, such as Amazon, Tableau, Expedia, Microsoft, Valve, and T-Mobile. With a diversified economy in the Puget Sound, including strong Information Technology, aerospace, advanced manufacturing, maritime, and biotechnology/life sciences sectors, the region remains well-situated to continue to add jobs and residents to the area. People want to move here. People will follow the jobs. The jobs are here. The question remains: Are the jobs being filled?