Most everyone has some familiarity with how residential real estate works, but to many, the commercial real estate market is a foreign concept. Brian Biege, vice president of brokerage services for CBRE, told us about key concepts and the Eastside market.
1. What role does tenant representation play in the leasing process?
In commercial leasing, a building owner is generally advised by a commercial real estate broker. Similarly, a company planning to lease office space usually will hire an advisor to act as its advocate in a transaction. This engagement is a basic form of commercial real estate known as tenant representation. The primary goal of tenant representation is to help clients make the right business decision for their office-space needs, one that will positively impact the company’s culture, budget, brand, and identity. This is done through analyzing and assessing current and future business drivers and occupancy needs, formulating a strategy for a successful outcome, and ultimately executing that strategy.
A key component of this process is leveraging the market alternatives, as well as tracking and forecasting market indicators and trends to secure lease economics that are favorable. However, an exceptional outcome is achieved through much more than negotiating an advantageous market-driven transaction. Our various specialists work together to provide a holistic real estate solution, which is ultimately orchestrated by the broker through tenant representation.
2. What trends are reshaping real estate now?
As the local leader of CBRE’s Technology Practice Group, I am particularly interested in the technology community. Companies are leveraging their office space to attract and retain a talented workforce. Now more than ever, companies are evaluating their workplace strategy, which is different for every company but can include office technology, decisions on who uses a private office versus a cubicle, the philosophy around an open space versus a closed or private space, commute options, and many other factors.
Another trend that I find really interesting is companies’ increased focus on benchmarking, assessing, and tracking their corporate real estate portfolio in a way that allows more effective planning and reporting, thus saving them money. It has been really rewarding to help these organizations develop portfolio-tracking tools, key performance metrics, and turn real estate into an effectively managed corporate asset.
3. There are a lot of cranes in downtown Bellevue. What factors are driving the commercial real estate boom on the Eastside?
Employment growth drives real estate demand. Right now, the technology and life-science sectors are adding jobs and absorbing vacant office space. This is the primary reason for the growth in the commercial real estate market. Office vacancy rates are near 10 percent (rates below that threshold favor landlords), and second-generation office space has reached the price developers and lenders need to justify new construction.
In downtown Bellevue, for example, there are 10 cranes; a few are hotels and multifamily units, but three are office buildings comprised of approximately 1.5 million square feet of available office space. The Eastside market — Bellevue, Kirkland, Redmond, and Bothell — consists of 30 million square feet, of which nearly 3.2 million is vacant. Lease rates have increased, and concessions such as free rent and tenant improvement allowances have decreased. All of the buildings under construction are being built speculatively, and none of them have signed a lease (outside of the reported Steve Ballmer lease of one floor at Lincoln Square II).
We forecast the demand for office space will continue to increase, resulting in fewer vacant offices and increased rates in the short term. However, all of the current construction will be finished within the next two years. So the question is, how will the continued business growth impact the market when the new office space is completed and increases the amount of available space by 50 percent?