It’s no secret that Seattle proper has been experiencing rapid growth and development in both its downtown core and neighboring submarkets. But with all the attention laser-focused on Seattle, it’s easy to forget that just across Lake Washington, commercial real estate is booming just as strongly.
At 4.8 percent, vacancy for Class A office space across the Eastside dropped to its lowest level since 2000. It’s important to note growth and demand are not just concentrated in and around Bellevue’s downtown core, but ripple through each of the seven submarkets that comprise the Eastside market: Bothell, Kirkland, Redmond, suburban Bellevue, downtown Bellevue, SR-520, and the I-90 corridor. Strong office demand for Class A space has translated into a significantly limited supply, creating an opportunity for landlords in the market.
While four development projects are underway — Summit III in Bellevue’s Central Business District, One Esterra Park in the 520 Corridor, Spring District in Suburban Bellevue, and Kirkland Urban in downtown Kirkland — it’s unlikely they will meet the need. Summit III is anticipated to be completed in 2020 but is already 100 percent preleased. Beyond these developments, additional new office building supply is not anticipated to be delivered until 2022. This is the tightest the Eastside commercial real estate market has been in nearly 20 years, and until development catches up, there are little signs of relief.
The majority of demand on the Eastside is driven by tech companies.
Large occupancies from tech firms such as Facebook and UiPath have driven vacancy in Bellevue’s CBD to drop from 5.1 percent to 3.9 percent in just one quarter. In turn, announcements from established Seattle tech giants around their Eastside expansion goals ensure the demand for Class A office space in this region will continue to move at a steady clip.
The Puget Sound region has some of the best technology talent in the United States, featuring a concentration of highly educated individuals seeking a great company to build their careers and a location that ensures a strong quality of life with many housing options. The Eastside is seen as a great combination of all these elements.
With better transportation on the way, employers are betting on the future.
Eastside businesses also are anticipating the arrival of light rail service on the Eastside in 2023 as an added benefit for workers who want to live, work, and play on either side of Lake Washington.
Added regional connectivity will offer great public transit options to the Eastside, no matter where you live and in a predictable time-frame. Companies don’t necessarily need two office locations — in Seattle and on the Eastside — to attract talent from one area or another. They will now rely on the light rail to bridge that gap.
What does this mean for future growth on the Eastside?
So, what do business owners need to know when planning their next move or office space strategy? There’s one thing that’s certain — plan ahead. Companies have begun looking for space as much as two years prior to their current lease expiration date in order to maximize and leverage the number of considerable options.
As preleasing activity continues, coupled with historically low vacancy, the Eastside is expected to remain landlord-favorable until a number of developers decide to break ground on new development projects. A landlord-driven market is defined as vacancy below 10 percent. Currently, the I-90 corridor and Bothell are the only Eastside submarkets that don’t meet that threshold, with 10.2 and 14.6 percent vacancy, respectively. Given this landlords’ market across the Eastside, a continued upward pressure on rental rates across the majority of submarkets is expected.
Despite high demand and low availability for space, the Eastside will continue to see shifting demographics and growing populations in the area. Once new office developments catch up and better transportation systems become available, the Eastside will be able to capitalize on the pent-up demand and catapult into the next phase of growth.
Office Space Demand Outpaces Supply
When it comes to Eastside commercial office space, demand continues to outpace supply.
In the second quarter of 2019, overall vacancies on the Eastside dropped slightly, from 4.9 to 4.8 percent, according to a recent report from Colliers International, while vacancies in downtown Bellevue dipped, from 5.3 to 5.2 percent. By year’s end, however, the vacancy rate is expected to decrease drastically as a few larger companies such as Facebook, T-Mobile, and Amazon move in.
Several new projects are under construction on the Eastside and across Lake Washington, but more than 80 percent of those projects have been preleased.
According to Colliers International’s report, the Eastside could use more than 3 million square feet of office space in order to meet the demand. Of those companies on the hunt for commercial real estate, close to 40 percent are in the technology industry.
The full Colliers International report gives an Eastside market overview, as well as some of the more notable recent office space sales.