Eastside real estate is a hot commodity, both for people looking to buy residential homes and for major companies aiming to lease commercial office space. Limited (but growing) inventory and low mortgage rates are driving up prices on the residential side, as increasing demand for office space from tech companies is keeping vacancy rates at bay and increasing office rent prices on the commercial side.
A desire to live on the Eastside drives both markets, increasing the demand for residential homes, while forcing employers to pay top dollar for office space in desirable areas in order to attract top-tier talent. The cycle breeds a strong market in both spaces that’s likely to hold steady for the foreseeable future.
The Residential Market
According to the Northwest Multiple Listing Service (NWMLS), both pending sales and new listings in Western Washington surged in March after a slow, snowy February. Brokers added 10,516 new single-family home and condo listings in March — the highest monthly volume since August 2018. In the same timeframe, NWMLS members reported 10,261 pending sales. That’s the highest number of mutually accepted offers since July, and nearly matched the total from the previous year — 10,311.
Median home prices in the region were up 3.5 percent year-over-year, rising from $401,761 to $415,950. Most counties reported increases, although prices were flat in King County — down 0.4 percent — and slipped from a median price of $625,000 a year ago to $622,500 in March. From February to March, however, prices were up 2.2 percent in the region. King County saw its median home prices increase more than 3 percent, as prices in Snohomish County shot up by nearly 5.5 percent.
Low interest rates and growing inventory are fueling the uptick in home prices, according to real estate broker Dean Rebhuhn, owner of Village Homes and Properties in Woodinville. “Well-priced properties are selling,” he said. “Buyers who are getting fully underwritten loan commitments are winning the prize — the home.”
At the end of March, housing inventory more than doubled in King County compared to a year ago, rising from 2,060 active listings to 4,263. Even so, strong demand means there’s only about two months’ worth of inventory; five or six months is typically considered a “normal,” balanced market.
We may see a different market this year than we’ve seen in the past couple of years, according to Alise Roberts, a real estate broker at Maple + Main. “The last couple years was super, super low inventory, which really drove prices crazy,” she said. “I think we’ll see a little bit of an evening out.”
Roberts said buyers appear to be more cautious in the current market, eschewing short-term investments for homes they plan to live in long-term, around seven to 10 years at least. Buyers are aware they could have difficulties selling in the short term, she said, and if rates go up, selling could mean giving up a historically low interest rate. Selling a home can also be expensive, Roberts noted.
“I feel like buyers are a little more financially savvy; even if they can afford it, it doesn’t make financial sense to purchase another home, put a lot of cost into excise tax and commissions and all that, and then get another house that’s going to be at a 6.5 percent rate,” she said.
The Eastside’s real estate market is typically busiest between January and April, Roberts said. This year’s market got off to a slow start because of the snow in February. It didn’t pick up right away once the snow melted, however; people got busy catching up on work they’d missed, she said. But the market is finally catching up — just a bit later than normal.
“It’s going gangbusters,” Robert said in May. “Because that shift took place, it really pushed our … busy time to a later time than we usually see it.”
The Commercial Market
The Eastside’s commercial real estate market has been dominated by tech. In the first quarter of 2019, Facebook committed to lease 338,000 square feet of office space at the Spring District Building 16, which it will occupy in early 2020, according to a report from Colliers International. Amazon made headlines in April when it announced plans to move thousands of workers from Seattle to Bellevue.
Demand has remained strong, but vacancy rates on the Eastside have remained flat at 4.9 percent, according to Colliers International’s report. That’s due primarily to Farmers Insurance vacating 146,172 square feet of office space on Mercer Island. The vacancy rate in the Bellevue Central Business District dipped to 5.3 percent, which has left no available space exceeding 50,000 square feet, according to Colliers.
“I’ve been doing this for 32 years,” said Paul Sweeney, principal at the Broderick Group. “This is far and away the best office and tech market that we’ve ever seen — and that’s saying a lot, because we’ve had a lot of upcycles in that period with Microsoft’s great growth. But we’ve never seen anything with the amount of diversity of really solid-credit tenants that are growing and hiring employees and paying high salaries and wanting the best in real estate. It’s definitely unprecedented in the Eastside and Bellevue.”
Although there’s a smattering of hospitality tenants geared toward the general public, the majority of tenants on the Eastside have moved there because they’re in the tech industry and want to attract top-tier talent — and they know people want to live in Seattle and on the Eastside, Sweeney said. Companies are subsequently willing to pay top dollar for office space on the Eastside. Year-over-year, rents for Class A properties in Bellevue’s Central Business District increased nearly 16 percent; for Class B properties, rents increased 14.5 percent, according to Colliers.
While Seattle tends to attract more millennial-aged talent, the Eastside tends to attract older workers with families who value the area’s good schools, Sweeney noted. And the companies themselves appreciate the area’s business-friendly climate, a sentiment emblemized by Amazon’s announcement in April that it planned to move thousands of workers from Seattle to Bellevue — a move that followed high-profile clashes between the tech giant and Seattle City Council, including the council’s short-lived plans to implement a so-called “head tax” that would have cost the company millions of dollars annually.
Less robust than the Eastside’s office market is its industrial market. Although there are pockets of industrial activity on the Eastside, the demand for office space has driven up land prices in the area, which has limited the amount of space available for industrial use, according to Sweeney.
“A lot of the industrial properties have been converted to a higher or better use — either office or office/tech,” he said. For example, Bellevue’s Spring District, formerly an industrial area, has a growing office market, as illustrated by a recent large lease deal by Facebook. REI’s new headquarters, currently under construction and expected to be completed in 2020, also is located in the Spring District, and the area will soon boast a new light rail station. “The light rail is bisecting what used to be the industrial area for Bellevue,” Sweeney said. “Because of the cost of land, everything’s moving toward the highest and best use, which right now is office and retail and multifamily.”