The third quarter of 2023 marked a turning point for Bellevue’s commercial real estate market, with several notable leases signed, hinting at a promising year-end surge, according to the latest Broderick Group Eastside Office Market Review for Q3 2023. The activity, including renewals and expansions, showcases the resilience and growth potential of the city’s office leasing sector.
The most significant transactions in Q3 2023 were centered in downtown Bellevue:
Bytedance made a notable move in the third quarter by expanding its presence at Key Center, subleasing 66,000 square feet from SAP/Concur, and extending its lease through 2025.
Warner Brothers Discovery renewed its commitment to the city by securing 47,398 square feet of space at Civica Office Commons.
Regus renewed 46,338 square feet of space in the Bellevue Technology Center in Suburban Bellevue.
Southern Wine Spirits also chose to stay and expand in Bellevue, committing to 38,232 square feet at One Bellevue Center.
Skanska signed one of three notable new leases on the Eastside. The international development and construction conglomerate singed 21,811 square feet at Plaza at North Creek in Bothell. The other new leases were Cuervo’s 13,640-square-foot lease, also at Plaza at North Creek in Bothell, and Studio Wild Card’s 10,272 square feet at Bel-Kirk 520 along the 520 corridor.
Other notable leases included Allegro Pediatrics, which renewed 18,823 square feet at Park 140 in the 520 corridor, Kidder Mathews’ renewal at City Center Bellevue in the city’s Central Business District for 16,203 square feet, and Zymeworks’ 11,050-square-foot sublease at Symmetry Center also in Bellevue’s Central Business District.
Bellevue’s office leasing market is experiencing an increase in tenant interest, with more than 20 prospective tenants actively touring or negotiating for full floors or larger spaces in the downtown area, Broderick’s report outlined. The allure of fully furnished, move-in ready spaces seems to be one of the factors driving the heightened activity.
Despite the challenges posed by the pandemic, the current level of tenant demand is a welcome sign across the industry. However, it must be sustained and expanded upon, especially in light of the fact that there are still 182 vacant or available floors in the Central Business District.
To gain a better perspective on the evolving leasing landscape, it should be compared to pre-COVID leasing levels. In Q3 2019, 17 active tenants on the Eastside occupied full floors or more. Fast forward to Q3 2023, and this number has more than doubled to 33 active tenants, showcasing the city’s resilience and attractiveness to businesses during challenging times.
While downtown Bellevue is experiencing a resurgent leasing market, it’s important to note that there are currently no notable pending leases outside of downtown, Broderick’s report added.
The Eastside’s office vacancy rates have been steadily rising since 2019, reaching 14 percent by the start of 2023, up from 5.8 percent in 2019. In Bellevue’s Central Business District, vacancy has nearly tripled to 9.9 percent from 3.5 percent in 2019, driven by a wave of new supply entering the market, according to the report. Approximately 28.5 percent of the Bellevue CBD is currently available for lease, including former Microsoft spaces and upcoming speculative developments. Excluding an additional 1 million square feet of speculative development set to be available by 2025, there is a total of 4.5 million square feet of vacant space in the Bellevue CBD.
Despite the challenges faced by landlords due to this increase in available space, Bellevue maintains its attractiveness to future tenants, thanks to its desirable, diversified, and extensive commercial real estate portfolio, stated Broderick. Tenant demand is notably higher than in recent years.
The I-90 Corridor has been particularly impacted by rising vacancy rates, currently standing at 27.7 percent, with 44.6 percent of the submarket listed as available. T-Mobile’s decision to place a portion of their 90 North campus on the sublease market added an extra 175,000 square feet to the available space in this area. Unlike Downtown Bellevue, the I-90 Corridor has not experienced a surge in tenant demand despite offering substantial discounts compared to the CBD.
The influx of new space available for sublease appears to have stabilized following a challenging second quarter when Microsoft and Tableau released 850,000 square feet of space in Redmond and Kirkland. Sublease availability slightly decreased to 6.6 percent during the quarter, and there are no major subleases expected to enter the market in the near future.