Bellevue’s Skyline Office Space Commands Top Dollar, But Rent Growth Expected to Moderate as Skyline Reshapes
JLL’s 2016 Skyline reveals that tenants demand more bang for their buck as trophy rental rates continue to command a premium
BELLEVUE, June 22, 2016 – Rents for the office buildings that make up the Bellevue skyline are likely to hold fairly steady in 2016, despite the historically space constrained market seeing upwards of one million square feet of new skyline office come online by year end. Average direct asking rents hovered well above $46 per square foot in the first quarter of this year, roughly the same as in 2015. Rents for Bellevue trophy assets (those ultra-premium office towers within the Skyline) are even pricier at more than $50 per square foot. But JLL’s 2016 Skyline shows that rent growth around the country may be moderating, especially in high-growth markets such as Bellevue that have enjoyed consistent rent appreciation over the last several years.
- The Bellevue Skyline shows that relatively little space exists in the fifteen established buildings tracked in JLL’s Skyline set. With the completion of the 462,000 s.f. 929 Office Tower in the last quarter of 2015, and 400 Lincoln Square and Centre 425 due for completion by the end of this year, tenants are finally seeing a variety of options for space moving forward and these projects are likely to represent the last substantial new builds in this cycle.
- Commercial real estate investors remain very interested in Bellevue’s Skyline office buildings with roughly $652 million in acquisition activity in the Skyline set in the last five quarters, out of a total of $766.2 million throughout the Bellevue office market.
- With new construction delivery about to alter the Bellevue skyline, landlords need to retain the ‘gold standard’ of their existing Skyline assets. Tenants in the Bellevue market have exhibited a strong trend toward a ‘flight to quality’ in recent years and this shows no sign of diminishing.
- Overall assessment is that the Bellevue Skyline market, a ‘Landlord Favorable’ market in the last few years, is headed toward becoming ‘Tenant Favorable’ by 2018.
New construction commands a premium
Owners, especially those with Skyline properties currently under construction, still have the upper hand for now. Rents for those rising towers are hitting more than $50 per square foot, a slight premium over average Skyline asking rents due to greater efficiencies inherent in such factors as layouts and operating costs. Despite this, asking rents on the Eastside are still a bargain when compared to major office metros like New York and San Francisco, where landlords of some Skyline office buildings are asking more than $100 per square foot.
While Skyline markets nationally saw modest declines in investment activity last year, Bellevue’s office market saw strong capital inflow with more than 86 percent of transaction activity involving Skyline buildings. This was largely due to the significant leasing activity which took place in 2013 and 2014 when overall vacancy was below 5 percent, according to Alex Muir, Research Manager, JLL.
What have you done for me lately?
Despite the rise in popularity of older creative buildings and fringe markets, assets within the Skyline are still the gold standard, but owners need to stay mindful they don’t tarnish with complacency.
“In this highly competitive job market, recruiting and retaining talent is key for employers. Having a great office space is one way to win over employees. As the flight to quality trend intensifies, landlords of older buildings will need to reposition their assets to keep their second generation space competitive,” says Daniel Seger, Senior Vice President, JLL.
Riley Shephard, Vice President with JLL’s Agency Leasing team in Bellevue, concurs. “Rooftop decks, plenty of open space and wellness are huge factors that will increase an asset’s value and Bellevue owners need to be willing to make investments such as these in common areas,” he says.
About the Skyline Review
Investors and tenants alike can access JLL’s Skyline via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 52 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios. In addition, the site will offer videos and infographics. All information will also be available via mobile access.
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.