Beverly Hills, Calif.-based Kennedy Wilson expanded its commercial portfolio in the Puget Sound with the acquisition this week of a second office building in suburban Bellevue. Boston-based Beacon Capital Partners sold Eastgate Office Park for $74.8 million, according to Nick Colonna, president of Kennedy Wilson commercial investments and fund management.
As it relates to office properties, the amount of STEM-related jobs in a market is a big driver to Kennedy Wilson’s investment strategy. “If you look at those markets in the U.S. that have had the best STEM growth, they have nationally attributed to the best occupancy rates and best rental rates,” said Colonna. “When you look at greater Seattle and then you break it down to Bellevue, on a suburban versus urban basis, we’ve been very pleased with the amount of job growth in these markets and the amount of energy that’s gone into operating new businesses in the Bellevue area.”
“We’re fortunate to have a very good cross-section of tech tenants as well as general business tenants.”
Located in Bellevue’s I-90 corridor Eastgate Office Park consists of three, three-story Class A office buildings and one two-story amenity building that provides a total of 281,913 square feet on a 14-acre campus. According to Colonna, the 31-year old building is 95 percent occupied. The Broderick Group is listing the available space at $23 per square foot annually.
The different types of tenants in the building provide a profitable roster, with Sprint occupying around four percent of the space. “We’re fortunate to have a very good cross-section of tech tenants as well as general business tenants,” said Colonna. “So we feel good about that downside protection of not having any particular tenant that can really affect the occupancy and cash flow of the asset in any material way.”
“We’re always looking for good investment assets that fit the criteria of Kennedy Wilson’s underwriting, and also its geographical footprint,” said Colonna. “The Northwest is clearly a big part of that footprint.”
Kennedy Wilson’s Puget Sound portfolio includes 9,796 apartment units and 421,913 square feet of commercial space in two office complexes in suburban Bellevue. The second office complex, Corporate Campus East, located on Bellevue’s north side, offers approximately 140,000 square feet of Class A office space. The company also co-owns the former Union of California Bank Building at 901 Fifth Avenue in downtown Seattle, which is listed for sale.
Beacon Capital Partners’ portfolio includes buildings in Seattle and Bellevue, including Bellevue’s 108,640-square-foot Lincoln Executive Center.
According to research from Colliers International 2016 first quarter Office Reasearch and Forecast Report, the demand for suburban office space in Bellevue is outpacing demand for space in the city’s downtown. This becomes more evident as large corporations such as Microsoft, REI and Boeing have moved some of their offices into the I-90 corridor.
The Eastside, which includes Bellevue, Issaquah, Kirkland, Newcastle, Mercer Island and Redmond, is experiencing a 7.9 percent vacancy rate for Class A office space of this quarter, Colliers says. Seattle’s Class A office market has the same vacancy rate but the average asking rate is $40.37 per square foot annually, $17.37 higher than the current asking rate at Eastgate Office Park.