Home Commercial Microsoft Solidifies 300,000 SQFT-Plus of Leases in Redmond

Microsoft Solidifies 300,000 SQFT-Plus of Leases in Redmond

Redmond, Microsoft, Broderick Group, Esterra Park, Capstone, Quad Willows
Image Courtesy of HFF

By Meghan Hall

Eastside suburban markets are still riding out the momentum of previous quarters as new leasing and sales transactions have come to light. In January, The Registry reported that Capstone was in the process of negotiating a lease for its Esterra Park in Overlake office complex, which is expected to come to market early next year. According to a recent report released by Broderick Group, a regional brokerage firm, the tenant for the 246,638 square foot space is Microsoft. In addition, Microsoft solidified negotiations for a second lease in Redmond, and the company has taken Quad Willows Building A, which totals 62,511 square feet. Both leases are new, and provide indication of Microsoft’s plans for its Eastside expansion.

The Esterra Park development, according to Capstone’s website, will be 3 million square feet mixed-use project that will include 1.2 million square feet of commercial, 1,400 residential units and a 275-room hotel. 

The building Microsoft has leased is dubbed One Esterra Park. The six-story building will feature 40,000 square foot floorplates, collaborative spaces and high-end mechanical infrastructure. In June of 2019, HFF announced it secured $154.7 million of joint equity and construction financing for the development of the property, which at the time, was being built speculatively. Once Capstone is finished constructing the office building leased to Microsoft, Capstone has the option to construct an additional 400,000 square feet of office space six months later. The Esterra Park development is located just adjacent to Microsoft’s world headquarters.

The Microsoft leases were two of the largest five rental transactions that were finalized during the first quarter, according to Broderick Group. The next largest agreement, behind Microsoft’s Esterra Park lease, was completed by Probably Monsters, a game developer, who took just over 76,000 square feet at the Commons on 90 complex. GitHub took 61,511 square feet in Skyline Tower, located in Bellevue’s Central Business District, while Providence took almost 49,000 square feet at Redmond Junction Building B.

Broderick Group notes in its report that despite these leases, leasing negotiations have slowed significantly over the past month, with small and medium-sized tenants pausing to evaluate whether to proceed with leases as the economic impacts of COVID-19 become apparent. However, Broderick Group states that the biggest companies, including those like Microsoft, will continue to move leasing negotiations for space along.

“Many of the lease commitments they are negotiating are for office space that will not be occupiable for two or three years,” states Broderick Group. “These tenants have ambitious long-term growth projections for their Eastside workforces, and it is expected that they will continue to secure space to accommodate future employees.”

Currently, the vacancy rate for office space in Redmond is at about 7.2 percent, higher than other suburban markets such as Kirkland—who is sitting at 4.7 percent vacancy—and the I-90 Corridor, with a vacancy rate of 4.1 percent. Redmond rental rates are currently between $23 per square foot and $29 per square foot triple net. The presence of large credit tenants such as Microsoft has helped to stabilize the submarket moving forward and limit landlord risk. However, if market fundamentals decline quickly, suburban office markets may see increased migration back to city centers in the future.