Much attention has been paid to the sizzling real estate market in Seattle proper, and rightfully so, but don’t sleep on the Eastside.
Kirkland is making waves, with major mixed-use projects in the near horizon and a couple of recent key technology office leases, while Bellevue experienced quite an eventful market in 2015.
“There’s been a lot of press about Seattle and all the great things it offers, but it’s really what our region has to offer – the talent, workforce and quality of life,” said Sam Wayne, Seattle-based senior research analyst for commercial real estate services firm Colliers International. “Other submarkets offer an alternative to Seattle. A lot of demand is coming from great companies looking for space, and that’s driving a lot of new development and growth as well as competition between submarkets.”
“It’s close to Seattle, and we have the waterfront. Things are coming together for us now.”
Last month Seattle-based Tableau Software announced that it has signed a lease for three floors totaling 92,000 square feet at the planned Kirkland Urban mixed-use, pedestrian-oriented project at 457 Central Way in downtown. Another tech company, Kirkland-based Wave, has also signed a lease there for about the same square footage.
Kirkland Urban would revitalize an existing development built in the 1980s and provide nearly 1.2 million square feet of new space: 650,000 square feet of offices, 225,000 square feet for retail, restaurant and other commercial uses, and 300,000 square feet of residences (300 units).
Kirkland Urban – to be built in phases over the next few years – could break ground this quarter. Another mixed-use redevelopment project, Totem Lake, could follow suit later in the year.
According to a city conceptual master plan, Totem Lake would transform an aging mall along Interstate 405 a few miles north of downtown into about 1 million square feet of new space for offices, shopping, entertainment, residences and other uses.
“These two big projects are going to be great for Kirkland,” city Project Planner Angela Ruggeri said. Kirkland is already an area that “people like living and working in. It’s close to Seattle, and we have the waterfront. Things are coming together for us now.”
Wayne also noted that Mountain View, Calif.-based tech giant Google’s expansion of its existing Kirkland campus by about 180,000 square feet should be completed early this year.
“Kirkland is a very dynamic market,” he said. “It’s attracting a lot of demand from technology tenants,” which have learned from their employees “that Kirkland is a great place to live, work and play. Kirkland offers a fantastic lifestyle and amenities. It’s the Fremont or Ballard of the Eastside. It’s hip, cool, fresh and trending. It has recreation, trails, bars, shopping and a lot of housing available.”
Kirkland’s neighbor to the south is seeing big comings and goings. Bellevue got a shock last year when locally based online travel company Expedia.com announced plans to move its headquarters to Seattle by 2018. But the approximately 500,000-square-foot downtown space that Expedia will be vacating is expected to draw plenty of interest from other tech companies.
Bellevue also ended 2015 on a high note with the completion of Dallas-based developer Trammell Crow’s 462,000-square-foot 929 Office Tower – the first new Class A commercial building to rise out of downtown in several years. San Francisco-based cloud-computing leader Salesforce is leasing about 85,000 square feet there and could expand to more than 100,000 square feet.
Moreover, San Jose, Calif.-based e-commerce company eBay has moved its Seattle-area operations to downtown Bellevue. Kent-based outdoor retailer REI eyes Bellevue for a regional information-technology office, as well.
According to Colliers’ Puget Sound office market report for the last quarter of 2015, two more downtown Bellevue towers totaling 1.1 million square feet – 400 Lincoln Square and Centre 425 – are scheduled to be delivered around the end of this year.
The office projects in Kirkland and Bellevue “are certainly a welcome sign,” Wayne said, particularly when demand for large blocks of space significantly grew in 2015.
However, Colliers in a special report authored by Wayne and released this quarter questioned whether demand in downtown Bellevue in the long run will catch up to the new supply and give-backs of office space such as Expedia’s.
Redmond-based tech titan Microsoft – which is investing $1 billion to renovate its headquarters, including construction of a new 400,000-square-foot building – will also likely vacate about 290,000 square feet of downtown Bellevue offices when those leases expire in 2018, the special report said.
In the report, Colliers pointed out that for downtown vacancy to drop to 10 percent – representing market equilibrium – the area would have to see approximately 29 more leases equivalent to Salesforce’s deal at 929 Office Tower.
Vacancy could hit 20 percent by 2018, according to the report. The rate stood at 12.1 percent by the end of 2015 – already a 50 percent increase from the fourth quarter of 2014.
“The Bellevue CBD will undoubtedly attract new and expanding corporate users due to the region’s deep supply of intellectual capital, entrepreneurial ecosystem and the millennial workforce’s preference for urban lifestyles,” the report said. “But with limited preleasing commitments announced to date and delivery schedules winding down, timing is becoming increasingly important for landlords as tenants have more options to consider.”
This potential rise in vacancy points to a market shift and is not necessarily a bad omen for the currently booming regional market, Wayne said. “Change represents opportunity. There’s great opportunity in Kirkland and in Bellevue. Tenants are looking more closely at all the options all over our region. There’s a lot of exciting new product being delivered. Overall, our region is well-positioned to compete against our West Coast counterparts and grow in the foreseeable future.”