The Eastside, particularly Bellevue and Kirkland, has been a hotspot for real estate development and corporate expansion over the last decade. However, recent market dynamics have cast a shadow of uncertainty over the once-booming landscape. Rising vacancies, tepid tenant demand, increased sublease availabilities, surging debt costs, and Microsoft’s decision to scale back its presence in Bellevue have led developers to rethink their strategies, according to a recent, third quarter of 2023 market report by Broderick Group.
Despite the prevailing headwinds, a few projects are forging ahead in downtown Bellevue and Kirkland. Notably, two projects in downtown Bellevue and one in Kirkland are currently under construction on a speculative basis, without pre-leasing commitments.
The Eight (Bellevue): Developed by Skanska, this 552,000-square-foot tower on NE 8th in downtown Bellevue is nearing completion and is set to be delivered in early 2024. The Eight is closest to announcing signed leases in the next quarter, with expectations of multi-tenancy.
Four106 (Bellevue): Houston-based Patrinely Group’s 480,000-square-foot Four106 on NE 4th is now above grade with its concrete core and is expected to be delivered in Q2 2025.
Kirkland Ascent: Developed by Talon, Kirkland Ascent, a 57,000-square-foot three-story building, is nearing completion by the end of the year. Located in the Kirkland market just north of Bellevue, it offers a unique full-building branding opportunity for corporate users seeking this amount of space to lease.
While construction activity persists, the demand for full building usage remains muted. However, there has been an uptick in tour activity at these new developments, signaling latent interest from potential tenants, Broderick’s report noted. The Eight is the closest to announcing signed leases in the coming quarter, which suggests that the market is gradually stabilizing, albeit cautiously.
In Bellevue’s Spring District, Meta, the technology conglomerate formerly known as Facebook, continues its expansion. Construction is ongoing for Block 5 (327,000 square feet) and Block 13 (215,000 square feet), both of which are leased by Meta. These buildings are expected to be delivered in late 2023 and early 2024, expanding Meta’s Spring District footprint to 1.8 million square feet. The commitment from Meta underscores the tech sector’s continued interest in the Eastside, even as other industries grapple with uncertainty.
As of now, no additional office development projects are under construction or scheduled to break ground in the near future across the Eastside. This cautious approach aligns with the prevailing market sentiment, where developers are carefully monitoring tenant demand and economic indicators before embarking on new ventures. The Eastside’s real estate landscape is undergoing a period of recalibration as developers seek to align their strategies with the evolving dynamics of the post-pandemic era.
Beyond 2026, Broderick’s report counts a total of 16 million square feet of development that has been proposed; only 1 percent of that has been pre-leased by Google at Kirkland Urban. Upon completion of the three above-referenced projects, the total market inventory will be around 43.7 million square feet. It should be noted that in 2004, the earliest year measured by the current report, the market inventory measured just shy of 30 million square feet.
The Eastside office market is currently facing challenges, including rising vacancies and rental rate adjustments. However, there is some optimism with Amazon’s return to the office mandate and its expansion in Bellevue. Meta and Google’s return-to-office policies are setting a trend for mid-sized tech companies, indicating a reemergence of tenant demand.
Despite these positive signs, there is a significant oversupply issue, with 25 percent of the Eastside’s office space available for lease. Broderick’s report stated that recovery is expected to be slow and require sustained new tenant demand, which could take several years.
In this recovery, tenant demand is shifting towards amenity-rich Class-A buildings with walkable amenities, transit access, and desirable features like views, high ceilings, open-air deck space, and natural light. Older buildings with outdated infrastructure and limited amenities may face challenges. As with previous downturns, there will be a flight to quality, with Class A office spaces leasing first, leading to rent increases as inventory decreases, while cost-conscious tenants may opt for lower-cost alternatives.