By Kate Snyder
In King County’s Eastside, the first quarter of 2024 welcomed tenant demand that exceeded the historical norm, according to a market report recently released by Broderick Group. The report, called “Q1 2024 Eastside Office Market Overview,” shows that demand in that time has been hyper focused on “best-in-class” assets that are well-located and with a broad offering of amenities for users. At the close of the quarter, 24 percent of space on the Eastside is listed as available or vacant, with a 42.9 percent availability recorded for the I-90 Corridor.
“In past market cycles, a similar spike in vacancy would have had a dramatic impact on Class A+ rental rates,” the report states. “However, tech companies paying big salaries believe securing an optimal office is the most compelling way to draw premium employee talent to the office, and are willing to pay top-end rental rates.”
At the start of the year, multiple leasing deals were signed, and according to the report, that momentum is expected to continue into the second quarter, particularly in the Bellevue Central Business District. Major lease agreements include The Pokémon Company taking 16 floors of Skanska’s The Eight and ByteDance, the parent company of TikTok, making a deal for 132,000 square feet of recently vacated Microsoft space in Kemper Development’s Lincoln Square North.
Suburban markets have been less active. The I-90 corridor inked only the third transaction greater than 20,000 square feet in more than three years when Elevate Outdoor Collective backfilled 70,000 square feet at a former T-Mobile-occupied building at I-90 Eastgate. The report also highlights Costco’s purchase of a 176,000 square foot Class A building in Issaquah from Kennedy Wilson, because while the transaction was not a lease, it demonstrates what could become an ongoing trend: well-capitalized users taking advantage of declining valuations at massive discounts to replacement cost, which could help absorb some of the large vacancies on the Eastside.
“There are approximately 13 tenants touring or negotiating for a full floor or greater in downtown Bellevue,” the report states. “That activity is focused on best-in-class assets with abundant amenities and views, or is seeking subleases offering fully-furnished, move-in ready space. Although a staggering amount of inventory remains, tenant demand has dramatically improved throughout 2023 and into 2024.”
The Eastside is also continuing to experience a “tsunami” of supply brought on primarily by Microsoft vacating up to 3.4 million square feet of leased space – or 8.1 percent of the Eastside leased inventory. The report states that consistent expansion of the existing tenant base in addition to new tenant demand will be needed to keep a lid on rising vacancy rates.
Approximately 25.4 percent of the Bellevue CBD is marketed as available, which includes former Microsoft space at Lincoln Square North, City Center Plaza and The Offices @ The Bravern. In total, there is four million square feet of available space in the Bellevue CBD. In the I-90 Corridor, vacancy currently sits at 41 percent with 43.5 percent of the submarket listed as available. After a surge in early 2023, sublease space has plateaued at 4.5 percent of overall Eastside inventory.
“With previously leased space now becoming vacant after being marketed as available, the gap between vacancy and availability has significantly diminished,” the report states. “Broderick Group projects that we have reached the apex of availability. Should current tenant demand sustain or even expand, the headline vacancy and availability statistics should begin to improve by mid 2025.”
