‘This is the Eastside’s time:’ Rents are skyrocketing as tech tenants head across the lake

by Marc Stiles | October 12, 2018 | Puget Sound Business Journal

The Eastside office market has FANGs.

The acronym stands for Facebook, Amazon.com Inc., Apple Inc., Netflix and Google, and all but Netflix have offices in the Seattle area.

In particular, these tech companies are expanding significantly on the Eastside where, according to a report by real estate company The Broderick Group, there is “no end in sight to the steady demand in the ever-tightening Eastside office market.”

With trans-Lake Washington light rail service scheduled to begin in 2023, the Puget Sound region already is seeing more balanced economic expansion on both sides of the lake. Amazon and other big companies are increasingly looking east. Seattle’s reputation as an unfriendly business environment is accelerating what market forces had already begun. This will mean more development, traffic and other urban challenges for the Eastside as the historically suburban communities become more urban.

“Rents are skyrocketing for office space,” said veteran Bellevue office broker Mark Anderson of Colliers International.

“All systems are go in terms of fundamentals with demand way outpacing supply,” Eastside broker Mike Schreck of Newmark Knight Frank said during a Puget Sound Business Journal program this summer.

Top-of-the-market properties are achieving starting annual rents of up to $60 per square foot (including expenses) in downtown Bellevue. The Broderick Group forecasts that landlords will be able to push asking rents up by 10 percent over the next 12 months.

Thank the tech companies.

“They sucked up every square foot in town,” Anderson said.

Amazon already occupies one new downtown Bellevue tower and plans to move into another existing one. Amazon has 2,000 employees in Bellevue and is adding capacity for another 2,500 by 2020. That’s equal to 10 percent of the company’s Seattle headcount. This will almost certainly spur new residential development in the area.

Paul Allen’s Vulcan Real Estate is planning two big Bellevue developments and the size of the one at 555 108th Ave. NE has grown. The early plan was for an 800,000-square-foot development, and the latest calls for increasing that by 17 percent, company Investment Strategy Director Lori Mason Curran said last month. The plan is for a 42-story building.

At 117 106th Ave. NE, Vulcan is planning a three-tower project with about 1 million square feet.

Brokers speculate Amazon will lease some or all of Vulcan’s buildings, and an email former Bellevue Economic Development Director James Henderson sent to counterparts in Redmond and Kirkland said Vulcan is moving the projects forward “due to ‘strong’ interest by a large tenant.” The Puget Sound Business Journal obtained the email through a public records request.

When reached for comment, Henderson did not provide more information.

“We are moving forward with permitting in Bellevue so that we will be prepared to start construction as soon as possible should we secure a tenant,” Mason Curran said in an email.

Meanwhile, east of downtown in the emerging Spring District, construction started this year on REI’s 400,000-square-foot campus where all approximately 1,500 headquarters employees will work when the project is done in 2020. The outdoor gear cooperative will move from Kent.

This is spurring plans for some big developments and one jaw-dropping $145 million acquisition.

At 606 – 620 106th Ave. NE, Onni Group of Cos. of Vancouver, British Columbia has proposed a three-tower project with 1,300 residences, 850,000 square feet of office space and a 250-room hotel.

Fortress Group LLC of Bellevue is planning Avenue Bellevue, a two-tower project with 330 condominiums, a 251-room hotel and retail space, at 10300 NE Eighth St.

Multinational company Skanska, which has a Seattle office, paid $33 million this summer for a site at 108th Avenue Northeast and Northeast Eighth Street to build 500,000 square feet of office space.

The most high-profile transaction came last month when another Vancouver company, Pinnacle International, paid $145 million for an 11-acre property north of Bellevue Square Mall. A Pinnacle spokesperson said it has no plans yet for the property and will proceed slowly.

It’s not only Bellevue that’s hot on the Eastside, and, of course, rapid development continues in Seattle. The city will be home to Expedia’s new 4,500-employee headquarters late next year when the travel company moves from Bellevue. Google and Facebook are also expanding in Seattle.

Redmond and Kirkland, though, are seeing tremendous growth driven by Facebook, Microsoft and Google.

Google is said to be expanding significantly, though the company has not confirmed what sources in the real estate and technology industries are anticipating. Google already occupies 375,000 square feet of space in Kirkland and this would grow to nearly 1 million square feet if the company executes a deal to buy the office space in the under-construction Kirkland Urban mixed-use development. That’s what the company is planning to do, said sources who are not involved in the deal. Google has not responded to Puget Sound Business Journal inquiries.

That would displace Tableau Software and broadband company Wave, which pre-leased a total of 180,000 square feet at Kirkland Urban.

Kirkland Urban developer Bill Pollard of Talon Private Capital said all leases will be “in full force and effect as we move forward.”

Facebook Reality Labs/Oculus is on the way to having 1 million square feet of space in Redmond, real estate sources said. The company has more than 700,000 square feet in different buildings on Willows Road, and is reportedly looking at leasing office space in Bellevue’s Spring District, sources said. District developer Wright Runstad & Co. and Facebook declined to comment.

Add to all of this Microsoft Corp.’s multibillion-dollar plan to add 2.5 million square feet to its Redmond headquarters. That’s enough room for an additional 8,000 employees.

It’s clear the Eastside is capturing more and more of the region’s economic expansion from Seattle, which this spring burnished its anti-business reputation when City Hall approved a $250 million per-employee tax on big businesses to fund homeless services. Facing a likely overruling by citizen referendum, the City Council repealed the tax, but the damage to Seattle’s reputation was done

“The Eastside over the next five years, I think, is where the action is going to be,” said Seattle real estate appraiser Brian O’Connor of O’Connor Consulting Group. “This is the Eastside’s time.”

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