Tom Bohman, C&W's director of Eastside leasing tells GlobeSt.com that space will get "really tight" through the next 12- to 18 months in Downtown Bellevue and surrounding markets. That means tenants looking for space in the near term will find it difficult to find the right space in the right configuration in the right place, and whatever they find they will be paying more for it, he says.
"Part of the reason is we have had continued strong leasing and a lack of new construction in the pipeline," says Bohman. "There are five new office buildings teed up to be built Downtown, but the earliest they will start coming online is mid-to-late 2007, and there's no significant new construction in the suburban market except for Schnitzer Northwest's project on the I-90 corridor (Eastgate), which also won't be tenant ready until mid 2007."
As for lease rates, the weighted average asking rental rate for class A space rose by $1 per sf per year in 2005, ending the year at $25.39 per sf per year on a full service basis. Bohman expects that rate will rise by another $1 or $2 in 2006 because the only other in-market option will be leasing brand new space, for which asking rates will start around the same price on a triple-net basis. If the rates for existing class A space don't go up, the concessions will disappear.
Across the lake in Downtown Seattle, "we're just a stable atmosphere over here," C&W's Downtown office leasing specialist Wende Sauvage tells GlobeSt.com. If vacancy dips any lower, however, "we will start to see concessions dry up and vacancy rates rise," she says.
As for the Washington Mutual factor--the bank will be vacating approximately 1.2 million sf of the 1.4 million sf it leases Downtown to fill the new Downtown headquarters it is developing--it is rapidly become a non-issue, says Sauvage. EOP, the landlord for most of WaMu's leased space, has backfilled much of the space ahead of WaMu's consolidation.
One other building owner significantly affected by WaMu's move in Bentall. WaMu leases a goodly portion of Bentall's 30-story 536,328-sf Century Square building. The building is largely leased up right now, but 291,000 sf is being marketed for lease, including 127,000 sf that won't be available until mid-2007 and 110,000 sf that is on the sublease market, according to officespace.com.
In addition to Century Square, there are several contiguous availabilities of more than 50,000 sf in the CBD, which has kept weighted average asking rate stagnant at around $27 per sf (full service) over the past 12 months even as the overall vacancy rate fell more than 350 basis points. In part due to the WaMu situation, C&W is predicting that vacancy will creep back up in to the 12% range in 2006 before dropping below 11% in 2007.
Given all that, Sauvage does not expect any significant office construction to get under way in the CBD in the immediate future. Then again, she says developers like Vulcan, Schnitzer Northwest, Clise Properties and CarrAmerica are all planning additions to the market.
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