Commercial office space was tight all across the Eastside during the first quarter of 2018 and it could get even tighter.
The Broderick Group released a report in April analyzing commercial real estate in Eastside cities. Vacancy rates across the region are dropping and sitting at 8.7 percent for the Eastside as a whole. Mercer Island and Kirkland lead the pack with the lowest vacancies at rates of 2.4 percent and 5.1 percent, respectively. At the other end, Bothell had a vacancy rate of 17.5 percent following Boeing and AT&T leaving several buildings in 2017. However, this was anticipated to be temporary as Broderick Group predicted vacancy rates to dip below 10 percent in the city by the third quarter of 2018.
Commercial office space located along the I-90 corridor was at 12.6 percent vacancy, followed by Redmond at 7.7 percent and the downtown Bellevue at 7.5 percent. Other areas, such as suburban Bellevue hung around six percent.
Major first quarter transactions on the Eastside included T-Mobile renewing a lease on its 882,000-square-foot complex ahead of its announcement that it is seeking to merge with Sprint. Microsoft renewed and expanded its presence at the Redmond Town Center and Farmers Insurance will be moving to Sunset North in Bellevue following its departure from Mercer Island earlier this year.
The report noted that there is often a decline in activity in low-vacancy environments as space disappears, but there hasn’t been a slowdown in Eastside activity. There were 400,0000 square feet of signed and pending leases, which were expected to drive down vacancy rates even further.
New construction is limited on the Eastside, concentrating in Bellevue and Kirkland. Both Kirkland Urban North and Kirkland Urban Central are expected to be finished this year and offer a combined 38,000 square feet of office space. The Broderick Group anticipates these will be filled before construction is completed.
In Bellevue, there are two major planned projects the report noted. Block 16 in the Spring District would offer 325,000 square feet of space and the Summit III project would offer 370,000 square feet.
Concerns noted in the report focus on unprofitable tenants, which, if the economy slows, may be cut off from their supply of capital and force them to default or sublease. Broderick Group cautioned landlords to be cautious of renters’ security and credit in the future. However, if there is a downturn, the lack of new space would put Eastside landlords in a better position than during past economic dips.