BELLEVUE’S DYNAMIC GROWTH COMES WITH PAIN, HOPE

I have lived in the Seattle metro area since 2010 and enjoyed working on the Eastside for the first six years before gravitating to real estate sales. The growth – particularly in Bellevue (pictured) – has been explosive, with breathtaking high-rise office and residential buildings now piercing the clouds.

The reshaping of corporate America’s office attendance has hardly deterred the construction boom here, thanks mostly to a still-growing tech sector (We see you, AI, cloud computing and space exploration ventures!).

Anchoring this expansion is Amazon, which is committed to beefing up its Bellevue workforce to 25,000 across seven fully leased buildings (so far). The company, with about 65,000 regional employees, is approximately halfway to its goal. It joins stalwarts T-Mobile US with 5200 workers mostly tied to the Factoria section of Bellevue and Meta, the parent of Facebook, with its 3600-member workforce as leading tech titans in this city.

Bellevue has a population of about 150,000. That's up 24% from 2010. Forecasts suggest the city will grow to roughly 165,000 people by 2030. The median household income today is approximately $130,000 and the median home value is about $1.3M.

Amid an influx of new workers and residents, how could city planners of a medium-sized tech hub like Bellevue squeeze so many people into its built infrastructure? If one examines office space, that’s the least of their worries.

Office vacancy rates in downtown Bellevue have risen from a pre-pandemic low of 3.9% to about 12% today, according to Broderick Group, a locally based commercial real estate brokerage. The firm projects the rate could climb to 20% or more next year unless more businesses secure space. By comparison, downtown Seattle’s office vacancy rate is 31%.

About 7M sq. ft. of office space, or 23% of total inventory, was available across the entire Eastside of King County, Broderick Group reported. That includes 4M sq. ft. of sublease space in downtown Bellevue, as of April.

Microsoft is shedding most of this space – roughly 3.9M sq. ft. of leased offices – as it consolidates the company’s 50,000+ workforce into its expanding Redmond HQ and about 11M sq. ft. of space. The software and cloud giant was once Bellevue’s largest employer with as many as 9300 badge-wearers – only three years ago.

A full 43% of vacant space was reported available along the I-90 business corridor southeast of downtown, up from 14% just two years ago. More recently, Verizon inked a deal to sublease 33,000 sq. ft. in the Eastgate section from competitor T-Mobile. The deal marked only the fourth major office lease in the corridor over the past three years, Broderick Group said.

Amazon, now with the biggest workforce in the city, and other businesses are applying pressure to have employees work and collaborate on-site at least three days a week. This offers significant hope for a rebound to those businesses and many others that benefit from their presence in a dynamic city.

In fact, a new report from commercial real estate broker Savills notes Bellevue authored the most office leases of any tech city in the first half of this year – a little shy of 1M sq. ft. Not just the most space in the U.S. but the world.

The demand for Bellevue office space is multifaceted. It includes lease renewals, business expansion by existing tenants, relocations from Seattle in what industry people call “a flight to quality,” and new players from outside the region.

Many of the space agreements this year involve subleases from one tech business to another – a rearranging of corporate players across the city. The deals are concentrated in downtown and the nearby Spring District. They include:

• The Pokémon Company, snapping up 16 floors, or about 375,000 sq. ft., of The Eight, a 25-story building just opening. However, up to nine floors of Pokémon office space elsewhere in the city are reportedly being marketed for sublease.
• Data cloud company Snowflake, garnering a sublease from Meta for a little more than 325,000 sq. ft. in the Spring District.
• ByteDance, the China-based parent company of TikTok, signing a pair of leases totaling about 310,000 sq. ft., including one in the recently vacated Microsoft space in Lincoln Square North. 

This follows some 1.4M sq. ft. of new construction fully leased across Bellevue in the final quarter of 2023. Most of that square footage will be occupied by Meta after reportedly (paywall) beefing up its office space by 13% in the past year, and Amazon, which is leasing all of the recently opened 42-story 555 Tower, the city’s tallest structure and given the nickname Sonic by the company.

“There is continued interest in investment and building, not just office but also residential and increasing the opportunities for hotel development,” said Patrick Bannon, president of Bellevue’s downtown association, as quoted by local real estate publication The Registry. That includes the new, 208-room InterContinental Hotel, located within Avenue Bellevue, a two-tower luxury condo community referenced in my blog and newsletter last month.

Numerous residential buildings are under construction or in the planning stages, however a small percentage will be for-sale condos. About 500 units are coming online this year and high-rise projects designed for roughly 700 homes are planned for the city. The rest will be apartments and townhomes.

Just think how popular Bellevue will become once the final stretch of the East Link of SoundTransit’s Link light rail is completed next year connecting the Eastside to Seattle and the airport. A portion of the Eastside is already enjoying the 2 Line service after eight stations were opened in April from Redmond to south Bellevue. In addition, Bellevue this year is reviewing its zoning laws that could lead to increased housing density, particularly near major transportation hubs.

The office and residential landscape in Bellevue appears to be gradually improving, reflecting the city's tremendous growth, resilience and optimism for the future. Despite the challenges of high office vacancy rates and industry shifts, the commitment from major tech companies and ongoing investments signal a promising future.

Bellevue's journey towards becoming a world-leading business destination is far from over and the city's potential continues to shine.

REAL ESTATE CHANGES TAKE EFFECT

The changes to Washington real estate law reported by the media and highlighted in the April newsletter are now in effect. The policy revisions resulted from a national class-action settlement proposal between home sellers and the National Association of Realtors® (NAR) over the issue of brokerage compensation.

The settlement requires all buyers in the U.S. working with a broker to have a signed agreement before services begin. This is nothing new to Washington buyers, as it became state law on Jan. 1. All 50 states must now comply.

The other requirement calls for all Realtor-owned Multiple Listing Services to no longer publish seller offers of compensation destined for buyer brokers. Unlike the rest of the U.S., the amount sellers agree to compensate buyer brokers will continue to appear on Northwest Multiple Listing Service listings. Why?

The local MLS is a member-owned organization covering 26 counties including Western Washington. The MLS announced in May that it would not join the national settlement agreement, saying that it believes including compensation details – either a fixed percentage or dollar amount – is in the best interest of consumer transparency and sellers’ choice.

The Northwest MLS said it already put in place several new rules and regulations over the last five years that are quite similar to the changes outlined in the proposed settlement agreement.

It’s important to note that broker compensation is established by the seller and buyer. The amount earmarked to the listing agent and the buyer broker must be established before brokerage services begin under their respective services agreements.

A judge in the NAR matter is scheduled to convene lawyers from the settlement parties on Nov. 26. That is when a final ruling to approve the deal is expected. In the meantime, changes related to the settlement are now in effect.

Read much more on the changing real estate landscape in a blog post, published on Aug. 20.

Looking for an assessment of the local housing market? Check out my story from Aug. 13: King County Housing Activity Muted by High Purchase Costs.

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