The “Great Reversion” that’s sweeping the residential real estate market is also hitting commercial developments, particularly on the Eastside. Bellevue has been host to massive office leases for some of the region’s leading employers, including Microsoft and Amazon. Now, those companies have begun pulling back on leases, tipping the balance of the market and creating uncertainty about the future.
Much of the reason for the slackening office leases has been the slow return to office and continued practice of hybrid and remote work, especially in the tech sector. A recent report indicates that the regional office vacancy rate was 10% in the second quarter of 2022.
In Seattle, that’s even higher, with a vacancy rate of 13%; however, the city’s central business district currently sits at 18.6% vacancy — a staggering figure when the pre-pandemic competition for office space is taken into account.
The Eastside hasn’t been hit quite as hard, although news that Amazon is slowing down its leasing practices in the area isn’t necessarily welcome. That being said, currently the region’s vacancy rate is 5.4%, which is down slightly from 5.5% in the first quarter.
Microsoft’s plans for its future office space will also have an outsized impact on the Eastside’s office vacancy rate. Currently, the company leases about 5 million square feet of office space in King County, all of which is on the Eastside. Microsoft has announced it doesn’t plan to renew up to 1.1 million square feet of leased space.
Half of this leased office space is in Bellevue and Issaquah, along the I-90 corridor. That area is currently experiencing a 13.8% vacancy rate. If Microsoft were to pull out of Bellevue altogether, the city’s vacancy rate would jump from 8% to 24%.
That’s a worst-case scenario, however. As of yet, Microsoft has only indicated it will be letting go of the leases that expire in 2023. It still has leases in Bellevue at City Center Plaza, Bravern I and II, and Lincoln Square North. These leases expire between 2023 and 2025, and several of them are undecided at present.
But while Microsoft is easing off its office presence, Meta is striding forward with the opening of its Spring District campus and the Block 16 building. The development is 36 acres — the largest transit-oriented development on the West Coast. So far, Meta has signed leases on five buildings totaling over 1.4 million square feet of office space, including Block 20, which was originally supposed to be the new REI headquarters.
Meta now employs over 8,000 people in the region, with moves to add more. The new campus in the Spring District aims to entice employees back to the workplace, with features including VR spaces, an impressive array of art installations from local artists, and an Open Arts maker space where employees can experiment with tactile art forms like ink screen printing and mixed media.
While Eastside employers are still testing the waters when it comes to their physical footprints and leased office space, one thing is certain—if they want to entice employees back to the office, they’ll need to offer more than a break room and a foosball table.
Information for this article was sourced from GeekWire, and Puget Sound Business Journal here and here.