Downtown Bellevue office market flourishing

Developer Kemper Freeman took hold of a pair of scissors adorned with gold ribbon Thursday and ceremoniously marked the opening of a 28-story office tower at Lincoln Square, delivering the first of four new office projects planned for downtown Bellevue.

About 200 people attended the ribbon-cutting, adding to the upbeat mood already felt throughout downtown's development community.

Retailer Eddie Bauer will move its headquarters there from Redmond, and Microsoft will take the tower's top 15 floors

"It's happy-dance time," Leslie Lloyd, president of the Bellevue Downtown Association, said during a subsequent ground-breaking ceremony at the Hyatt Regency Bellevue, where Freeman plans a second tower with 351 additional rooms, bringing its total to 733.

"As they say, it's all good."

A day earlier, online travel agency Expedia said it will move its headquarters from the Interstate 90 corridor in Bellevue's Factoria neighborhood to another tower being built downtown.

With Redmond-based Microsoft expected to take two more buildings under construction at the Bravern Office Commons, downtown Bellevue is now left with just one office project that has unleased space: 26-story City Center Plaza.

"For the past year and a half, people in the industry have been talking about the strength of the Bellevue market," said Christa Chambers, a senior vice president with KeyBank Real Estate Capital in Bellevue, a co-lender at Lincoln Square. "From a lender's perspective, it's all coming to fruition. Leases are being signed, and rents are going up."

A report released Thursday by the Cushman & Wakefield brokerage firm shows office-vacancy rates are down throughout the Seattle area, allowing landlords to raise rents to levels not seen since the technology boom of the late 1990s — a much less positive development for tenants. A handful of new office buildings are under construction in downtown Seattle, but they won't be finished for more than a year.

"Space is limited, and rents are skyrocketing," said John Miller, senior managing director of Cushman & Wakefield's Northwest region.

Also, rents are up as real-estate investors from outside the Seattle area pay top dollar for office buildings.

In April, Boston-based Beacon Capital Partners paid the Blackstone Group of New York between $360 and $395 a square foot for some of the area's most prestigious office buildings, including the 76-story Columbia Center in downtown Seattle.

"They have to raise rents, and probably a lot quicker than most tenants were in a position to absorb," to justify the prices they paid for buildings, said Charlie Hampton, a broker with Grubb & Ellis in downtown Seattle. "Everyone is buying to make a profit."

Grubb & Ellis released a report last week showing that asking annual rental rates for premium office space are up 17 percent in Seattle's central business district and 28 percent in downtown Bellevue.

Hampton said he's advising businesses looking for more office space to consider making do with what they have.

That's what Logicalis is doing at its offices in Bellevue's I-90 corridor, said Shaun Olsen, an executive at the Michigan-based technology company.

Logicalis began looking late last year for double the amount of office space it now has in Bellevue to accommodate a growing work force — but it stopped after three months.

Logicalis needed part of a floor, not an entire floor, Olsen said, and landlords "weren't willing to break their space down into a chunk that was usable for us."

Logicalis is staying put and making more efficient use of its offices, including putting workers on flexible schedules so cubicles can be shared.

"We'll re-evaluate things later on this fall," Olsen said. "We absolutely wish we had more options."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com