Microsoft to lease Bellevue's City Center Plaza

Microsoft's big footprint in downtown Bellevue got even bigger Thursday.

The fast-growing company said it will lease 561,000 square feet — that's 25 of 26 floors — at the City Center Plaza office building, under construction at Northeast Sixth Street and 110th Avenue Northeast.

Microsoft has been gobbling up big chunks of new office space in downtown Bellevue for more than a year. The latest deal brings the total to more than 1.6 million square feet — more than Seattle's Columbia Center, the region's biggest office building.

When all the space is occupied, the Redmond software giant's downtown Bellevue employment is likely to top 5,500, spokesman Lou Gellos said.

"For a screwy economy, Microsoft sure makes the lights bright, don't they?" said Kemper Freeman Jr., chairman and chief executive of Kemper Development, parent company of Bellevue Square.

Microsoft leases 317,000 square feet at Freeman's Lincoln Square and last year signed a deal for 740,000 square feet — two entire towers — at The Bravern, a mixed-use project also scheduled for completion within the next year.

Freeman and others said the City Center Plaza deal is good news for downtown Bellevue retailers, condo developers and office landlords — just about everyone but office tenants looking to negotiate new leases in an increasingly tight market.

The agreement, which had been rumored for months, is likely to push lease rates even higher and vacancy rates lower, observers said.

About 2,000 Microsoft employees will move into City Center Plaza early next year. The deal will help alleviate a space crunch at Microsoft's Redmond headquarters campus, where some workers are sharing offices built for one.

By putting up new buildings in Redmond and leasing space elsewhere, "we're setting things up to accommodate the people we have and the people we expect to have," Gellos said.

Leasing City Center Plaza also will allow the company to bring together teams that work at scattered locations, Gellos said. Another representative said it's not clear which teams will move.

City Center Plaza's location, "a stone's throw" from The Bravern office buildings on Northeast Eighth Street between 110th and 112th avenues Northeast, also appealed to Microsoft, Gellos said. He said the company would lease all but the ground floor, which will be retail.

City Center Plaza is being developed by Wright Runstad of Seattle for Beacon Capital Partners of Boston. Neither company would comment Thursday. No terms for the deal were disclosed.

The companies had announced just one tenant for the building — El Gaucho steakhouse.

Oscar Oliveira, senior vice president in the Bellevue office of brokerage Colliers International, said the Microsoft/City Center Plaza deal could give a boost to other proposed downtown Bellevue office projects now seeking permits and financing.

"It just confirms what they're telling their lenders: that the market here is much stronger than the rest of the country," he said.

With City Center Plaza now spoken for, there's just one significant downtown Bellevue office building under construction that still has space available: Bentall Capital's 340,000-square-foot Summit III project, which probably won't be ready for tenants until early 2010.

Beacon Capital has applied for permits for an 800,000-square-foot office tower on Northeast Eighth, and Kemper Development is seeking approval for Lincoln Square II on Bellevue Way, a mixed-use project that would include 545,000 square feet of office space.

The Microsoft/City Center Plaza deal certainly helps Lincoln Square II's prospects, Freeman said. Three or four firms have approached him about becoming anchor tenants, he said.

Wasatch Development also has proposed two office towers as part of its full-block mixed-use Washington Square development on Northeast Eighth. CEO Dell Loy Hansen said Microsoft's move into City Center Plaza could accelerate the timetable for his company's project and others.

In addition to its space in downtown Bellevue, Microsoft has begun moving workers into leased space in the new Advanta Office Commons in the city's Eastgate area. Eventually more than 2,100 Microsoft employees will work there, a representative said.

Altogether, Microsoft employs about 36,000 in the Puget Sound area, including about 30,000 in Redmond.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com