The office market in downtown Bellevue continued its remarkable rebound during the last three months of the year, as vacancy rates dropped and rents took their first significant...

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The office market in downtown Bellevue continued its remarkable rebound during the last three months of the year, as vacancy rates dropped and rents took their first significant move upward since 2001, according to a report released yesterday.

Meanwhile, Seattle’s downtown office market was stubbornly flat, with a 15.2 percent vacancy rate. The city is bracing for more empty space in 2006, when Washington Mutual moves into a 42-story tower.

Downtown Bellevue’s vacancy rate fell 1 percentage point since September to 9.8 percent and is projected to keep falling to 7.1 percent by 2006, analysis from real-estate brokerage Cushman & Wakefield showed.

The average annual rent for top-quality space jumped $1.28 to $24.27 a square foot as owners took advantage of Bellevue’s tightening supply.

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Though rents linger far below the gravy rates of $38.09 at the height of the boom, they are expected to keep climbing.

Just two years ago, Bellevue’s vacancy rate was a staggering 29 percent, leading many observers to predict a long dark future for the Eastside’s largest urban center.

“There were a lot of people saying we had an eight- or nine-year supply,” said Tom Bohman, who heads Cushman’s Eastside office. “That is clearly not the case.”

Bellevue’s fast-paced recovery from the worst commercial-real-estate bust in decades has led developers to consider something almost unimaginable a few months ago: construction of a new office tower.

The turnaround is due largely to one company, Equity Office Properties, which lured Safeco spinoff Symetra Financial and online retailer drugstore.com to downtown Bellevue with aggressive deals early this year.

High sales prices fetched recently by buildings such as One Twelfth @ Twelfth may also give developers the confidence to start projects even before rents return to the $33 to $35 per-square-foot level considered necessary to turn a profit.

Already, companies such as Kemper Development, Equity Office and Schnitzer Northwest are jockeying to get projects ready to go.

Most observers give odds to developer Kemper Freeman, who is building the Lincoln Square hotel, retail and condominium development. An office tower planned for the project already has permits, and Freeman owns the steel.

But other developers are just as eager. “We are not that far out given the lack of high-end space,” Bohman said.

J. Martin McOmber: 206-464-2022 or mmcomber@seattletimes.com