Today just two construction cranes rise above the broad streets of downtown Bellevue. A year from now there could be a lot more.
Today just two construction cranes rise above the broad streets of downtown Bellevue.
A year from now, there could be a lot more.
The wave of new development that swept through Seattle over the past couple of years hasn’t reached across Lake Washington. There’s no Eastside counterpart to Amazon.com, whose explosive growth has helped launch dozens of apartment and office projects in and around downtown Seattle.
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But downtown Bellevue may be on the cusp of its own construction boom.
“The picture has really changed in just the last three or four months,” says Elizabeth Stead, urban-design planning manager for the city’s Development Services Department.
Developers expect to break ground in 2013 on five residential projects with more than 1,100 units. At least three office towers, totaling about 1.5 million square feet, could start construction as well.
Key in both counts: Kemper Development’s ambitious, long-delayed expansion of Lincoln Square. Plans call for two towers with 545,000 square feet of office space, 392,000 square feet of retail, a 120-room hotel and 200 condos or apartments — most likely condos, says chairman and CEO Kemper Freeman.
Construction should start early next summer, he says.
Why the big surge in developer interest now? Because demand finally has caught up with supply, industry observers say.
Downtown Bellevue’s average apartment rent — $1,657 a month, according to research firm Dupre + Scott Apartment Advisors — is higher than anywhere else in the region.
And the office-vacancy rate is among the region’s lowest.
Those trends aren’t lost on developers like Seattle’s Schnitzer West. It says it could start building a 25-story office tower just east of Kemper’s project by the end of next year.
“Downtown Bellevue is obviously in high demand,” says Pam Hirsch, Schnitzer’s senior investment director.
A landlord’s market
Just 222 apartments are under construction in downtown Bellevue now — a fraction of the nearly 4,000 under way in downtown Seattle, Belltown and South Lake Union, according to Dupre + Scott.
Developers say the apartment-development boom bypassed downtown Bellevue until recently in part because the city’s high-rise zoning made land too expensive for the shorter, wood-frame projects that are most economical to build.
“The rents you could get didn’t justify high-rise construction,” says James Rivard, real-estate director at Spokane-based apartment developer SRM Development
Downtown Bellevue also had a big backlog of newer buildings to fill. Developers kept building there well into the recession, long after most work had halted in Seattle.
In 2010 alone, they delivered more than 1,500 apartments, including 445 converted condos at the brand-new Bravern in Bellevue. Downtown inventory increased 35 percent in that single year.
But those buildings are mostly filled now, and downtown Bellevue has become a landlord’s market. This fall, for the first time since 2007, not a single downtown Bellevue building surveyed by Dupre + Scott reported prospective tenants were getting incentives such as a month’s free rent.
Developers also are focusing on downtown Bellevue because there’s mounting concern that close-in Seattle neighborhoods may be getting overbuilt.
The Eastside, with healthy job growth and little new apartment supply, probably offers developers better opportunities now, George Petrie of Seattle apartment developer Goodman Real Estate told an industry gathering late last month.
Traffic, tolls on Highway 520 and the prospect of tolls on other freeways also are drawing developer attention to downtown Bellevue, City Councilmember Kevin Wallace — a developer himself — told the same gathering.
People who work there increasingly want to live there, too, he said.
Lisa Picard, executive vice president of developer Skanska USA, concurs. “Downtown Bellevue has really developed into an urban center,” she says. “Crossing the pond doesn’t happen as much as it used to.”
Skanska hopes to have building permits in hand by spring for Alley 111, a 13-story, 259-unit complex across Northeast Eighth Street from The Bravern. “We’re really pushing this,” Picard says.
She’s not alone. A spokesman says Cantera Group of Chicago anticipates breaking ground on a 160-unit project in Old Bellevue by the end of March.
Alamo Manhattan, a Dallas development firm with Northwest roots, plans a summer start on a 260-unit complex on Main Street, according to permit records.
And SRM has revived a project at the prominent corner of Bellevue Way and Main Street that it had shelved during the recession. Rivard says work on the 262-unit complex with 33,000 square feet of shops and restaurants should begin by July.
There could be still more apartments in the pipeline. Developers recently approached the city with plans for 800 more units.
Office vacancies fall
It’s been more than four years since the last office tower broke ground in downtown Bellevue — and that project, 15-story Summit III, remains unfinished, a victim of the recession.
Developer Bentall Kennedy stopped work on it in 2009.
But downtown Bellevue’s office market now is among the region’s tightest — in part because companies have been relocating there from elsewhere on the Eastside, brokers say.
The vacancy rate has fallen to 10.6 percent — nearly 5 percentage points lower than downtown Seattle, according to commercial real-estate database Officespace.com.
Large, contiguous blocs of space are in especially short supply.
“If you need 50,000 square feet or more, your options are very limited,” says Gary Guenther, a partner in brokerage Kidder Mathews’ Bellevue office.
Office developers smell opportunity. In addition to the Lincoln Square and Schnitzer West projects, Boston-based Beacon Capital Partners last month applied to build a 23-story tower on Northeast Eighth Street.
It projects a summer groundbreaking.
“All the metrics are heading in the right direction to support new development,” says Tom Bohman, a senior vice president in brokerage CBRE’s Bellevue office.
But he questions whether any developer will break ground without preleasing several hundred thousand square feet — enough to accommodate about 1,000 office workers. And while the office market may be tight, he adds, “there are not a lot of large-scale users like that swirling around out there.”
Insurance company Symetra was a possibility, but developers and brokers say it recently committed to stay in its namesake downtown Bellevue tower.
A Symetra spokeswoman declined to confirm that.
Gary Carpenter, an executive vice president with Bentall Kennedy, says work on Summit III won’t resume without a signed tenant — and few big ones are looking.
But Schnitzer West’s Hirsch and Kemper Development’s Freeman say they’ve had serious discussions with several large prospective tenants, companies they won’t name. “We’ve had an astonishing amount of interest,” Freeman says.
He and Hirsch also say they could “go spec” — start construction without any space pre-leased.
That gamble worked for Kemper, Schnitzer, Beacon and other developers who started building towers in downtown Bellevue in the middle of the last decade, before the real-estate crash.
Microsoft agreed to lease most of those buildings while they were still under construction.
But lenders are less inclined now to finance speculative projects, Bohman says. “I’m not sure, with this economy, that any of these developers is going to pull the trigger and go spec.”
If one does, Freeman says, others will follow: “It seems everybody goes, or nobody goes.”
Eric Pryne: 206-464-2231 or email@example.com