Amazon to make giant move to South Lake Union

South Lake Union wasn’t exactly in the development doldrums before Amazon.com‘s announcement Friday that it will move its corporate headquarters to the neighborhood.

Still, the online retailer’s long-anticipated commitment to South Lake Union will elevate the fast-changing neighborhood’s profile to a new level, observers of the local commercial real-estate scene say.

“This is a Fortune 500 company,” said Stuart Williams, a principal with Pacific Real Estate Partners, a brokerage and consulting firm. “Other people will say, ‘That neighborhood is good enough for a Fortune 500 company — it should be good enough for us.’ “

David Yuan of the architectural firm NBBJ agreed. “I think it’s a statement about the coming of age of South Lake Union,” he said. “South Lake Union is now a legitimate business address.”

Amazon has agreed to lease up to 1.6 million square feet in up to 11 new buildings to be constructed by developers Vulcan and Schnitzer West along Terry Avenue North and Boren Avenue North between John and Mercer streets. Construction on the first four buildings is scheduled to start next month, and all 11 should be ready for occupancy in 2010 and 2011, the companies said in a joint statement.

Amazon’s local workers now are scattered in five buildings in and around downtown Seattle, including its current headquarters at the Pacific Medical Center on Beacon Hill.

The company does not disclose how many people it employs in the area. But city planners estimated this fall that Amazon could bring 6,000 employees to South Lake Union over the next five years.

Amazon spokeswoman Patty Smith said the company is pleased to be staying in Seattle and excited about South Lake Union. “We think it offers many amenities, not to mention great access to public transportation,” she said.

“Plus, the fact that we have a unified headquarters will improve employee collaboration.”

Transformation of the once-moribund South Lake Union neighborhood has been a high priority of Mayor Greg Nickels, who said Amazon’s move “hails the great things happening in South Lake Union.”

Since 2003, according to a recent city report, 2.4 million square feet of commercial space and 1,850 apartments and condos have been built or are under construction in the area. Nearly 7,000 jobs have been created, the report says.

Vulcan, owned by Microsoft co-founder Paul Allen, is by far the neighborhood’s largest developer. The company says it has completed 1.7 million square feet of projects and has 1 million under construction.

Amazon isn’t the first high-profile tenant to lease office space in South Lake Union. Microsoft has committed to 100,000 square feet in Vulcan’s new Westlake/Terry Building. Group Health is moving its headquarters there.

Nor is Amazon the first company to make such a big commitment to the neighborhood. The Fred Hutchinson Cancer Research Center has 1.3 million square feet of lab and office space. The University of Washington’s medical-research operations plan to occupy 850,000 square feet by 2018, spokesman Bob Roseth said.

Still, Williams, Yuan and others said, Amazon is South Lake Union’s biggest catch yet. It is the second-largest publicly traded company headquartered in Washington, with a market value that now exceeds Starbucks, Washington Mutual and Nordstrom — combined.

“They could have gone anywhere,” Williams said.

Most of South Lake Union’s big tenants so far have been biotech companies, he added, and Amazon helps boost the neighborhood’s appeal to other prospective tenants.

A major corporate headquarters such as Amazon in the South Lake Union area will have a spinoff effect, said Patrick Callahan, founder of the Urban Renaissance Group, a development firm. Amazon vendors and potential partners will consider locating nearby, he said.

Amazon also should spur more retail and residential development in the neighborhood, Callahan added. “Some people who work at Amazon will consider living there. They certainly will shop there.”

Amazon’s move had been rumored for months. Wright Runstad, the company’s landlord on Beacon Hill, said last month that it had started showing the Amazon space to prospective tenants, even though the lease isn’t scheduled to expire for more than two years.

The last apparent obstacle was removed Monday, when the City Council approved a land-use-code change Vulcan had sought to allow taller buildings — up to 165 feet — on some of the property slated for Amazon’s campus.

The companies wouldn’t discuss terms of the deal. But Amazon said in a filing Friday with the Securities and Exchange Commission that it had committed to lease about 800,000 square feet for up to 16 years for about $700 million.

It also said it had an option to lease another 800,000 square feet — including the taller buildings the City Council authorized Monday — for another $800 million, and would pay a $40 million termination fee if it chooses not to occupy that space.

Neither Amazon spokeswoman Smith nor Vulcan Vice President Ada Healey would say when Amazon must decide about the optional space. But the first of those buildings is scheduled to break ground in July 2009.

And Healey said Vulcan is confident enough about those buildings that it is starting design.

If all 11 buildings are built, they will include 1.635 million square feet of office and 100,000 square feet of street-level retail, Vulcan said.

The campus will include courtyards and public open space, Vulcan said. All the buildings will be within a block of stops on the new South Lake Union Streetcar.

Amazon’s move to South Lake Union, together with Starbucks’ expansion in Pioneer Square and the Gates Foundation’s pending move to Lower Queen Anne, suggests downtown may be bigger than it used to be, Callahan said.

“In my opinion, downtown now is from Safeco Field all the way to Lake Union and the Seattle Center.”

Seattle Times business reporter Amy Martinez contributed to this story.

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