Microsoft's Bellevue office space deal a record-setter

Microsoft's announcement Thursday that it will rent 1.3 million square feet of office space at five buildings under construction in Bellevue represents the largest single office-leasing deal in the Seattle area.

"We've never seen anything this big," said Thomas Bohman, a commercial real-estate broker for Cushman & Wakefield in Bellevue.

Microsoft said it will move into three buildings at Schnitzer Northwest's Advanta project near Interstate 90 in southeast Bellevue, as well as two buildings at Schnitzer's Bravern multi-use complex downtown.

Schnitzer began both projects on a speculative basis, meaning it had no signed tenants. Terms of the Microsoft deal weren't disclosed.

Landlords typically cheer when a big chunk of office space gets absorbed, and the Microsoft deal is no exception, brokers said.

But among their tenants, the response is likely to be more subdued, since they can expect higher rents.

"Obviously it gives landlords more confidence," said Dan Foster, a broker who represents tenants in lease negotiations. "Tenants are going to have a more difficult time getting the lease concessions they want."

Downtown Bellevue already is the area's most expensive office market, with an average annual asking rate of $33.48 a square foot for premium space, according to a recent report by brokerage Grubb & Ellis. That's up 24 percent from a year ago.

Even so, Foster said he's encouraged that two other projects being built downtown — the 400,000-square-foot Tower 333 and the 570,000-square-foot City Center Plaza — remain uncommitted to tenants.

Rents are rising because vacancies are low and the majority of office space under construction won't be completed for at least six months.

Also, some of the area's largest office buildings are being sold for top dollar, forcing their buyers to raise rents to recoup their investments.

"Companies that used to be able to afford to be here may have to consider moving farther out," said Kip Spencer, co-founder of Officespace.com, a commercial real-estate data firm, referring to downtown Bellevue.

"Suburban office markets are going to be beneficiaries," Spencer said.

Microsoft's deal surpasses Safeco's announcement last year that it would lease 424,000 square feet of office space in downtown Seattle, and Symetra Financial's announcement in 2004 that it would lease 290,000 square feet of space in downtown Bellevue.

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