No second thoughts for Amazon over huge South Lake Union development

Sixteen months ago, Amazon.com pulled the trigger on one of the biggest real-estate deals in Seattle history, signing long-term leases that gave Vulcan Real Estate the go-ahead to build the online retailer a huge South Lake Union headquarters complex.

That was in December 2007. The local office market looks a lot different today.

The downtown vacancy rate, propelled by Washington Mutual's collapse, is climbing. Lease rates have dropped.

New downtown office buildings containing more than 2 million square feet, most of it still unleased, are slated to come on the market before the end of the year.

Sharon Coleman, Vulcan's real-estate-development director, told an industry gathering this month that, considering all those changes, the South Lake Union deal might not have come together if negotiations with Amazon had stretched on for six more months.

But an Amazon spokeswoman said Monday that the online retailer is having no second thoughts about its $700 million-plus investment.

"We're pleased ... to have a unified headquarters where all of our associates can be in very close proximity to one another," said Patty Smith, Amazon's director of corporate communications.

"This space was designed with us in mind. ... Ultimately, that's going to be of benefit to us and our customers."

Smith spoke to reporters at a Vulcan groundbreaking ceremony for the newest and largest buildings to start construction in the 11-building, 1.7 million-square-foot complex.

Senior Amazon executives did not attend. But Gov. Chris Gregoire and Seattle Mayor Greg Nickels did, hailing Amazon's move as good news for tough times.

"Today we're celebrating one company that's doing well," Nickels said. He predicted 20,000 people would work in South Lake Union by 2012, more than double today's number.

Amazon's Seattle employees — it won't disclose the number — are scattered in several buildings in and near downtown, including its headquarters at the Pacific Medical Center on Beacon Hill.

The company originally agreed to lease 820,000 square feet in South Lake Union from Vulcan for up to 16 years. Last year, it exercised an option to lease an additional 540,000 square feet — two 12-story buildings that were the subject of Monday's ceremony.

Work on those buildings, between Thomas and Harrison streets and Terry and Boren avenues north, began earlier this year.

Amazon said in a regulatory filing late last year that it also had decided to occupy a planned 330,000-square-foot building on Boren, between Thomas and John streets, but still could back out if it pays a $10 million termination fee.

Vulcan officials revealed Monday that groundbreaking for that 12-story building, originally announced for this October, won't happen until May 2010, and the building would be finished in 2012 instead of 2011.

Vulcan spokeswoman Lora Lee said in an e-mail that the earlier dates were estimates, and the "time frame was updated/confirmed" after Amazon exercised its option on the 330,000-square-foot building last year.

Amazon's Smith said she didn't know whether Amazon would occupy all the space it has agreed to lease, or sublease some. "We intend to move our associates into space as it becomes available," she said.

The first buildings on the campus are scheduled for completion next year. Lee said the recession has resulted in some "modest savings" in construction costs.

Amazon has held up better than most retailers this recession, posting year-over-year sales growth through the fourth quarter. It will release first-quarter financial results Thursday.

Its stock closed Monday at $77.57, more than double its 52-week low of $34.68 in November, but still down from $91.26 on the day 16 months ago that it announced its move to South Lake Union.

Seattle Times business reporter Amy Martinez contributed to this report.

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