December 14, 2006
The time’s right to build offices near Lake Union
By BRUCE M. BLUME
The Blume Co.
Everyone thinks that the three most important principles in real estate development are location, location and location. The late Norton Clapp, former president of Weyerhaeuser and noted investor in the Space Needle, once remarked that there are three equally important principles: timing, timing and timing.
This is clear throughout the Puget Sound region as developers, including myself, gear up to capitalize on the rare opportunity to build office projects. Seasoned developers know that in the greater Seattle area this chance comes only once a decade, so the rush is on to get going while the getting’s good.
Throughout the region, conditions for office development are excellent. CB Richard Ellis’ third-quarter report lists downtown Seattle’s direct commercial vacancy at just under 10 percent. For the third quarter in a row, absorption was almost double the historical average with more than 500,000 square feet leased.
A hot submarket
In Seattle’s Lake Union neighborhood, market conditions are even stronger. In fact, it’s the tightest of all Seattle submarkets with a direct vacancy rate of just under 5 percent. This is the result of existing tenants’ Pemco, Seattle Cancer Care Alliance, the Fred Hutchinson Cancer Research Center, ZymoGenetics, the University of Washington and the Bill & Melinda Gates Foundation expansion projects this year. By CB Richard Ellis’ calculations, this has cut the total vacancy rate from 13.75 percent a year ago to just over 7 percent now.
The area around the lake continues to emerge as one of the region’s most robust real estate markets. It continues to attract biotechnology and other life sciences companies as well as information technology firms and other business sectors.
Residential development is also strong. Combine this with the coming addition of public amenities the new streetcar, long-anticipated improvements to the Valley/Mercer corridor and the even-longer-anticipated South Lake Union Park, which the Olmsteds identified as park land 100 years ago and it’s easy to see that conditions are indeed ripe.
This is why The Blume Co. has begun construction on 1100 Eastlake, a five-story office/biotechnology building with more than 183,000 square feet of space. Until recently, only two major projects were moving forward in this neighborhood.
In addition to 1100 Eastlake, Vulcan Inc. is constructing a two-building complex at Westlake Avenue North and Thomas Street. The project totals 320,000 square feet, and Group Health Cooperative has agreed to take 185,000 square feet of it. Further validation of the submarket’s strength came late last month when Vulcan announced it is proceeding with 2201, a mixed-use project with 300,000 square feet of office space.
Location is an important part of the 1100 Eastlake story. The building site is next to Interstate 5 on a curving parcel with views of the lake and the Olympic Mountains. We’re next to the Hutchinson Center and ZymoGenetics and a block from the street car line.
Timing, as evidenced by the site’s history, is also key. Personally, I can attest to this. Eighteen years ago, I was driving along Eastlake and noticed a woody walk-up, home to the local office of HDR Engineering. I decided to pursue acquisition of the property.
Prescient? Hardly. I was lucky because this was before the Hutchinson Center announced it would build its campus across the street, so there was little interest in the property among competing developers.
The Blume Co. was fortunate to have a tenant come with the property. It allowed us to be patient until six years ago, when we were ready to start development. In October 2000, we thought construction could begin in the next 18 months. Our timing was terrible. The bursting of the dot-com bubble was exacerbated by 9/11.
Five years later, the market has turned, and we’re proceeding with development. Sellen Construction has demolished the woody walk-up, and construction of the Mulvanny/G2-designed building will begin in one month.
Already interest among prospects is strong. CB Richard Ellis’ Tim O’Keefe and Jesse Ottele, the project’s leasing agents, are in serious discussions with at least four major users for some or all of the building.
With expectations that the region’s economy will continue to grow and with the many improvements coming to the Lake Union neighborhood, 1100 Eastlake’s time has finally come.
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