March 14, 2013

Desire for urban living makes downtown Bellevue hot

Picard

While many businesses were retracting, most didn’t notice the burst of jobs that migrated into downtown Bellevue after 2008, nearly quadrupling downtown employment from 12,000 to 44,000 in 2011.

Much of this jump in Bellevue’s CBD employment was largely due to Microsoft’s occupancy of new office projects between 2008 and 2009. This migration of employment forced Bellevue to become a functioning urban center overnight as the demand for services, restaurants and housing sharply increased. The growing desire of companies to be in downtown Bellevue over the past year has significantly reduced available Class A office space to less than 8 percent, while in Seattle office vacancy rates remain in the mid-teens.

What’s driving this interest in downtown Bellevue?

U.S. Census data from 2010 highlighted a growing trend toward a nation of singles, where more than 45 percent of households are single-occupied; in downtown Bellevue single households are nearly 60 percent. The Brookings Institution found in 2011, that for the first time in our nation’s history, the majority of the voting age population was not married, and the percentage of married households has steadily declined since 1950 from 78 percent of the population to now just 28 percent.

Clearly this large and growing population of singles is placing new growth pressures on cities everywhere; an increased demand for urban living where there is heightened human engagement and connection of people.

Urban areas have become playgrounds for the human experience, places to be connected and entertained. Companies and people find less value in locating behind suburban berms adjacent fields of parking as we move into a new economy, a collaborative one. This is not only changing where developers supply housing but how we do it; having a dynamic understanding of the changing market’s hopes, desires and needs.

The city of Seattle has seen its biggest jump in apartment demand and one of the largest increases in supply without any signs of it softening. The Seattle metropolitan area has two distinct urban markets, Seattle and Bellevue. Further, the newly increased costs of time and tolls to cross Lake Washington have only caused our two urban markets to become even more distinct and separate.

Bellevue, as the second urban center, has an apartment stock that is largely comprised of condominium projects turned apartments with the lack of buyers and lenders after 2008. Many of the condo developers couldn’t sell their inventories so most if not all of the units became part of the market’s apartment rental pool in an attempt to cover operating costs and debt service.

Condo units are generally larger and tend to have lower per-square-foot rents than apartments. Having this inventory of higher quality product at lower rent structures slows the development of new apartment inventory until pricing climbs. Certainly when home ownership further recovers, the Bellevue apartment market will get much tighter as the owners of those buildings look to exit the market.

Today, downtown Bellevue’s apartment market is just 3.1 percent vacant and it is projected to dip below 2 percent this year as demand increases with an improving economy and strong desire for people on the Eastside to be at its urban core. These dynamics will only place increased pressure on apartment rents, and Bellevue’s downtown rents are expected to grow by more than 5 percent in 2013 and 2014.

As developers like Skanska build into this next apartment cycle for the different lifestyles of urban areas like downtown Bellevue, we must understand how people use cities and create places that drive the desire for human connection, both virtual and real. It is critical to not over-program amenity spaces, but provide flexible venues allowing different users the ability to creatively customize their own social experiences.

Other Stories:

• Construction crane flock headed back to Bellevue?
  
• Developers, lenders cautious without anchor tenants
  
• High-income city faces a shortage of affordable housing
  
• Bellevue’s challenge: increasing economic growth and livability