July 18, 2022

Amazon rethinks Bellevue office towers totaling over 3M square feet

Rendering by Vulcan Real Estate [enlarge]

Vulcan announced two years ago that Amazon would take over 1 million square feet at West Main, which is slated for completion in late 2024. Amazon now plans to occupy only one of the three towers.

In a shocking development unearthed on Thursday, Amazon has said it's rethinking its needs for over 3 million square feet of office space underway in downtown Bellevue. In a statement, Amazon real estate czar John Schoettler said, “We're pausing construction to reevaluate the design of some of our projects in Bellevue.” Puget Sound Business Journal first reported the news. The Seattle Times had yet to weigh in as of presstime Friday.

Said Schoettler, “The pandemic has significantly changed the way people work. For our corporate and tech roles, we've adopted a hybrid model that offers employees increased flexibility — each team decides the balance between in-office and remote work that makes sense for them.”

Amazon already has some 10,000 office workers in downtown Bellevue. Schoettler said, “This doesn't affect our plans to bring more than 25,000 jobs to the city.” A spokesman says there are now about 2,000 jobs to be filled in that city.

The expansion of light rail to downtown Bellevue, expected by early 2024 or sooner, has long been seen as a key factor in Amazon's growth in that city. A lower tax climate, cleaner and safer streets and sidewalks, plus the perception of Bellevue as being more business friendly than Seattle have all been cited, too.

But will all those future Amazon workers be in the office nine to five, Monday through Friday, or on a hybrid schedule that includes work-from-home and hot desks? (Those are shared work stations, reserved or assigned as needed, in a practice often called “hoteling.”)

That balance, said the spokesman, is what the company is now evaluating. All these towers were in planning long before COVID-19 struck. Said Schoettler, “It's early days, and like many companies, we're still learning how these new habits may impact our office footprint.”

Rendering by Rendering by NBBJ [enlarge]

For the Amazon-owned Bellevue 600, the Phase II tower (left) is on hold.

The developers most directly affected, with steel and concrete well above ground, are Vulcan Real Estate and Schnitzer West, which began three projects in recent years after Amazon leases were signed and announced. Those will not be terminated, says the company.

Amazon itself is developing its own phased two-tower Bellevue 600, with the first east tower not yet above ground. The second west tower will be paused indefinitely. (That was to replace the old Bellevue Corporate Plaza building , which Amazon owns and could repurpose.)

Likewise, the company isn't abandoning Vulcan's 555 Tower and the three towers of West Main, or the Artise from Schnitzer West. The spokesman called them long-term commitments.

Accordingly, the core and shell work will be completed for all of the above. All the lobbies and lower retail/amenity areas will be finished, too. (Attracting retailers to an empty office building does, however, seem unlikely.) Amazon will finish and occupy the south tower at West Main. And it'll finish and occupy Bellevue 600's east tower up to the 19th floor.

Ahead lies a very hard look at the unfinished interiors for those four projects and their six individual buildings. All were planned to be single-tenant buildings; some could be repurposed for multiple tenants — as was the case when Amazon walked away from Rainier Square in downtown Seattle, where subleasing efforts continue.

In downtown Bellevue, millions more square feet of offices are being planned — some of it actually underway — by speculative developers. Now under construction are Skanska's The Eight and the Four106 venture of Patrinely Group and Dune Real Estate Partners. Skanska hasn't announced any leases, and has no choice but to complete its building. Four106 only broke ground this month, and could be paused after excavation and shoring.

Still in the permit process, though with millions of dollars already sunk into the land costs, are over a half dozen other office projects that will be nervously eyeing Amazon's space needs. Should there be a new glut of Class A sublease space, everyone will reconsider their plans.

For its part, Broderick Group's second quarter office report for the Eastside was foreboding, even before Amazon's pause. It had warned that Microsoft might decline to renew major downtown Bellevue office leases, then shift workers back to its expanded Redmond campus.

And, as PSBJ subsequently reported, that's exactly what happened. By 2025, Microsoft will shed some 2.7 million square feet downtown. And that will increase the office vacancy rate at the worst possible time. Rather than committing to new Class A buildings that now exist only on paper, Amazon could gobble up that free space on favorable terms, with turnkey availability.

Landowners who've been planning new office towers, banking on Amazon's seemingly endless appetite for new space, may need to rethink those plans. If tech workers are spending more time in the home office, i.e. the second bedroom, downtown Bellevue apartments or even condos may now be favored over traditional office space.

Broderick's recent office report turned out to be prophetic: “Remote work has been stubbornly persistent, leading to long-term reconsideration of the role of the physical workplace. Rarely has the Eastside had to navigate so many shifting currents at one time.”