Builders Scrambling To Meet Eastside Office Demand -- Corporate Tenants Flock To Projects Still In Pipeline

Like corn farmer Ray Kinsella in the movie "Field of Dreams," developer Luis Guincher believes that if he builds it, they will come.

Rather than a baseball field, though, Guincher is building a Redmond business park.

And, in fact, they're already coming. With tenants signed up to take half of the space in the first phase of Millennium Corporate Park, he's ready to build as soon as he has all his city permits.

"There are lots of large tenants who want to move right away," he said. "When the project is under construction, it will be 100 percent preleased."

Guincher has always been a bit more aggressive than most developers, but he has plenty of company these days.

Taking advantage of one of the nation's hottest markets for office space, developers are hurrying to break ground on business parks before their competitors do. Demand for office space on the Eastside has never been so high or vacancy rates so low.

With software, Internet, biotechnology and telecommunications companies looking for more space, developers are doing something most of them abandoned at the end of the '80s: They're building on "spec," the industry term for starting a project without leases in hand.

Unlike the 1980s, when an enormous amount of office space was built in high-rise towers in Bellevue and Seattle, the new boom is taking place in two-to-four-story buildings in suburban office parks.

Two years ago, Redmond's assistant planning director, Jim Roberts remembers, "there wasn't any spec."

"Microsoft was pretty much it," Roberts said. "There wasn't much growth. A big project for us two years ago was a 200,000-square-foot Microsoft project. Now that's nothing."

Microsoft, making room for 5,000 to 6,000 more employees at its main campus, is still doing plenty of building. The software giant is putting up 1 million square feet of offices - the equivalent of another Columbia Seafirst Tower.

The real story, though, is the amount of building for other companies. Projects in the development pipeline in Redmond alone add up to about the same size as the 38 Microsoft buildings that cover 300 acres on two campuses.

Highway 520, which snakes through Redmond, is the spine of the Eastside development boom. But office parks also are being built in Bothell and Bellevue, and others are in the planning stages in Issaquah.

Mike Lierman, who is planning a 450,000-square-foot office park as part of Intercorp's massive East Village planned community, describes the office market as "phenomenally healthy, phenomenally strong."

Issaquah may be on the brink of becoming a major office center. Among the options that Johnson Underwood Properties is considering for a former gravel pit on the north edge of town is a 600,000-square-foot office park. Rowley Enterprises, meanwhile, has prepared a master plan for 1 million square feet of offices at the Interstate 90-Highway 900 interchange.

"You can feel the energy," said Craig Wilson, a partner in the planned North Creek Place Building in Bothell. "There are tenants on the market, but they're not knocking the doors down. You know it's coming. The next five years for this area is going to be potentially explosive."

Contributing to the excitement has been AT&T Wireless's decision to move its growing headquarters to six buildings at Redmond Town Center that are under construction by Winmar.

Office space on the Eastside is in such demand that CB Commercial this summer reported a second-quarter vacancy rate of only 2.6 percent, well below the vacancy rates of 6 percent in downtown Seattle, 10.3 percent in Snohomish County and 28.2 percent in South Seattle and most of South King County.

National brokerage Cushman & Wakefield reported that in the first quarter of this year, the Eastside's vacancy rate was the lowest in the nation. Vacancies rose slightly in the second quarter, but demand remains strong.

The tight market has pushed rent for most Class A office space above $20 a square foot, close to the $25-a-square-foot cost of building suburban offices.

Owners of the U.S. Bank building and the Plaza Center building in downtown Bellevue and of the Island Corporate Center, Mercer Island's biggest office building, are taking advantage of the favorable market by putting their buildings up for sale.

More than twice as much space was under construction on the Eastside than in Seattle earlier this summer, although ambitious projects are on the drawing board in both places.

Would-be developers have announced numerous office and mixed-use projects in downtown Bellevue, but have been unable to land tenants and financing. Downtown construction is more difficult than campuses because it is more expensive, many tenants prefer low-rise campuses closer to home, and high-rises take longer to design and build.

Even in the less-risky suburban business parks, developers generally prefer to sign at least some tenants before building. They are much more cautious than the investors of the late 1980s who built high-rises that they couldn't fill for several years.

But developers are much more willing than a year or two ago to complete the design work, grade a property site and get a building permit before signing tenants.

Among the well-known developers building on speculation are Weyerhaeuser subsidiary Quadrant, Trammell Crow and national giant CarrAmerica. CarrAmerica is negotiating with potential tenants for its first two spec buildings in Redmond.

"The software companies that are on the Eastside don't seem to want to even consider locating to the South End or Seattle," Quadrant Senior Vice President Wally Costello said. "The Eastside seems to be a marketplace in itself."

Some observers are concerned about the growing euphoria, however. Although growing companies are looking for larger buildings and start-up companies need incubator properties, no one knows just how much space they will need in coming years.

"I think you could overbuild this market fairly quickly," said John Pogue, senior vice president of Koll Real Estate, which is selling off its North Creek and Canyon Park land to other developers.

Architect Gerry Gerron, who has been building on the Eastside for 30 years, said he's seen all the booms.

"This is solid," Gerron said. "What one fears is that everyone sees the same opportunity and then by the millennium it will have overdeveloped."

In the meantime, the developers keep working away.

"We've never been scared of going spec," said Guincher, president of Bellevue Continental and developer of Millennium Corporate Park . "The market is here. It's been here all the time."

A decade ago, Guincher noticed something that wasn't obvious to people who were focused on downtown skyscrapers: Several tech companies scattered around the suburbs were looking for larger but affordable space.

During the late 1980s, he built the 675,000-square-foot WestPark campus across the Sammamish River from Redmond City Hall.

While downtown developers were losing their shirts, Guincher was happily collecting money from his tenants. Now some of those original tenants, who previously needed 5,000 to 10,000 square feet of offices, are looking for 50,000 to 100,000 square feet.

Keith Ervin's phone message number is 206-515-5632. His e-mail address is: kerv-new@seatimes.com