32 M A D ISO N M A R Q U E TTE

M A R K E T W A TC H

By Chad Eisenbud

Geek Chic?The Rapid

G row th of Tech-

H appy Bellevue,

W ashington

Directly East of Lake Washington, the once sleepy suburb of Seattle turned tech hub w ill soon be

hom e to the m ost exclusive retail shops in the w orld.

D ebuting later this year on a site that previously housed a D airy Q ueen, Travel Lodge, R ed R obin, and Taco T im e, is � e Bravern — a grand m ixed-use develop-m ent boasting N eim an M arcus, H erm ès, Louis Vuitton, Jim m y C hoo, Tory Burch, D N A 2050, Botegga Veneta, and Salvatore Ferragam o.

� is striking before-and-after portrait is a perfect illustra-tion of how quickly Bellevue, Washington has grow n in the span of a few short years and its m aturity as an econom ic center.

Impressive Demographics

In 2008, Fortune m agazine nam ed Bellevue the num ber one place in the country to live and launch a business. “Bellevue has grow n w ith unusual grace in recent years,” w rote Fortune, “H uge corporations exist sym biotically w ith startups, a boom ing dow ntow n abuts healthy

residential neighborhoods, and the rising skyline is tem -pered by an abundance of parks, as w ell as lakeside and m ountain view s.”

� e area’s dem ographic profi le is certainly im pressive. � e city’s resident population stands at 118,000, w hile its w orkforce is over 138,000 and clim bing. Average household incom e w ithin a fi ve m ile radius is $122,000 — alm ost tw ice the national average. Estim ates of day-tim e population are around 200,000.

M icrosoft’s R ole

� e area’s biggest em ployer is M icrosoft, based in nearby R edm ond. It em ploys nearly 40,000 w orkers in the Puget Sound region. In 2006, the com pany signed com m itm ents for over a m illion square feet of new offi ce space in Belleveue, including the entire tw o-tow er offi ce com ponent of � e Bravern. M icrosoft estim ates that Bellevue w ill soon house 5,700 w orkers in three separate projects.

33P LACES MAG AZ INE

MARKET WATCH

Microsoft says it chose Bellevue for the convenience of its employees — 80% of whom live on the Eastside. � e proposed East Link light rail line has also been approved to connect Bellevue with downtown Seattle and Redmond and the area enjoys easy access to the freeway.

� e town’s relationship with Microsoft has not always been rosy. During the tech bust in 2000–2001, the company pulled out of Bellevue and propelled an offi ce market collapse that scarred the community for several years, ultimately raising offi ce vacancy rates north of 20% . It prompts questions about the strength of an area so heavily reliant on one company and its count-less vendors and suppliers that call Bellevue their home. When the new space is delivered, Microsoft alone will occupy approximately 10% of the downtown offi ce space.

Microsoft’s huge presence and myriad of tentacles in and around Seattle are eerily reminiscent of cities such as Detroit that have paid dearly for their over-reliance on one industry and a small number of large compa-nies.

� ere are already some signs of weakness in the Micro-soft engine. � e company recently cut 5,000 local jobs and backed away from a tentative agreement to take 300,000 square feet of space in a new offi ce building in downtown Seattle which is under development by former Microsoft cofounder Paul Allen’s real estate development organization, Vulcan, Inc. To be clear though, Bellevue does house other major corporate

headquarters, including T-Mobile, Expedia, Paccar, and Eddie Bauer.

High Tech and High Fashion?

� e abundance of technology companies has led some to wonder whether Bellevue’s affl uent residents and workers are as fashion-conscious as other shoppers in other affl uent markets around the country. In an in-terview with the Seattle Post-Intelligencer in February 2009, Neiman Marcus’ Senior Vice President of Store Development, Wayne Hussey, said psychographic issues were an original concern for the retailer. � e Post-Intelligencer described it as the “shopping habits of fashion-blind Pacifi c Northwesterners.” Hussey said the recent growth and maturation of the area has mitigated many of their concerns.

Andrea Wasserman, a Seattle-based retail strategist, refl ected on her move to the area from Manhattan. “People ‘warned’ me that everyone would be exclusively outdoorsy. In reality, while there’s an appreciation for the outdoors, many of the same people who are camp-ing in the woods over the weekend really care about what they wear to work each Monday through Friday,” she said.

� e fact that downtown Bellevue is home to one of the country’s most successful enclosed malls, Bellevue Square, help further mitigate any concerns. � e 1.2 million square foot center is reportedly grossing over $600 per square foot in average tenant sales. Already anchored by one of the highest grossing Nordstrom

stores within the chain, it recently underwent a remer-chandising eff ort to enhance the number of fashion brands, including Burberry, 7 For All Mankind, Vera Bradley, Eileen Fisher, Lacoste, and Free People.

Regarding the prospects for the area’s new retail scene, Wasserman said, “� ere may be more interest in casual attire than there is in the Northeast, but that doesn’t mean people don’t want to look good. For many of these shops, it will come down to buying the right assortment for each store, which is no diff erent than what they need to do for any of their other locations across the country.”

C ondos, Hotels and N ew U rb anism

Downtown Bellevue is also getting a jolt from thou-sands of new condominiums recently added and under construction. � e Bravern alone has 455 new residen-tial units delivering in 2010. According to a May 2008 article in the Bellevue Reporter, Bellevue’s Planning and Community Development Director told a group of 300 realtors that the downtown population will double by 2010 and experience the fastest residential growth per capita of anywhere in the country over the next 10 years.

O ne challenge to creating the urban experience for these new residents will be the existing infrastructure. O riginally developed in the 1960s and 70s, Bellevue is not exactly a pedestrian paradise. Each block spans two football fi elds creating “superblocks” and the streets

GROWTH IN BELLEVUE, WASHINGTON

Sources: CoStar, Sites USA, City of Bellevue, Madison Marquette Market Research

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Downtown Bellevue has grown rapidly in the 21st century. Between the years 20 0 0 and 20 0 8 , both office RBA and population growth in downtown were up ~6 2% , and population figures are expected to alm ost triple by 20 20 . The 20 0 1 photo (below) shows downtown Bellevue in its early stages as an urban center. When com pared to the 20 0 9 photo on the next page, the m aturation of downtown Bellevue over the last eight years is evident.

City of Bellevue Incorporated . . . . . . . . .19 5 3 D ow ntow n Subarea P lan D eveloped . . . . . 19 79 D ow ntow n in Acres . . . . . . . . . . . . . . . . . .4 10

D ow ntow n Office RBA Grow th 20 0 0 Q 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 ,34 1,0 0 0

20 0 9 Q 1 . . . . . . . . . . . . . . . . . . . . . . . . .8 ,6 67,0 0 0 (+6 2% )

O ffice Vacancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 %

U nder C onstruction (as of A pril 20 0 9 ) . . . . . . . . . . 8 27,8 0 0 SF

D ow ntow n Retail RBA Grow th 20 0 0 Q 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,30 1,0 0 0

20 0 9 Q 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,693,0 0 0 (+12% )

Retail Vacancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.2%

U nder C onstruction (as of A pril 20 0 9 ) . . . . . . . . . .4 0 8 ,0 0 0 SF

D ow ntow n P opulation N um ber of Residents 20 0 0 . . . . . . . . . . . . . . . . . . . . .3,10 0

N um ber of Residents 20 0 8 . . . . . . . . . . . . . . . . . . . . 5 ,0 0 0

N um ber of Residents P rojected 20 20 . . . . . . . . . . 14 ,0 0 0

D ow ntow n Em ploym ent N um ber of Em ployees 20 0 0 . . . . . . . . . . . . . . . . . . 21,0 0 0

N um ber of Em ployees 20 0 8 . . . . . . . . . . . . . . . . . . 35 ,0 0 0

N um ber of Em ployees P rojected 20 20 . . . . . . . . .6 3,0 0 0

Daytim e P opulation . . . . . . . . . . . . . . . . . . . . . . . . . 53,0 0 0

White C ollar Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6%

Continues on page 3 3 >

Bellevue, Washington 2 0 0 1

34 MADISON MARQUETTE

MARKET WATCH

span four to six lanes of traffi c. � ese barriers will make it diffi cult to connect the new mixed-use projects like � e Bravern with other existing amenities such as Bel-levue Square.

Local foot traffi c is getting another boost from thousands of new and renovated hotel rooms. Recent openings include a Westin, a Courtyard by Mar-riott, a renovated Hilton, and Hyatt Regency. With several more hotel projects in the pipeline, Bellevue expects the boom in downtown development to attract more visitors. Microsoft anticipates it will contribute 100,000 local hotel room nights per year.

The Impact of the Downturn

� e recent economic slowdown has not missed Bel-levue. However, relative to downtown Seattle, condi-tions remain strong. A fi rst quarter 2009 Cushman & Wakefi eld report showed Class A offi ce rents down nearly 15% in Seattle but down only 3% in Bellevue. Offi ce vacancy rates are also lower in Bellevue than in Seattle.

Area observers credit the stable offi ce market to success-ful pre-leasing and the lack of over-building. However, the slowdown may still stall some of Bellevue’s aggres-sive growth plans. At least fi ve offi ce projects at various stages of planning have been shelved until the economy rebounds.

Bellevue’s unprecedented rise has drawn national attention and many of the new development proj-ects are poised to capitalize on its continued growth. � e story of Bellevue is still very much being written though, and a new chapter will begin this Fall with the opening of � e Bravern’s retail portion in September 2009. G rowth is certainly coming to Bellevue, but how the city reacts to this upscale center may have a great impact on the form of future development downtown. It is a fascinating case study, stay tuned.

Chad Eisenbud (chad.eisenbud@madison-

marq uette.com) is D irector of Investments in

our San F rancisco offi ce. P

DOWNTOWN COMMERCIAL DEVELOPMENT

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Downtown Bellevue is a one square

mile island of development surrounded

by a sea of low-density residential

development. This map highlights the

major development projects recently

completed, under construction, or

permitted downtown. City of Bellevue

figures project 2,740 residential units,

350 hotel rooms, 313,800 square feet

of retail space, and 1.6 million square

feet of office space will be completed

in 2009. Currently permitted, under

review, or in the pipeline are another

2,750 residential units, 465 hotel rooms,

840,000 square feet of retail space, and

2 million square feet of office space.

1. Avalon Meydenbauer Apartment Units . . . . . . . . .368

Retail Space . . . . . . . 80,000 SF

2. Legacy Tower Apartment Units . . . . . . . . .250

Retail Space . . . . . . . . 11,000 SF

3. Tower 333 Office Space . . . . . . 348,000 SF

Retail Space . . . . . . . .14,500 SF

4. Bellevue Towers Condominium Units . . . . . . 480

Retail Space . . . . . . . 22,500 SF

5. Westin Hotel Rooms . . . . . . . . . . . . . 337

6 . Avalon @ NE 10th Street Residential Units . . . . . . . . 400

Retail Space . . . . . . . . 8,000 SF

7. Hyatt Expansion Hotel Rooms . . . . . . . . . . . . .350

8 . Washington Square Condominium Units . . . . . . . 353

Townhomes . . . . . . . . . . . . . . 26

Retail Space . . . . . . . .15,000 SF

9. City Center East Office Space . . . . . . 700,000 SF

10. Belcarra Apartments Apartment Units . . . . . . . . . 320

Retail Space . . . . . . . . 11,500 SF

11. The Ashton Residential Units . . . . . . . . . 202

Retail Space . . . . . . . . 2,000 SF

12. Bellettini Senior Housing . . . . . . . . . . 150

Retail Space . . . . . . . . 3,000 SF

13. Ten20 Tower Apartment Units . . . . . . . . . 175

Retail Space . . . . . . . . .9,700 SF

Theater Space . . . . . 250 Seats

14. The Bravern Condominium Units . . . . . . .456

Office Space . . . . . . 620,000 SF

Retail Space . . . . . . 240,000 SF

15. Pacific Regent Phase II Senior Housing . . . . . . . . . . 168

16 . Courtyard by Marriott Hotel Rooms . . . . . . . . . . . . . 241

17. Ashwood II Apartment Units . . . . . . . . . 274

18 . Metro 112 Apartment Units . . . . . . . . .300

Commercial Space . . 25,000 SF

19. Meydenbauer Inn Apartment Units . . . . . . . . . .68

20. The Summit Building C Office Space . . . . . . 300,000 SF

Sources: City of Bellevue, Madison Marquette Market Research

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> Continued from page 33

Geek Chic?