If an office market is only as strong as its weakest submarket, the Eastside could be in trouble.
Exhibit A is the Interstate 90 submarket, which likely would be devastated if the T-Mobile-Sprint merger goes through and if Microsoft keeps vacating space in the corridor. Together the companies - T-Mobile and Microsoft - lease nearly 2 million square feet, or about 45 percent of the total inventory of the submarket's 4.4 million square feet.
A month ago, news broke that Sprint Corp. and Bellevue-based T-Mobile US Inc. had agreed to the outline of a merger that would have Sprint buy T-Mobile for $32 billion. Now Microsoft CEO Satya Nadella is hinting that a big shake-up is on the horizon at his company.
While nothing definitive has been publicly announced by either company, the prospect of Overland Park, Kansas-based Sprint buying T-Mobile and big changes at Microsoft likely would be bad news for the region's office market in general - and the I-90 submarket in particular.
Microsoft already has downsized in Issaquah. The software company vacated one large office building in the city, where it also occupies two other buildings, though perhaps for not much longer. City Administrator Bob Harrison last year said he thought the remaining leases run only until 2016. In addition, last fall Microsoft sold a 63-acre acre parcel in Issaquah, where it had planned to build an office campus.
All of this is occurring as the I-90 market is rebounding. According to commercial real estate company Jones Lang LaSalle, the office vacancy rate has tumbled to 10.9 percent, down from 18.7 percent a year ago. The submarket got a boost when Boeing leased nearly 210,000 square feet of office space. (Coincidentally, some of the space that Boeing took had been occupied by T-Mobile in the Sunset North campus.)
Yet the I-90 market is still relatively soft, said Jeff Chaney, a commercial real estate broker at the Bellevue office of Kidder Mathews. The office vacancy rate in downtown Bellevue is just 8 percent. The Factoria area along I-90 would be hit especially hard because T-Mobile occupies around 867,000 square feet in the Newport Corporate Center.
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