ISSAQUAH, WA-Microsoft Corp. has leased 87,000 sf at Easpointe Corporate Center, taking the 158,000-sf class A office building back to 100% occupancy only a few months after Boeing Co., heretofore the sole tenant, renewed for only 70,000 sf. Both leases expire in 2011.

Eastpointe Corporate Center was built in 2001 by Opus at 22833 SE Black Nugget Rd., which is off Exit 17 from Interstate 90. The building owner, Wells REIT Inc., acquired the building in late 2003 for $30 million plus closing costs, according to SEC filings.

Boeing leased the entire building from Opus in 2001. When Wells acquired it in December 2003, Boeing was paying a base annual rent of $3.8 million, which translates to $24 per sf. Three months ago, Boeing renewed for five more years, but only for about 45% of its previous commitment. Microsoft’s lease for the remainder commences Nov. 1.

The current rental rate for both Microsoft and Boeing, given the lack of availability along the I-90 corridor, is believed to be right around the full-service asking rate of $26.50, ($18.50 net plus $8.00 for operating expenses). The average full-service asking rate for class A space on the suburban Eastside is $27.77, according to the latest data from Cushman & Wakefield.

Pacific Real Estate Partners principal Bill Pollard represented Wells in both transactions, with assistance from PREP vice president J.J. Sheppard and Wells’ Scott Brown. Dwight Newell with Trammel Crow Co. represented Microsoft. Joe Steele of USI Real Estate represented Boeing.

While there are several new class A office projects underway or planned for Downtown Bellevue, there is only one signficant suburban office project on the Eastside with a 2007 completion date, and the full service asking rate likely will come in at around $32 per sf. That project is Schnitzer Northwest’s 700,000-sf, three-building Advanta development along I-90, and Pollard has the listing. “I’m the only game in town,” he says.

According to C&W, the 7 million-sf Eastside Class A suburban office market had an overall vacancy rate of 6.5% while the Class A vacancy rate for the 3.1 million-sf I-90 Corridor submarket was under 5%. When sublease space is excluded, those rates drop to 5.5% and 3.5%, respectively.

In a conversation about the Eastside office market at mid-year, C&W director Tom Bohman told that although the suburban office vacancy rate ticked up slightly in the second three months of the year thanks to a couple of small construction deliveries, it’s not a trend.”It will be a very short-lived phenomenon,” he says. “There are a lot of deals in the pipeline, so the space is not really available. In fact, we’re seeing competition for spaces by multiple tenants.”

Indeed, after several years of enjoying a tenant’s market, Bohman says tenants are starting to issue LOIs (letters of intent) to secure space.

“Blocks of space greater than 15,000 sf are in really short supply,” he says. “Over the next 12 months there’s really no new construction in the suburban or downtown markets that will deliver, so through the balance of ’06 and most of ’07 it will get really tight and tenants will experience fairly significant rate shocks.”

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