Squint long enough at the cranes poking through Seattle’s skyline these days and they may start to resemble middle fingers. Rising between hotels and office buildings that have stood empty for months, new developments have seemed like brazen, even reckless, projections of normalcy amid our stay-home state. Of course, some of these projects were well underway by the time Covid-19 began spreading in their shadows; it’s difficult to pull the plug from 40 stories up. But more nascent construction raises the question: Should builders be this optimistic about downtown’s future?
For developers and realtors looking for quick returns, the answer is no. A condo backlog has signaled that it could be a while before inventory and prices approach comfortable levels for realtors. And the speed of this residential recovery depends, to some degree, on the return of office work and activity in commercial spaces; pretty as that Puget Sound view is, proximity to the company conference room has typically been a major draw to downtown living. Downtown Seattle Association’s bleak economic recovery figures, including a steep drop in office leasing activity (down 73 percent year-over-year last month), don’t presage an overnight rebound once people get their shots.
Colliers International’s most recent Puget Sound Office Market Report details more of that hit to commercial real estate across the region. While supply continued to rise, demand plummeted during the third quarter of 2020. Rents in Seattle’s central business district dropped 4.1 percent, and the northern and downtown areas of Seattle, as well as the Eastside, saw a combined 657,000 square feet of move-outs, many of which were smaller businesses. “It really has kind of been a story of the haves and the have-nots,” says research analyst Nicholas Carlsen, one of the report’s authors. Not that major players have escaped its wrath in this city or others. “Obviously, the pandemic has been a net negative,” says Carlsen, “and I think that has been the case everywhere. No one would deny that.”
There’s some evidence to suggest that Seattle’s appeal has slipped compared to other cities. As The Seattle Times covered earlier this month, the esteemed Emerging Trends in Real Estate report for 2021 ranked the Emerald City 34th in overall real estate prospects. In 2020, the city was 10th.
Still, Seattle made Emerging Trends’s cut for “18-hour cities” that “are popular in-migration destinations due to lifestyle, culture, and employment opportunities,” a distinction that bodes well for realtors and developers who can afford to take a short-term beating for a long-term gain. The Colliers report also sounds an optimistic note. “It would be easy to say there is a demand problem, instead of a supply one, but tenant demand has not retreated so much as hit the pause button,” it states. “Future demand looks bright for the Puget Sound, as the fundamentals leading to its growth have not changed.”
By phone, Carlsen cited the continued success of tech giants as one reason to expect the Puget Sound region's commercial real estate scene to recover. It's not a given that Seattle will be the city that receives this boost, though. Its new tax on businesses might push some employers to the Tacoma area, where some companies have already moved, or the Eastside, where Facebook and Google have recently made major investments. “That tax, that’s going to hurt a lot of businesses, because it's not a small amount of money. It's legit,” says Brian Hatcher, the president and COO of Kidder Matthews.
Hatcher frequently travels between the commercial real estate firm’s offices in Seattle and Bellevue. He says it’s “a tale of two cities.” “It looks like Seattle's prepping for a hurricane with all the boarded up windows…and the traffic downtown is pretty quiet. Versus Bellevue, with all the new buildings, they're building on the Eastside, it just kind of seems like Covid never happened.”
Hatcher isn’t down on Seattle’s long-term prospects, though. Like many realtors, he expects workers to come back and an urban "renaissance" to take root. “This is my fourth recession in the industry. The bigger cities with the real high rents get hurt first, but they're always the first to bounce back. This isn't going to be any different. Most companies want to be where their employees are. And most of the employees want to be in downtown, young employees out of college want to be in downtown settings.”
The Colliers report echoes that sentiment. “It would be foolish to write off Puget Sound’s pre-eminent skyline market," it concludes. "Companies will continue to want access to University of Washington’s steady stream of talent and the prestige that comes with occupying trophy office towers.”
Or, as some of them once were, middle fingers.