The duration and intensity of the Downtown Seattle development boom is getting a little surprising, beyond even my optimistic guesses from a few years ago. This isn’t just another Seattle-type boom. But here’s the kicker: things seem poised to keep going.
That’s saying something. Between offices, housing, and transportation, this is clearly the busiest we’ve ever been. And we’re four years into it, vs. the typical hard stop far short of that.
The current wave is over 7,000,000 square feet of office and 15,000 housing units by my napkin count, if you gerrymander things up Dexter and Pike/Pine a little, including projects that are at least in active site prep. For offices I believe it’s a record for greater Downtown. For housing it’s a modern-day record by a factor of two.
First is tech. Amazon is obvious. But there’s also a pretty stunning wave of national or global tech companies setting up or expanding tech offices in greater Downtown. These companies need talent, and the word is out about Seattle. Even if one of our giants stumbles, is there any doubt that other firms would swoop in to hire waves of their people? This is giving developers the confidence to pursue additional projects at a high rate.
Second is a continued inflow of other companies into Downtown from around the region, for example Weyerhauser and MulvannyG2, as well as Expedia though it’s more distant. Companies value Seattle locations for stated reasons like recruitment, business synergies, public transit, and lunch options. Other local nodes are doing a good job of developing downtown-type amenities and synergies, but greater Downtown Seattle has a strong pull right now. (Bellevue will be fine of course; Downtown Tacoma, Downtown Everett, Kirkland, and others are doing a lot of great things too.)
There will be headwinds, like traffic. As the workforce grows, it’s clear that driving can’t grow much with it because there’s no space. Transit will need to improve a lot. Thankfully every new apartment helps reduce the number of inbound commuters.
On that note, housing will keep booming. New office buildings mean a lot more potential Downtown residents, both directly and indirectly. As more office workers compete for the same street, freeway, and transit space, the idea of a six-block walk to work becomes more attractive for longtime workers too, all the more so as district after district adds more residential mass and related services. Some point out that 25-year-old urbanites often become 30-year-olds with kids that want houses, but good news…today’s 20-year-olds will replace them. And how about baby boomers becoming empty-nesters?
Now about condos. Apartment pessimists often point out that renters might start buying in large numbers, sometimes implying that they’ll start picking houses. But many love urban living, roads aren’t getting any easier, and houses and house-ready properties aren’t cheap. If people start buying, many will choose condos. The old presale-based financing method isn’t viable yet, but equity-rich developers can still get loans, so condos are already coming back. We’re at the very beginning of what could be another wave, minus some of the feeding frenzy or zero-down formats that contributed to the bubble and bust.
The current wave of Asian (often Chinese) residents and investors will help our construction volume substantially, as Seattle becomes more of a global destination. Our prices are half of those in Vancouver or San Francisco, and should remain far lower because we can add supply relatively easily. Further, this is helping our status as a business and tourism center across the board, for example by bringing in more tech workers.
Hotels are also just starting. So far the new inventory only deals with 2014’s overly-high occupancy rate, not future growth. Seattle is becoming a bigger tourist destination, including stunning growth in overseas airline traffic last year and so far this year. We plan to build a second convention center (aka the “addition”). Our growing office base brings visitors as well as relocations and interns who live in hotels for weeks or months. Who knows where our hotel demand will go from here, but “up significantly” seems like a good guess.
Biotechs are talking about a lack of space again, particularly with the old Amgen campus off the table. Hospitals have slowed their construction programs after the last wave, but new significant construction is anticipated again at Virginia Mason, Swedish, and Harborview, including medical offices.
The convention center, a new ferry terminal, and post-viaduct streets and public space projects are all a couple years out. Imagine having those to soften any downturn.
Here’s another reason: we might not have a national crisis or massive overbuilding. People love to quote 1982, 1990, 2001, and 2008 like we’re automatically headed for their equivalent. The first dramatically overbuilt hotels and condos, the second did the same for offices in part because of the CAP initiative that curtailed further development, the third involved both a tech bubble and 9/11, and the fourth involved the mortgage crisis and a narrowly-averted depression. We could have another crisis, like Amazon or the global economy crumbling, but nothing looks imminent. As some point we’ll overbuild in key subsectors, but we have a good chance of avoiding the “brick wall.”
Of course all of that is independent of potential problems like the big fees the City might implement, a lack of construction workers, cost escalation if it exceeds market rents, higher interest rates, and so on. Challenges can happen on many fronts.
So caution, always. But so far so good.