Changes In Store For Seattle CBD

BY PETER SHORETT
Shorett Kidder Mathews

Demand for office and retail product in downtown Seattle is extraordinarily strong with new development in the retail core already off to a fast start. Office development will likely follow, but in a more orderly fashion than we saw in the last building boom in the 1980s.

Seattle's retail core is centered around the intersection of Pine Street and Fifth Avenue, extending two blocks in either direction. Development activity in this area is occurring at an enthusiastic pace. The latest project is The Meridian, an entertainment retail complex anchored by Nike Town, Planet Hollywood, Levi Strauss, Cineplex Odeon and Sega Gameworks.

Down the street, Nordstrom is well underway with its renovation of the former Frederick & Nelson Building for a new flagship store and corporate/regional headquarters.

To the east, Pine Street Associates has just broken ground on a 325,000-square-foot retail, restaurant and entertainment center, above a 1,200-stall underground parking garage. The top floor of Pacific Place will house an 11-screen theater complex operated by General Cinemas and three full-service sit-down restaurants occupied by national tenants.

Development is being spurred by demand from national retailers on top of an already strong local retail base.

The building is designed with an urban village theme featuring a full-height atrium courtyard and a pedestrian-friendly escalator system providing easy access to the retail tenants on the upper floors. Keeping with retailing trends, tenants are encouraged to occupy multiple floors with their own elevator banks or escalators. Third floor retailers will be able to capitalize on the skybridge connection to the new Nordstrom building. Pacific Place is about 50 percent preleased.

Once the Nordstrom and Pacific Place projects are complete, Pine Street Associates will convert Nordstrom's current facilities to their original three-building configuration and offer that space for lease. With such space available, mid-sized retailers like Eddie Bauer might be convinced to locate closer to the retail core.

Also in the works is redevelopment of the former I. Magnin department store. Discussions are underway to bring Ken Griffey Jr.'s Official All-Star Cafe, a Laura Ashley apparel and home furnishings store, Morton Steakhouse and Gene Juarez hair salon and spa to the 80,000-square-foot building which lies just south of Pacific Place.

This development activity is being spurred by demand from national retailers on top of an already strong local retail base. Nike Town, Planet Hollywood, FAO Schwartz, Banana Republic and Warner Brothers all are recent examples of new tenants coming to our market.

Luxury retailers like Bally and Tiffany will be attracted to Pacific Place. These are high-sales volume retailers that can afford the high rents necessary to justify building these projects. Expect to see announcements of several high-end retailers as the framework for Pacific Place becomes more visible. It is scheduled to open in October of 1998.

Groundbreaking is set for the summer of 1998 for the Washington State Convention and Trade Center expansion, just before completion of the Nordstrom flagship store and Pacific Place. The center will be expanded by 125,000 square feet, bringing the total exhibition space to 211,000 square feet.

As part of that development, a new 400-room luxury hotel will be constructed at the northwest corner of the center's expansion, across from Pacific Place. This expansion is in response to the visitor industry which is expected to produce above-average growth in tourism sales and employment over the rest of the decade.

Vacancies for typical shop space downtown is close to 1 percent. Throw in the 80,000-square-foot I. Magnin store which sits vacant and the overall vacancy is probably closer to 3 or 4 percent. This is a substantial improvement from three years ago when Frederick & Nelson, Klopfenstein's and the Woolworth department stores all sat vacant following a retail exodus to the suburbs and consolidations or closures by several locally run businesses. In a complete reversal, Seattle is now on the verge of becoming a legitimate 24-hour city, and some argue that it already is.

As further evidence of a strong retail market, The Meridian complex will be sold to a German investment group. The reported price will set new standards for investor perceptions of high-end retail real estate for Seattle central business district.

Seattle's office market has seen substantial declines in vacancies from the 1980s but, more importantly, it has received world-wide attention for its office investment opportunities. The Singapore government purchased the 520 Pike Tower office building for over $51 million. The Marsh and McLennan Building sold to a San Francisco-based institutional investment advisor and local investors Benaroya Company purchased the Park Place Office building for $35.3 million last summer. This is in addition to the City of Seattle's purchase of Key Tower office building for $110 million and Benaroya's purchase of Metropolitan Park last year.

The CBD office vacancy rate will stabilize at around 5 percent until new construction occurs. There are a number of projects proposed for Seattle's fringe locations including King County's recent commitment to occupy the 310,000-square-foot King Street Station east of Pioneer Square, a development by Wright Runstad and Company.

Nitze-Stagen is continuing plans for a 1.1 million-square-foot Union Station development and Martin Smith Real Estate has announced plans for two buildings totaling 550,000 square feet closer to the business district. The 180,000-square-foot World Trade Center just east of the Bell Street Pier is also proposed. New construction, however, won't occur until rents increase another 20 to 30 percent to justify construction costs. That probably won't occur until 1999 or 2000.

All this new development won't change the skyline as dramatically as the office building boom in the late 1980s, but it will change the dynamics of retail shopping. The downtown retail core will solidify as the spot for upscale retailers and we will see rational development of new office product beginning by the end of this decade.

Peter K. Shorett, MAI is director of Shorett Kidder Mathews & Segner Appraisal Services. He specializes in appraisal and consultation of real estate located in downtown Seattle and the greater Puget Sound region.