Key Takeaways:
– Seattle’s office vacancy rate has increased for the ninth consecutive quarter to 15.1%.
– Tepid office demand is causing a reduction in the real estate operations of tech companies.
– A report suggests a struggling office market could impact the city’s tax revenue.
– Some companies, such as Amazon, are restarting paused construction projects amid the rise of hybrid work.
Seattle Continues to Struggle with Rising Office Vacancy Rates
The Seattle region has experienced a steady increase in office vacancy rates, hitting a new high of 15.1% in the recent Q1 report by real estate firm Kidder Mathews. This marked the ninth quarterly increase in a row. Furthermore, it was the ninth consecutive quarter with negative net office absorption, a cause for worry in the city’s real estate circles.
In the era before the pandemic, the region recorded around 6% vacancy rates. However, the rise of hybrid work policies seems to be reshaping the market dynamics, as several tech companies are cutting down their real estate footprints.
Tech Downturn Further Reduces Need for Office Space
The tech downturn, which commenced in 2022, is also a factor. Tech companies had to trim their expenses, causing layoffs and consequently reducing the demand for office space. This scenario is a stark contrast to the previous decade when tech firms gobbled up Seattle real estate to accommodate their fast-growing teams. Recently, downtown Seattle recorded an increase in vacancy rates from 16.6% in the last quarter of 2023 to 18.35% at present.
The Downtown Dilemma and Recovery Struggles
Seattle downtown is far from any significant recovery as per the rankings of U.S. cities gauged based on the comparison of present-day smartphone location data to pre-pandemic rates in 2019. Though the area saw more than 85,000 daily workers on average in February, marking a 16% increase compared to the same period in 2023, these numbers still linger around just half of the pre-pandemic levels.
Seattle’s stature as a technological hub is a double-edged sword. Companies like F5, Zillow, DocuSign, and Qualtrics, can operate remotely, thereby limiting the requirement of office space.
Impact on City Revenues and Possible Solutions
A precarious office market might have repercussions on the city’s tax revenue, considering the present budget shortfall. Seattle Mayor Bruce Harrell has proposed legislation to aid developers in converting office spaces for residential purposes as a potential solution.
Despite the trend, there are currently 13 large-scale office projects under construction in the Seattle region, including projects by Meta and Google. But Google recently put a hold on building out space at its South building and has paused plans to construct a fourth building at Kirkland Urban.
In the current scenario, developers are cautious and have indefinitely stopped any new construction plans. In a recent announcement, Amazon said it was resuming construction work on a previously paused 42-story office tower in Bellevue, further indicating the significant shift towards hybrid work as the new normal for the tech industry.
