Here we are venturing through a half-dozen weeks of the new year and in anticipation of a busy residential sales season when a series of tremors hit. This was not “the big one” that seismologists expect for Puget Sound, rather the type of shakeup economists saw coming. At the epicenter: our region’s mighty tech sector.
In one week last month, Amazon, Google (Alphabet) and Microsoft announced or confirmed job cuts totaling some 40,000. Many of those positions were right here in King County.
The layoffs bring uncertainty to many thousands of households – not only for tech workers suddenly in search of a new job but with people fearing they may be next. That, in turn, can often weaken the confidence of builders, consumers and investors amid a looming recession.
Essentially, many of the jobs that were added during the hustle-bustle of the pandemic are going away. Execs describe it inelegantly as “unwinding head count.” (At least Boeing is adding more jobs and smaller tech firms will reportedly benefit from the industry turnover.)
A byproduct of this January jobs jolt is a significant halt to corporate expansion. Some evidence from recent weeks and months:
- Amazon delayed plans to build roughly 3M sq. ft. in Bellevue where the commerce and cloud colossus had planned to add 25K employees in the next couple of years. The company recently confirmed it was also pulling out of an office tower with about 370K sq. ft. of space near its Seattle HQ (pictured atop).
- Facebook (Meta) is evolving its office arrangements, leaving space in Seattle and Bellevue and contemplating additional contraction while opening a new lab (Frank Gehry-designed Building X) in Redmond later this year. It joins other companies seeking to embrace remote work for more staff.
- Google’s plans to expand its Eastside footprint by purchasing a large car dealership lot is no longer moving forward. It would have been the third Kirkland campus for Google and its fifth in the region, according to Puget Sound Business Journal.
- Microsoft said it will not renew its lease on 1.7M sq. ft. in Bellevue. It also confirmed more office consolidation in the region is a possibility just as the company plans to unveil soon its massive campus expansion – including 17 new buildings – in Redmond.
The tech pullback will likely spell trouble for landlords in parts of the county who have struggled for years with near-empty buildings following the pandemic and a shift to hybrid work arrangements. Seattle office vacancy rates have risen in 10 of the last 12 quarters, according to commercial broker Kidder Mathews, with the city having an 11% vacancy rate today, up from about 5.8% in mid-2019. Eastside office vacancies are considered low for today at 5.6% but Kidder reports office usage east of Lake Washington is only at about 25%.
Without the large number of people in offices compared to pre-pandemic years, local businesses from restaurants to retailers are suffering too. Seattle’s retail vacancy rate is around 14%, sharply higher from 2019 numbers when it was slightly below 2%. Bellevue’s retail vacancies are only 1.5% today.
The Bellevue City Council last month reported that, even with the lower number of office workers today job production has already outpaced housing production in the city. That may lead to higher rents and housing prices as the year moves forward.
While Bellevue and other areas of the Eastside remain in better health despite difficult times, Seattle is showing signs of illness.
Seattle recently lost iconic retailer Nike (moving to Bellevue), restaurants continue to close and open at a frequent pace and even Northlake Tavern and Pizza House has shut. (Say it ain’t so!) The city’s 16-screen Regal Meridian theater, first thought to be shutting, appears to have been saved … for now.
The good news is that people still want to live downtown, with the population at about 95K, a 67% increase since 2010 – quite remarkable growth in a dozen years.
Looking more closely however, the sale of condo homes in downtown (excluding new construction) has numbered in the single digits for three consecutive months – about a third of the normal seasonal rate. There is about 9 months’ available supply (down from 13 the month previous), meaning it would take that long for all existing inventory to sell before needing to be replenished.
Seattle feels unsettled. Evolving. Uncertain of its direction.
If downtown could put a mirror up to itself, it would see, at least in part, crisis – in crime, drug use and homelessness. The sidewalks don’t feel safe (at least to me), though data suggest things are improving. Violent crime in downtown declined 10% year on year, according to recent reporting, and the city says it is slowly closing the gap of 450 police officers needed to backfill its 1400 target.
Yes, with time, the reflection in the mirror will improve. Downtown will rebound – as it has before – but it will take grains of our pre-existing cultural, social and political infrastructure (and hard work) to help germinate a new and better world-class city.
SEATTLE VOTES ON HOUSING ISSUE
Seattle residents voted this week on whether the city should establish a public developer to build permanently affordable housing. We covered this social housing ballot proposal in the November newsletter.
Early results from Tuesday’s special election showed Initiative-135 leading, with about 53% of the vote. Updates can be found here and final results should be released within a week.
If approved, the initiative puts Seattle City Council on the hook for paying startup costs of about $750K over the first 18 months. The question, then, is where will the money come from? Critics of the initiative say that’s not nearly enough to get the organization off the ground.
Public development can be a great option for increasing the supply of homes. It would leverage available public land while reducing obstacles faced by private developers.
This initiative is in addition to a separate housing levy that voters will be asked to renew at about $900M. That question will be answered on the November ballot.
Meantime, lawmakers in Olympia are moving with more urgency this term to address the housing shortage and making homes affordable. More than a dozen bills are on the table with a few already passed by one of the two chambers. Watch this space next month for a closer look at what may reach the governor’s desk for his signature.
GO (RECON)FIGURE
Consumer tastes change but no more so than since the start of the pandemic. The “great reshuffle” has been chronicled – households moving further from urban job centers in search of additional space inside and out of the home while mostly enjoying telecommuting over a drive to work.
Home designers have been listening too. They are creating plans that “right size” rooms to address consumer demands – including affordability. This means strategically shrinking areas to lower costs and provide more functional space.
Bedroom-sized home offices are no longer the norm in modern floor plans. Instead 86% of “young families” (homeowners and renters) surveyed preferred offices in tighter, narrower spaces (some examples).
Forget dedicated sit-down eating areas for breakfast. Eighty-five percent of homeowners prefer the space-saving tradeoff of having countertop seating with stools (examples). Households surveyed also seek more functional areas in the main bedroom for greater privacy or secondary workspace.
“What we considered a closet in the past is now considered livable space in the home,” Nancy Keenan, president of Dahlin, a California-based design firm with offices in Bellevue, told attendees of the 2022 New Home Trends Summit.
BY THE NUMBERS
>> Five Seattle-area cities/towns were among the top 100 Best Small Cities in America, according to an analysis from WalletHub. Sammamish came in at No. 12 among the 1300 areas reviewed with populations between 25K and 100K. The Eastside city was highly rated on affordability, economic health, education & health, quality of life, and safety. Redmond (No. 21), Issaquah (No. 37), Mercer Island (No. 50) and Kirkland (No. 69) also made the list.
>> Forty-five percent of all homes include three bedrooms, according to new Census Bureau data. The percentage has slipped marginally for two consecutive years while the share of four-bedroom homes has increased the last two years and now stands at 36%. Five-bedroom homes (10%) surpassed homes with two beds or fewer (9%) in the latest report that includes 2021.
>> Seattle metro is among the top 10 areas in the nation for highest return on investment of a home when downsizing, according to analysis from StorageCafe. The research examined typical home prices for two- and four-bedroom homes, factoring in taxes and closing costs, to determine which metros offer the most potential savings by reducing by half the number of bedrooms in a home. Seattle/Tacoma delivers a savings of $298K when downsizing to a 2-bed home, the eighth-highest figure among 100 areas analyzed. San Jose, Calif., ($777K) and San Francisco ($563K) were at the top.
>> A survey of 1980 adults showed 39% plan to move to a new home in the next three years. A full 77% of this subgroup say that working remotely encourages them to broaden their living options, and 64% say it’s scary to live in a major or densely populated city.
>> Major home-ownership costs consume 32% of an average household’s wage, hitting a 15-year high, according to Q4 research from ATTOM Data Solutions. That percentage – considered unaffordable by traditional lending standards – is up from 24% in Q4 of 2021. In King and Pierce counties, it now takes 45% of annual wages to afford the purchase of a home, soaring from 33% a year ago.
>> Seattle experienced the sharpest cost-of-living increase of any U.S. metro between 2010 and 2021, according to data from the U.S. Bureau of Economic Analysis. Bloomberg News used the data to create a Regional Price Parity index, which showed Seattle area consumer prices were about 15% above the U.S. average. The index for Seattle metro rose nine points since 2010, the largest increase of any area, with our city ranked as the 5th costliest market. San Francisco was No. 1.