No Boom is Perfect
A boom doesn’t mean there are no problems, according to panelists at Bisnow's fourth annual Seattle State of the Market, which drew a standing-room-only crowd of 600. Along with jobs and young talent, Seattle also has transit, affordable housing, and some scary infrastructure issues. The trick is to solve the problems without slowing the boom.
First, the good news—and there’s a lot of it: The growth cycle in Seattle continues to be about jobs, the panelists agreed. This year’s been particularly good so far, with 27,000 more jobs created in the Seattle area in the first half of 2014, after averaging 40,000 a year since the end of the recession, putting the local unemployment rate at 4.8%. Critically, more of the jobs are in the city than outside the city. People want to live here, and they’re willing to pay higher rents for it. Our event was held at 1201 3rd Ave.
Pine Street Group’s Matt Griffin, who’s participating in the plan to double the size of Seattle’s convention center, and Keller Rohrback attorney Deirdre Glynn Levin, one of our moderators. Deirdre is in the firm's business group, but has experience in bankruptcy law, which she says helps an attorney understand the real estate cycle. The apartment market is on everyone’s mind: how many new units are too many? The panel wasn’t in complete agreement. One line of thinking is that of the 30,000 apartment units currently permitted, the best products will be built, and absorbed. A different view is that submarkets with the highest concentration of new product, such as South Lake Union and Capitol Hill, will have indigestion for a while.
Wallace Properties' Kevin Wallace, who recently won re-election to the Bellevue City Council, and who’s doing a 24-unit test project in the University District using new construction techniques designed to speed the process up; and Holland Development’s Tom Parsons, who’s at work on 800 housing units and office space at Westlake Steps. One thing that might eventually slow development down, the panel pointed out, are sharp increases in costs. Land is up, but especially construction costs. Various fees and taxes are also going up or being collected more aggressively. Even if demand for apartments or office space remains healthy, developers might hit a wall eventually from the standpoint of returns being swamped by costs.
Relay and John L. Scott’s Michael Orbino; Pillar Properties’ Bill Pettit, who’s busy leasing up Stadium Place; and Perkins + Will’s Brad Hinthrone, who became a principal in the firm earlier this year. Seattle remains an attractor of talent, and people who work here tend to want to stay here, the speakers noted. Not only that, older Millennials are looking for affordability. San Francisco is losing on that front, and Seattle’s winning—but the city’s also competing with Austin in that regard. A lot of younger workers question living in San Francisco, where salaries might be higher, but the cost of living takes away that disposable income.
Sabey Corp’s Dave Sabey, who’s working on the Associated Grocers’ site, and which is about to get off the ground; Schnitzer West’s Pam Hirsch, who just broke ground on the 750k SF Madison Centre office project, which will deliver in ’16; Wright Runstad & Co’s Greg Johnson, who’s Spring District project in Bellevue is well underway. Seattle’s moved fully into the global economy, and the 10-year peak-to-peak cycles for commercial real estate that have held since the end of WWII (and seem tied to the aerospace industry) might not hold anymore. The question now: Are cycles shorter? And how much will national and international economic crises affect that?
JLL’s Stuart Williams, who's about to go to market with Blanchard Plaza, which Amazon is going into; Unico Properties’ Jonas Sylvester, who does acquisition and rehab work on the office side; and Integra Realty Resources’ Seattle senior managing director Allen Safer, who moderated, and who says one of his more interesting assignments these days is the appraisal of the mothballed McNeil Island Penitentiary. Transit is a major concern for Seattle. A multimodal transit funding package needs to come from Olympia—without it, Seattle and Bellevue won’t be able to continue to grow, one panelist asserted. On the other hand, if transit infrastructure can be adjusted to better serve the way people use it—a lot of smaller changes—that might go a long way to solving transit problems, and be more fiscally responsible.