Why Seattle Developers Need To Be Cautious
Even though Seattle's building boom is a little long in the tooth, it still has some life to it—and maybe a soft landing at the end, according to the speakers at our Seattle Construction & Development event.
Kilroy Realty Corp chairman, president and CEO John Kilroy (right) kicked off the event, interviewed on stage by Wallace Properties president Kevin Wallace. John said his company, which is a major developer of new innovative space on the West Coast—about $1.2B in starts per year, and the largest owner in San Francisco—especially for tech, media and entertainment firms, is in the destruction of hierarchy business. Creative new space facilitates meritocracy.
The company is quite active in Seattle, holding about 2M SF in the region, beginning its acquisitions five years ago, when prices and rents were down. The company had the opportunity to put its imprint on them and add value—such as to the Skyline Tower—and now it's moving into development here, since the yields on new, state-of-the-art space are so strong.
When a boom has gone along this long, one of the natural questions is, Where are we in the cycle? Our development speakers didn't exactly come to a consensus on that question—seventh, eighth and ninth innings were suggested, with maybe extra innings ahead. Whatever the exact point in the cycle, it's a time to be cautious, since there's a lot of new supply in the apartment and office markets, though fundamentals are still strong.
Construction costs are higher, and it's more challenging to find sites at the right price. Still, many developments now in the planning stages will succeed. Seattle still has a lot going for it, namely job growth and in-migration of talent, especially from San Francisco. This cycle isn't like the last one, especially in that a crash like 2008 isn't that likely.
Our development panel included Rush Cos' Blake Carbonatto, Continential Properties' Claudio Guincher, Polaris Pacific's Chris Foley, the City of Tukwila & Southside Alliance's Brandon Miles, Kevin Wallace, and Schwabe, Williamson & Wyatt's Jeremy Vermilyea, who moderated.
One of the largest challenges for the construction industry now is finding the right people and keeping them, our construction industry speakers noted. Seattle's a great market, but that makes it harder to retain people. And it's more than paying people well. Construction firms need to make an effort to be good places to work. Otherwise, your best people are going to find other opportunities.
Diversification is important for construction companies in the current climate, our speakers also said, both geographically and in terms of property type. Places that are hot now—apartments in Seattle, say—won't always be, though they're bound to have a good run. Successful developers and contractors are always looking for the next growth markets.
Our construction panel included Parkview Financial's Paul Rahimian, Swinerton Builders' Dave Worley, and DCI Engineers' Brent Robinson, who moderated.