Seattle's Tech Talent Keeps Fueling Office Demand, But High Construction Costs Threaten Its Future
Seattle’s deep pool of tech talent is driving the demand for office space, but the cost of living and construction may soon take their toll. While the Emerald City is still a discount compared to other big cities like San Francisco and New York, smaller cities such as Boulder, Colorado, Ann Arbor, Michigan, and Austin, Texas, may soon look more attractive.
“The talent pool is the driving reason for Google to be here,” Google real estate project executive Mike Nolan said. “But cost of construction and cost of living may be what drives the decisions soon.”
Seattle offers a discount, but it may not be that way for long, Nolan told the crowd at Bisnow’s Seattle Office 2018 event at Embassy Suites Seattle Downtown-Pioneer Square last week. Nolan was part of a panel that discussed the state of office space in Seattle, and its future.
Kilroy Realty Senior Vice President Rob Swartz said rents are lower in Seattle than in places like San Francisco, yet the construction costs here continue to rise. This trend is making it harder and harder to make deals work, he said.
“Seattle rents are much lower, and you need to include parking,” he said. “You don’t have to do that in San Francisco. In Seattle, rents aren’t rising fast enough to keep up with cost of construction increases.”
Abbott Construction Director Doug Klein said the escalating cost of construction should be factored in early on.
UW Foster School of Business senior lecturer Tracey Seslen blames lack of labor for construction cost increases and she doesn’t see that trend changing anytime soon.
“We are suffering from a lack of people so we are going to see those costs increase,” she said.
In order to keep construction costs as low as possible, developers should confer with architects and leasing agents before the construction begins, Abbott Construction Director Doug Klein and Talon Private Capital Senior Leasing Director Wende Miller agreed.
“It seems kind of obvious to get architects in early in the process,” Klein said. “If they do a little bit of investigative work up front, they could save money.”
“Everyone needs to collaborate early on,” Swinerton senior project manager Devin Hemeon said. “It’s about early engagement.”
Atlas Workable CEO Bill Sechter understands the importance of this from a tenant’s point of view.
“Right away I could see the synergies between everyone line up,” he said. “Both the landlord and the tenant can save costs.”
Developers must keep up with office design trends. Tech companies have set the bar high for workspaces that fit the culture of individual companies. It is referred to as an amenity war.
“We have amenity-rich spaces because culture is paramount at Google,” Nolan said. “Our culture is collaborative and collegial. It focuses on community and fun.”
Nolan believes that not all companies fit that profile. He warned developers not to do open-space offices just for the sake of doing them.
“That is like trying to fit a round peg in a square hole,” he said.
Sechter believes flexible offices offer a good mix of open space and quiet areas.
“We are driven by the needs of our customers,” he said. “We consider transportation options, parking and what amenities exist in the community in relation to the building.”
For example, there is a Fed Ex and coffee shop adjacent to the Atlas Workbase office.
CallisonRTKL Senior Associate Bonnie Toland said it is critical to understand a company’s culture before designing the space.
“Before beginning an office design we spend a few days observing that company culture and how they use that space,” she said. “It may be that 50% of the desks aren’t being used, but they have a desk for every employee.”
She notes that people’s attachments to desks are more psychological than physical.
“Desks were designed for paper, but we don’t use much paper anymore,” she said. “Now we can choose where we want to be. The desk is not dead, but [it] is no longer the cornerstone of the office.”