Seattle Office Space News – May 2018

News

Below are comments and links to news articles and other topics relevant to the Seattle office space market from the month of May 2018.

OFFICE DEVELOPMENTS

Urban Visions’ tower project at 801 Third, called “The Marion,” will build 36 stories rather than 29 and has added sun fins and folds to the architecture plan. The building will encompass the majority of the block from Third to Second Avenue between Marion and Columbia. The new design estimate has 820,000 square feet of office, with the bottom two floors reserved for an “open-market” type retail village experience.

Canadian development group Onni is planning a two- tower project in South Lake Union on the site of the old Seattle Times headquarters. Onni initially planned two residential towers, but decided to switch to office last year. The two buildings total over 1 million square feet, with 940,160 square feet of office and 54,000 square feet of retail. The project design has been green-lit and Onni is moving forward with a master-use permit application.

In May Amazon paused construction on Block 18, based on the “head tax” vote, and may also sublease the entirety of the new Rainier Square development. The online retail tycoon could be on the hook for around $20 million based on how the tax is levied and the estimated number of employees. There has been no confirmation of Amazon’s intent to sublease Rainier Tower, though it would be virtually impossible for another single tenant to fill the entire building. The tax compromise proved enough for Amazon to eventually resume construction on Block 18.

BUILDING SALES

The sale of Amazon-occupied Westlake 202 has broken price records with a sale price of $129.5 million, or $996 per square foot.  Investors have spent more than $3.2 billion on Amazon-occupied buildings in the last decade, and with over 40 buildings in Seattle leased to Amazon, there are plenty for investors to sink their teeth into. Record sales benefit local government due to tax – it is estimated that this transaction alone put $2.3 million in the state and city’s pockets.

The “Twin Toaster” buildings Metropolitan East and West are up for sale.  Seller CBRE bought the buildings in 2015, and paid 70% less than expected sale bid numbers. After Facebook moved out, CBRE renovated both buildings to attract new tenants and retain old ones. The plan worked, attracting major tenants like WeWork, Virginia Mason, Kaiser Permanente, and Jack Henry & Associates. A $461 million sale would be the highest sale in King County this year, if bids reach expected heights.

 

OFFICE LEASES

Co-working giant WeWork continues to absorb a space at a rapid rate in Seattle.  They currently have deals pending for 408,000 square feet in Seattle (5 new locations).   If WeWork does indeed sign and go through with all the speculated space, they will total nearly 1.43 million square feet in the Seattle area – that’s nearly the total square footage of Columbia Tower.  Interstingly, Amazon has subleased 3 floors from WeWork in 3 different locations and will likely continue to use WeWork as an option for short term flexibility.

Longtime tenant Regus is moving out of Two Union Square at 601 Union Street to make room for Apple. Resources say that Apple intends to occupy Floor 42, expanding beyond their current premises on Floor 44 and part of 45. Apple also has construction permits filed for floors 38 and 43. This would give Apple control over all or parts of five floors at Two Union. An increase in square footage is significant for Apple, because more space equals more people, meaning Apple will be ramping up recruitment to fill all those new seats.

The Mexican Consulate has officially confirmed its reported move to the Harvard Exit building in Capitol Hill. This new space will provide drastically improved conditions for both employees and visitors to the consulate, all at a more secure location. Conditions at their current location are cramped and tiny, but the Harvard Exit location will allow for space for meeting rooms and Mexican heritage community events. Thirty percent of the building is still up for lease, listed at $37.50 per square foot per year, plus $10 a foot for taxes, insurance and maintenance.

ECONOMY

The so-called “head tax” vote dominated headlines in May causing doubt, uncertainty and frustration within the business community. Early this month, Amazon suspended construction on their Block 18 project, pending the City’s vote, and are also considering subleasing the entirety of Rainier Square to another company (or companies).

On May 9, five council members planned to move forward with the tax, despite heavy criticism from businesses throughout the city, including Amazon.  The tax on 585 Seattle companies would bring in approximately $75 million a year for low-income housing and services for the homeless.

On May 11th, the Seattle City Council unanimously voted to enact the tax on businesses after Mayor Jenny Durkan brokered a reduced tax. The tax plan will collect $275 per full-time Seattle employee from companies with taxable gross income of over $20 million per year. The tax is expected to raise $237.1 million over five years to help alleviate homelessness and provide affordable housing. The tax will end on January 1, 2024.

The tax compromise proved enough to get Amazon to resume construction on its Block 18 project, though it remains uneasy about its future in Seattle, citing the city councils “hostile approach and rhetoric toward larger businesses.” The initial proposed tax of $500 per full –time employee per year was brought way down in compromise negotiations, though some proponents of the tax complain that even this initial amount wasn’t sufficient to adequately address the city’s homelessness problem.

While Amazon was clearly the largest target in this tax, plenty of other smaller businesses including startups are nervous about their future in Seattle. Seattle-based startup Outreach, a fast-growing local company, is starting to eye options in Bellevue instead of expanding further into Seattle as was planned. CEO Manny Medina expressed frustration and sadness over the sudden interruption in plans, and the likely potential that expansion will not include more jobs in Seattle, but outside of it instead.

Shortly after the vote, a campaign was organized to try and repeal the tax. Called the No Tax on Jobs referendum, the group plans on collecting 18,000 signatures by mid-June to get the referendum on the November 6 ballot in an effort to overturn the council vote. The campaign has set up a website and is collecting money.

Dozens of businesses including Amazon, Vulcan and Starbucks have pledged a total of $352,775 to the No Tax on Jobs campaign. The biggest pledge came from the Washington Food Industry Association, which contributed $30,000. A full list of the businesses can be found here.

Not everyone is taking the tax decision poorly – especially not nearby cities and counties. Pierce County mayors joined business leaders and unveiled a new $275 per new family-wage job incentive to directly compete with Seattle’s head tax. The Greater Phoenix Economic Council is also trying to capitalize on the Seattle tax, luring companies away from Seattle and towards more business-friendly locales. With the new head tax, Tacoma is poised to become a more attractive business location, especially with extended light-rail service to Seattle and Bellevue scheduled to start in 2024.

Speaking of Phoenix, Amazon has cut a team in Seattle that supports contractor delivery drivers and is moving the jobs to Phoenix. Amazon cites the desire to put the team in the same place as groups from other parts of the company that handle similar operations, and allow more space to spread out and group. While Amazon reports that the move is not related to the head tax vote, the timing is rather telling.

In the wake of all this at home, Amazon has finished visiting all 20 finalist cities for their HQ2 location. Perhaps more relevant than ever, Amazon seeks a city that will be amenable to business incentives. What will this mean for future jobs in Seattle? Everything is still up in the air, with Amazon remaining silent on any potential “favorites” for their new headquarters. To see the final list and make your own speculations, click here

Despite all the head-tax drama, it’s business-as-usual for the Seattle housing market. While the number of houses and condos new to the market soared (finally), prices continued to rise along with supply. While higher interest rates are expected to eventually lower price increases, the market has yet to reach that point. Home buyers are still staring down a gauntlet of sharply increasing housing prices across the Puget Sound region.

The historic population boom has much to do with these steep increases in prices. The problem? Too many new people and not enough housing. Over 114,000 people have come to Seattle since 2010, pushing the population to nearly 725,000 – an increase of 18.7%.

Housing prices aren’t all that are soaring in Seattle. Construction costs have risen sharply in recent years, making Seattle the 7th most costly place to build in the world.

This “overheated” market has labeled Seattle as one of the two cities in the nation to have the highest construction cost increases in 2018. The other is, unsurprisingly, San Francisco. Rising construction costs, especially for apartment housing, may only exacerbate rent problems as increased costs are passed onto tenants.

OTHER NEWS

Avalara’s headquarters relocation is finally complete, and it only took 2,000 labor hours, 900 commercial crates, and 76 truckloads to do it! The move, which consolidated employees from two Seattle buildings and one Bainbridge Island location into Hawk Tower in SoDo, gives Avalara 114,000 square feet to spread out. It’s plenty of room for their 400 current employees, with space to grow to 700. Seattle-based moving company Hansen Bros. coordinated Avalara’s move, and their team moved over 6,200 items weighing around 383,900 pounds for Avalara. Avalara will likely be one of Seattle’s next publicly traded companies.

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