As downtown Seattle offices empty, city facing years of 'zombie' towers

Seattle here, and a real estate nerd.

This is almost entirely an artifact of the financial instruments used to pay for these buildings, regardless of any Seattle policy changes. The Seattle Times has always been a conservative rag, and their editorial board hates the new mayor, so they hit the "Seattle is dying" story as often as possible. They've got a long history of this whenever there's leadership they don't like, ask me about it!

In Bellevue, office vacancies are low because most have long term tenants - even if the spaces aren't full of workers, the companies paying for them can continue to do so.

In Seattle, most office space is leased by smaller companies. We have diversity in availability, which is great, we have tiny office leases available as well as big ones. I believe those smaller spaces also often had shorter leases.

There are some spaces in Seattle where an anchor tenant (Indeed with 11 floors in the 2+U building at 1201 2nd Ave is a good example) shrank the footprint they use, and quickly sublet floors they aren't using. Those sublets can be priced appropriately for the market, and the main tenant keeps paying the original lease price.

However, when a space loses a tenant, the bank can't just drop the price for the owner, the same as you can't just pay less on your mortgage if you get a lower paying job. That has to go through a long, painful process, and usually the building will end up sold before pricing can change.

This is lag. It's easy to correlate it with a choice by Amazon or with new taxes, but there's quite a bit of demand for office space in Seattle, just not at the prices the owners are forced to ask with their financing instruments.

We just saw another building turn over, US Bank Center. The new owner bought it at a price where they'll be able to lease it competitively, and it won't sit empty. We'll see that continue to happen.

Back in 2019, I was amazed to learn just how many buildings in Seattle's downtown were Amazon offices. IIRC, it was dozens of buildings, some entirely owned by Amazon, some WeWork leases, etc. Downtown isn't very big, so that's a huge presence.

It was also fun to check out the company-city that is Redmond, not far away.

Seattle's a great city, and it's got great tech presence. I'm optimistic for its recovery.

The article notes that the US overall office vacancy rate is 23%. Seattle is 37%.

Have we reached "peak office" at last?

How many people in offices does society really need, anyway?

If you haven't lived in Seattle, it's hard to understand the problem. It's multifaceted; business climate, generally poor quality of the city itself as a walking / working destination, extremely hostile to business city government, and greener pastures (literally) east across the bay, which happen to be closer to some very large headquarters.

The die was largely cast when Amazon called Seattle's bluff during COVID and relocated, but so much needs to be done to make the city itself an attractive place to live and work, and there is so little planning, zoning or effective change happening it seems likely to be decades before I could imagine a truly vibrant city core. Even when I write that, it seems unlikely. As we speak, Seattle is aiming to become the highest tax jurisdiction in the country, higher even than NYC, because ... revenues are down. It's a disappointing response to a serious urban problem.

Yet rents won't drop -- the commercial mortgage covenants prevent landlords from dropping rental rates, so they'll just sit there fallow until the market recovers.

New York City: Hold my Negroni aperitivo. I have faith in the Big Apple administration's ability to become a leader on this metric.

Turn them in to housing.

Seattle has a few confounding factors: - Higher taxes that are not present in surrounding cities - A public school system that is hot garbage compared to 20 years ago (Eastside schools are still ok) - Amazon as of almost a decade has been pushing hiring to their Eastside offices, and trying to freeze headcount in the state overall - Lots of the engineers you want to hire live on the Eastside

Short term, Bellevue is a better place to have your office. Mid term, the big winners are Texas, Vancouver (CA) and India. A little longer term, the lower end of all those jobs are gonna anyway in a puff of tokens.

Zoning and other regulations getting the way of it being used. The city "just" needs to incentivize it getting used, and someone's gotta come to terms with losing money.

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As the mayor says, "Bye!"

I know that commercial and residential building codes are different, but you would think converting them to residential units would fix this..

Convert some to cheap residential. Solves both problems: affordable housing as well as rebalancing supply and demand for office space.