Between Seattle’s bustling downtown high-rise core and picturesque Lake Union a short skip to the north, several conditions have converged to establish what has quickly become one of the world’s most dynamic urban technology hubs.
As Amazon.com has continued to overflow its ever-expanding headquarters village in Seattle’s South Lake Union (SLU) district, other high-growth tech companies have likewise set up shop to take advantage of the area’s deep talent pool—and at a considerable cost savings over comparable places in northern California.
And as tech mega-employers continue attracting well-trained millennials to an exciting and highly livable urban environment, the area has emerged as a popular source of housing, amenities, and transportation options.
The SLU district’s near-frantic growth of late appears destined to continue for the near term at least. Indeed, anyone arriving at the lake’s southern shore, whether by boat, bike, bus, streetcar, foot, or automobile, will encounter quite an impressive flock of cranes—and they are not of the avian variety.
In Seattle’s rapidly transforming SLU district, crews are working on separate series of six-story towers, totaling nearly 1 million square feet (93,000 sq m), that Vulcan Real Estate, the neighborhood’s primary developer, is building for Silicon Valley–based behemoths Alphabet (parent of Google) and Facebook.
Just a few blocks further south in the previously unremarkable Denny Triangle, homegrown Amazon.com’s third self-developed 1.1 million-square-foot (102,000 sq m) high-rise is under construction just months after the second of that series opened late last year. A short jump from Seattle’s iconic Space Needle, Amazon’s vertical campus features an interconnected trio of glass-and-steel orbs that seem destined to become the symbols of the region’s new tech hub.
Growth Begets Growth
In addition to plentiful office space under construction and renovation in the area, there is extensive new multifamily development, some of it incorporated into mixed-use projects comprising business facilities and street-level retail spaces. These are targeted to the burgeoning ranks of programmers and engineers working in the neighborhood—and to others attracted to this ever-more-vibrant urban scene.
Given the aggressive local hiring and space-gobbling by these corporate giants and many other growth-minded tech outfits, it might almost seem as if developers could not build suitable structures quickly enough to accommodate demand in this stretch between the lake and the core of the central business district.
“With so many big players establishing themselves and growing their footprints here, the area is rapidly becoming a center of the cloud-computing field,” says Ada Healey, the vice president overseeing Vulcan’s real estate activities since 2001. “It seems inevitable that the sector will continue to grow, and that should lead to even stronger critical mass” in and around SLU, she adds.
Indeed, it’s hard to ignore that e-commerce leader Amazon has outgrown the 2.7 million-square-foot (251,000 sq m) SLU headquarters complex that Microsoft cofounder Paul Allen’s Vulcan organization developed in phases over much of the past decade. And notwithstanding access to its first two 1.1 million-square-foot (102,000 sq m) Denny Triangle towers, Amazon recently leased two entire new nearby buildings (of 12 and 21 stories) and purchased additional development property adjacent to its high-rise complex.
Meanwhile, hardly a month after Facebook fully pre-leased Vulcan’s aforementioned 384,000-square-foot (36,000 sq m) Arbor Blocks project in SLU, the social media powerhouse in January leased an entire new 150,000-square-foot (14,000 sq m) structure built on spec by another local development group a few blocks away. Also within Vulcan’s Lakefront Blocks project along Lake Union’s southern shore, work has started on what will become four buildings totaling 607,000 square feet (56,000 sq m) customized for Google.
“Demand for space here is just over the top right now, and clearly led by the technology companies,” says downtown office leasing broker Jake Bos, a senior associate with brokerage services firm Kidder Mathews. “Seattle traditionally hasn’t been a pre-leasing-oriented market,” he continues, “but as it stands today, 60 percent of the space scheduled for delivery over the coming three years or so is already committed.”
Area landlords and other stakeholders are pleased to have Amazon, now joined by Facebook and Google, willing and able to pay as much as $50 per square foot ($538 per sq m) to lease functional new digs in the neighborhood. Space commitments from this trio alone already represent multiple billions of dollars’ worth of investment in development projects in this relatively small neighborhood.
And not only do they collectively represent half of the planet’s half-dozen largest public companies, measured by market capitalization, their frenetic absorption of space almost certainly portends additional activity ahead from other tech companies.
“What’s really encouraging looking forward is that both of these big Silicon Valley companies—Google and Facebook—opened offices here a few years back with pretty small footprints,” recalls Brian Hatcher, the executive vice president overseeing Kidder’s Pacific Northwest brokerage activities. “Now it looks like they’re each about to reach 1 million square feet [93,000 sq m].”
Granted, that is still well behind Amazon, whose local occupancy Kidder currently calculates in the vicinity of 10 million square feet (929,000 sq m) and rapidly increasing. But as Bos relates, Amazon’s success bringing on talented engineers and programmers is, in turn, acting as a catalyst attracting growing tech employers from northern California and beyond.
Hence it comes as no surprise that expert observers are anticipating additional blockbuster-level occupancy deals with other large tech users in the coming months.
While Hatcher and Bos decline to disclose specific transactions under negotiation, Kidder’s year-end report identifies several household-name technology companies seeking substantial local facilities.
Noteworthy among them is Amazon rival Alibaba Group, the fast-growing China-based e-tailer that ranks among the 15 biggest public companies by market capitalization. The Kidder analysis also mentions other major Silicon Valley–based players in the market for Seattle-area sites, perhaps most notably auction facilitator eBay and networking specialist Cisco Systems.
The two other tech firms among the world’s six largest public companies also have considerable presence locally. Microsoft continues to occupy more Washington space than any other business does, and Apple maintains an expanding vertical campus at the downtown Seattle high-rise known as Two Union Square.
This concentration of high-tech powerhouses raises important questions affecting the local economy and real estate. For how long will technology firms provide the foundation for Seattle’s growth? And what does the seemingly insatiable tech-centric user demand entail for the extended neighborhood’s lesser-heeled commercial and residential occupants?
Cost, Lifestyle Advantages
Why is the Puget Sound region—and SLU, Denny Triangle, and surrounds in particular—proving so attractive to the tech sector?
Perhaps most fundamentally, growing companies that had incubated in the more expensive San Francisco Bay area can maintain locations in the Seattle area at considerably lower overall operating costs while tapping into a deep pool of highly trained tech talent. And those engineers, programmers, and other professionals likewise benefit from the area’s relatively moderate cost of living, particularly compared with the San Francisco Bay area, and excellent overall quality of life.
As cloud-based computing in particular has spawned the growth of many enterprises, locally based employers as well as outsiders looking in can recruit from “our very strong talent pool,” Healey stresses. That pool has expanded to more than 165,000 information and communications technology jobs in King County alone, the Economic Development Council of Seattle and King County calculates.
And while local growth in the sector has inevitably escalated commercial and residential rental rates throughout the region, living and business operating costs remain “significantly lower” than those in northern California, Healey says.
Effective office rents in the Seattle vicinity’s tech-heavy submarkets tend to run anywhere from 30 to 50 percent below comps in and around Silicon Valley and San Francisco, adds Greg Inglin, a senior vice president with brokerage Colliers International who has negotiated numerous leases and sales involving technology companies. The corresponding savings really add up over time, particularly for outfits aiming to employ thousands, he says.
And these companies are able to pay somewhat lower labor costs for appropriately trained specialists: approximately $126,000 average salaries for software engineers, compared with the Bay Area’s $134,000, according to Hired, a tech employment service.
Of course, the pair of homegrown giants looms large over the sector’s ongoing expansion in the Puget Sound region. Amazon’s breathtaking growth over the past decade-plus serves to supplement—and perhaps surpass—Microsoft’s continuing role in solidifying technology’s critical mass in the regional market.
Urban Millennials
Another key factor attracting tech employment to central Seattle, in particular, is that the city has taken pains to make downtown a more convenient and exciting place, a draw for millennials seeking the vitality of urban living over car-centric suburbs.
“It’s the lifestyle choice we’re seeing among millennials especially,” says architect Steve McConnell, managing partner with Seattle-based international firm NBBJ, the chief designer behind Amazon’s Denny and SLU complexes. NBBJ’s treatment of Amazon’s multiblock SLU neighborhood in particular helped pioneer efforts to establish highly pedestrian 24-hour urban environments in the CBD and nearby districts, McConnell says.
Improved entertainment amenities, along with a wave of residential development, have attracted more millennial techies to the Eastside’s primary high-rise district: downtown Bellevue. Accordingly, Microsoft has expanded in that CBD, and Amazon just leased an entire new 345,000-square-foot (32,000 sq m) tower there as well.
Seattle continues to invest heavily in its transit infrastructure, including expanding its streetcar system and bike routes, while encouraging higher-density market-rate and affordable multifamily housing and mixed-use development in districts served by transit.
Indeed, as Healey is quick to point out, numerous transit and other infrastructure programs, many involving public/private partnerships, helped make SLU the location of choice for Amazon’s home office, and now for quite a few more growing employers along with thousands of their employees. This includes a popular 1.3-mile (2 km) streetcar line with seven stops.
Since SLU and the adjacent Denny Triangle had essentially been long “neglected” before the turn of the millennium, Healey relates, another key to revitalization (along with proximity to the CBD core) has been the availability of sizable parcels that could be redeveloped sequentially at modest densities. In other words, they could accommodate Amazon’s growing needs in substantial incremental chunks at land costs that do not require high-rise configurations in order to pencil out economically, Healey says.
And as Amazon’s headquarters facility continued to expand, helping to spawn a mix of commercial and residential development activities nearby, a district rezoning ordinance that took effect in 2013 allowed for greater heights and densities while also requiring open spaces and pedestrian-oriented streetscapes.
The zoning revision has helped SLU accommodate the tech sector’s growth while maintaining a “humane environment” by requiring considerable open space for public use even as buildings get taller, McConnell’s colleague David Yuan, an NBBJ partner, says. Echoing Healey, he stresses the role of magnetic, experience-driven retail offerings that appeal to the district’s employees and to the general population.
The ongoing renaissance in and around downtown’s northern flanks appears destined to continue attracting additional employers and residents—and rising rents.
Among the higher-profile recent commitments: Expedia is retrofitting the 600,000-square-foot (56,000 sq m) former Amgen campus along the bayfront west of SLU; Big Fish Games leased about 187,000 square feet (17,000 sq m) at the to-be-renovated Maritime Building further south on the waterfront; and continuing its strong expansion up in the Fremont neighborhood, Tableau Software just moved into its 208,000-square-foot (19,000 sq m) custom-built headquarters where the Ship Canal hits Lake Union (and near another big Google facility).
Rising Rents
With new-construction rents in SLU now well beyond average asking rates for existing Class-A high-rise space in the CBD, some of the district’s lesser-heeled businesses and nonprofit organizations are inevitably struggling to remain when their leases come up for renewal. The same can be said for longtime local apartment renters when so many well-compensated tech employees boost demand for the district’s new high-end projects.
As Kidder’s Hatcher relates, it is a daunting dilemma in a city that welcomes high-paying jobs and the tax revenues they generate. “You need diversity if you want a sustainable major city,” he says. “You don’t want to stymie economic growth with exorbitant developer fees, but you also don’t want to price people out their neighborhoods. It’s a tough one.”
NBBJ’s Yuan, who serves as vice chair of the Downtown Seattle Association’s Smart Growth Committee, sees at least a partial answer in additional planning and zoning policies that address the spectrum of socioeconomic needs. “Can we offer denser FARs [floor/area ratios] to developers that meet social needs such as affordable housing?” he asks while noting that the city has made some progress along those lines.
Healey points out that amid all those conspicuous construction cranes, SLU landlords collectively offer the gamut of space categories and price points. “There are many alternatives to paying $50 a foot [$538 per sq m] for newly constructed offices,” she says.
While Healey and others remain optimistic about prospects for continued clustering in the growing technology hub, they acknowledge that the local real estate market, along with the broader tech sector, will inevitably encounter stormier seas, likely both in the near term and later on. It is no coincidence that tech executives, along with Seattle and Washington state officials, have played leading roles in opposing the Trump administration’s early policy proposals on immigration and trade. Lawyers for the state of Washington challenged the controversial ban on entry into the United States from several countries, and it was a federal judge in Washington state who temporarily blocked its enforcement. Leaders of more than 100 tech companies signed on to a friend-of-the-court brief opposing the ban.
“If our tech clients are nervous [about the prospect that] they wouldn’t be able to recruit from certain countries,” Hatcher cautions, “then we are nervous about that as well.” He says he is even hearing talk that companies unable to secure sufficient H-1B visas for offshore recruits with specialized skills might look to locate their operations in Vancouver, Canada, rather than in Greater Seattle.
But he and Healey both take comfort in the impact that Amazon’s frenetic growth is having—and should continue to have—on the burgeoning downtown-area tech hub. While Healey has been working in the district long enough to anticipate cycles of rising and falling user demand ahead, she remains “optimistic about the trajectory” of activity, which may well get another boost when technology’s “next big thing” comes along.
As for Hatcher’s personal strategy for promoting the key employer’s ongoing success: “We try to order something from Amazon every week.”
Brad Berton is a Portland-based writer specializing in real estate and development.
