Warning sign for downtown? Seattle sees biggest drop in demand for office space

0
103
Warning sign for downtown? Seattle sees biggest drop in demand for office space

In downtown Seattle, the crews are putting the finishing touches on a striking new skyscraper. The Rainier Square Tower is around 300 meters high and has already redrawn the city’s skyline as the second tallest building.

But there’s an open question for this – and every – new office space in Seattle: will it ever be filled with workers?

As in any other city, Seattle office buildings have been largely uninhabited since the pandemic began due to remote working. Fortunately, with the introduction of the vaccine, the end could be in sight. However, there is a worrying sign that Seattle office buildings – and, by extension, downtown – may not be bouncing back as quickly as some other major markets.

It’s also a paradox because Seattle’s economy is buzzing along with it. New data from the Bureau of Labor Statistics shows Seattle is characterized by a recovery in employment among workers who normally work in offices.

In most major markets, office workers were fewer in December than in February, just before the pandemic turned everything upside down. In Seattle, however, the number of office workers has increased by just over 1%.

So you might think that local businesses are considering moving to new office space again and envision a return to normal in the not too distant future. But that doesn’t seem to be happening.

In fact, the interest in renting new office space is furthest from the pre-pandemic in Seattle when compared to other major markets. This comes from a new report from New York-based VTS, which provides leasing and asset management software for commercial real estate rental companies.

VTS creates a monthly index number that measures companies’ interest in new office space. An index value of 100 indicates a typical level of demand in recent years (the index was first created in 2018).

In February, Seattle had an index value of 86. By December it had fallen to 17. This is an 80% decrease, the largest of the seven markets included in the study.

The VTS index is a novel way of measuring demand for office space. Traditionally, this demand is measured at the point a company signs a lease or moves into a room. Instead, VTS examines the number of office space visits by potential tenants.

Tours are important because that’s how a company hits the market first, says Eli Gilbert, head of market research at VTS.

“The renter goes out with a realtor just like you buy a house and you go to several different buildings,” Gilbert says. “That is the point that we record in the VTS system.”

Because the data captures a much earlier point in the office rental process, Gilbert believes the VTS index is the single most important indicator of tenant behavior. He says the system is capable of tracking almost 100% of the tenants who come to a market.

While social distancing guidelines initially had a negative impact on tours, the industry has been more comfortable navigating face-to-face interactions, Gilbert says. The VTS data also track virtual tours.

As we (we hope) step into the home of the pandemic, the question remains, why has interest in office space declined so dramatically in Seattle, even though employment in office jobs has increased – and is this a sign of doom for us downtown?

At this point in time, we can’t really know. It could simply be a brief delay between hiring new workers and renting office space. Perhaps interest in office space will increase in the coming months.

But it could also be a sign of a more fundamental shift to remote working in the Seattle area – more here than in most other markets. And for that, you can thank (or blame, depending on your perspective) our dominant industry: Tech.

“Markets or cities with a much higher proportion of technology vendors are likely to be most comfortable working from home,” Gilbert says. “These companies’ plans to return to the office may be delayed as they plan for the next several years in this post-COVID environment.”

Tech companies naturally have the most developed remote working infrastructure, and the largely younger workforce is more comfortable with this type of work arrangement.

“You can give the kid a laptop and headphones and they’ll work at Starbucks for the rest of their lives,” Gilbert said.

In contrast, the culture of law firms or financial services, for example, is much more personal. And physical office space plays a more important role in the life of a lawyer than a technician, Gilbert says.

Downtown Seattle with its mostly empty office towers is no longer the place it was a year ago. There is only a fraction of the workers, buyers and visitors that once existed. While it is too early to know how much of the disruption caused by the pandemic will be long-term or even permanent once the coronavirus is contained, enormous challenges are certainly ahead.

But for a city to thrive, it needs a healthy core – and it’s not too early for our city guides to ponder what steps we can take to get downtown Seattle going again in a post-pandemic world.