SEATTLE — As many white-collar employers extend into next year the work-from-home policies they instituted in response to the coronavirus pandemic, a vast amount of vertical space in downtown Seattle is leased but empty.
The vacant space amounts to more than 700 football fields, by one estimate — acres of desks, with knickknacks and mementos that few but cleaning staff, maintenance crews and interior landscapers have seen for nigh on six months.
It’s not clear when workers might begin trickling back into that space or what could become of it in the meantime. “If anyone tells you they know what’s going to happen, they’re fibbing,” said Rod Kauffman, president of the local Building Owners and Managers Association.
But amid overarching uncertainty about how long work-from-home regimes could last, tenants are scrambling to find flexibility in their leases while building owners and developers are examining options to convert offices into space that can be used in other ways, such as biomedical research.
The colossal office shutdown has added to the economic pain of the pandemic for street-level businesses downtown, as the hundreds of thousands of workers who would otherwise have streamed every day into Seattle’s downtown core remain at home. It’s difficult to envision a vibrant downtown Seattle emerging from the pandemic, researchers and businesspeople say.
Seattle restaurateur Ethan Stowell’s Italian eatery Tavolata, which already has locations in Belltown and on Capitol Hill, had been slated to open a branch in a brand-new office building downtown on Second Avenue and University Street that’s been leased by Dropbox, Qualtrics and coworking group Spaces. Stowell had expected the “majority” of business to come from workers in nearby offices.
The sign is up, but the opening has been postponed indefinitely, Stowell said. Nearly all the workers who would have occupied the building’s offices are still at home.
“There are no tenants,” said Stowell. “We’d be opening for no one.”
Demand for dense, city-center corporate campuses from giants like Amazon, Facebook and Google led to a decade of breakneck office development here. Occupied office space in Seattle has grown 34% since 2010, according to the Downtown Seattle Association.
Now, those towers sit hollow. Roughly 90% of the 47 million square feet of leased Seattle office space is currently vacated as a result of the pandemic, according to Kauffman. In Bellevue, that figure is little better, 85%.
Office tenants, by and large, have continued paying rent on the unused space. But there are signs that some businesses may not return to the office: While vacancy rates are still hovering below 10%, according to research from commercial brokerages — near historic lows — office space available for sublease is rising as tenants try to exit the market.
In downtown Seattle, office space available to sublease has grown 20% since the start of the year, from 2.1 million square feet to nearly 2.7 million square feet, according to commercial brokerage CBRE — the largest jump since Amazon announced it would sublease its 722,000-square-foot space in under-construction Rainier Tower in early 2019. Available sublease space is only expected to increase.
And as leases come up for renewal in years to come, some employers may choose not to re-sign, or ask for less space or significant concessions. By 2022, Moody’s forecasts as much as 22.3% of King County office space could be vacant.
Nationally, amid softening demand for space and an overall climate of economic uncertainty, prices for office buildings have fallen for the first time since 2011, according to Bloomberg. In Seattle, office building purchases are in deep freeze, according to the Commercial Brokers Association. The dollar value of sales for local office buildings was down 78.1% year to date as of June.
Judging by the actions of some large, tech-driven companies, the end of the pandemic may not mean the end of remote work. Companies including Zillow and REI have signaled that many workers will stay out of the office even if a coronavirus vaccine is developed. Facebook envisions half its employees working remotely on a permanent basis within the next decade. A Microsoft-commissioned survey found that 71% of managers and employees want to work from home post-pandemic.
Remote work “is here to stay,” declares a market report from local commercial brokerage Broderick Group. “This is a long-term trend.”
The commercial real estate industry saw a precursor of what could come in early August, when REI announced it would sell its brand-new Bellevue office complex. Remote work had proved surprisingly successful, said Ben Steele, REI’s chief customer officer. And, he noted, it made little financial sense to occupy the sprawling campus amid plunging in-store revenue.
Publicly, most in commercial real estate remain cautiously optimistic that the pandemic-prompted surge in remote work does not mean the death of office space — at least in the long term. Amazon, for one, continues to bet big on office space, announcing last week it plans to up its occupancy in Bellevue by 2.75 million square feet by 2025.
“People at the end of the day do not like to work from home,” said developer Martin Selig, pointing to some reports that remote work productivity is declining as the pandemic stretches on, and that at-home employees are feeling increasing senses of isolation and ennui. Selig reopened his office nearly six weeks ago.
Industry watchers expect occupancy to return to pre-pandemic levels within four years after a vaccine enters mass circulation, according to Kauffman.
For ground-floor retailers reliant on the workaday rhythms of coffee meetings, business lunches and happy hours, though, that timeline spells “devastation,” said Stowell.
Grocery store Kress IGA, on Third Avenue and Pike Street, closed permanently last month after the economic effects of COVID-19 compounded other hardships, said Tyler Myers, the president of the real estate group that owns the supermarket. The city’s 2018 sweetened-beverage tax and 2016 garbage fee hikes hit Kress IGA’s bottom line, and a perception of persistent crime along the Third Avenue corridor made Myers worry for employees’ safety, he said.
Then the pandemic hit, and the office workers who made up a large portion of the store’s foot traffic vanished. “I have convenience stores that are doing more business than” Kress IGA, Myers said. He’s confident people will return to the neighborhood when the pandemic is over, he said, “but in the meantime, it’s not a great place for my employees to be.”
At least 66 downtown businesses have already closed permanently, according to the Downtown Seattle Association. Work-from-home isn’t entirely to blame: Restaurants and retail were shuttered until the county met reopening standards in June, and the collapse of the convention and cruising industries have also played a role, said Don Blakeney, the organization’s vice president of advocacy and economic development.
Still, he sees the shrinking number of office workers as a large part of the equation. “The influx of people who came down every day weren’t there to spend the money,” said Blakeney.
There may be a feedback effect, too. As the pandemic slams Seattle’s restaurateurs, artists and musicians, large office tenants may find some of what made the city attractive to prospective employees has vanished, said University of Washington marketing professor Jeff Shulman, who hosts the Seattle Growth Podcast.
In the short term, the street-level view of Seattle is grim, he said. “We’ll be seeing a lot more businesses boarded up, closed down, with for-rent signs in their windows,” Shulman said.
Those forecasts have prompted developers to increasingly consider how to convert office space into other uses, said Brad Hinthorne, a Seattle principal at commercial architect Perkins and Will.
“People are trying to open their property to the widest variety of future tenants, whether that’s life science or medical or traditional office,” he said. Those types of conversions can be costly, but they’re less expensive than building from scratch — meaning “we’re certainly going to be seeing more of it,” Hinthorne said.
One change that’s unlikely: today’s office buildings turning into tomorrow’s residential towers, Hinthorne and Selig said. Installing additional plumbing and kitchen fixtures would be cost-prohibitive — and because office towers typically take up much more of a city block than do apartment buildings, dwellers in that kind of converted space would likely still be left with undesirable tunnel-like units stretching 50 feet from hallway to window.
Even companies that have indicated most strongly they’re reconsidering their space needs haven’t given up on offices altogether. REI is looking to lease satellite offices on the Eastside and in South Puget Sound, and brokers report there’s already interest in its vacant headquarters, including from bullish-on-remote-work Facebook.
But the office space that survives the pandemic will likely look much different from what employees remember.
Even once offices reopen, employees will be reluctant to return unless they’re confident they won’t catch the coronavirus at work, said CBRE research director Julie Whelan. That could involve spreading out desks to ensure workers can maintain a social distance in the office, reversing a decades-long trend toward denser offices. Spaces for impromptu meetings and collaboration will also likely close.
Some employers are also asking for more flexibility as they navigate an uncertain economic climate, Whelan said. That means shorter leases, potentially including contracts with coworking spaces like WeWork that offer prefurnished offices and a shorter time commitment than a traditional lease.
Robin Cardoso, WeWork’s Pacific Northwest director, said the company has fielded twice as many local inquiries from potential enterprise clients between March and August as it did in the same period last year. The interest comes from companies working to de-densify their existing office space and to secure meeting space closer to where employees live, she said.
Tagboard CEO Josh Decker said renting some amount of coworking space for meetings is likely in his company’s future, once restrictions on in-person gatherings loosen.
Decker negotiated Tagboard’s way out of its downtown Redmond office lease in April after realizing, he said, “that my team is succeeding in spite of being remote.” The company — which brings graphics and social media posts to TV news, live sports broadcasts and stadium screens — had a record sales quarter and shipped a new product, Decker said.
“It would have felt really wasteful to have (the office) sitting there empty while we’re paying for it,” he said. With the money saved, he hired a new marketing director, Decker said.
“Even if we were legally allowed to go back to our spaces,” he said, “I wouldn’t want to do it.”
©2020 The Seattle Times