According to the most recent report by the Downtown Seattle Association, development throughout the Emerald City is setting new records with 65 active projects either under construction or expected to start shortly.
This is significantly more than any time prior, with every real estate segment represented, including high-rise offices, residential, hotels, medical centers and major technology campuses represented by Amazon,Facebook and Google to name a few. Residential development is among the most active product segments with 10,000 housing units delivered in the past five years and another 10,000 currently under construction or in site preparation including recent land use permits issued. Nearly 19,000 additional housing units are in pre-development stages in the high-density neighborhoods that comprise downtown Seattle.
That may sound like a lot of housing, but experts say construction is still lagging behind demand and as a result, both median home prices and rents continue to rise. The fact is that people keep moving into downtown Seattle. Conway Pedersen recently adjusted their 2016 Puget Sound job forecast up by 12,400 (35%) to total 47,900. From a macro perspective, residents of Washington enjoyed personal income growth increases of 1.5% for the first quarter of 2016 topping the rest of the nation in wealth generation. Among the 961 new construction condominiums currently in development, 786 (or 82%) have already been presold. Meanwhile, another 374 units that are soon to break ground at NEXUS have already posted 80% presale reservations. Interestingly, each of these new condominium projects are in distinct urban neighborhoods as downtown Seattle is expanding its residential footprint.
Those who move to the Seattle area are faced with a market in which the cost of renting and buying are comparable and, as of late, both increasing. The Puget Sound Business Journal reported yesterday that “if you thought the Puget Sound region’s flurry of apartment construction would drive rents down, you were wrong,” given that rents have increased over 10% in the past year alone. Average rents have risen in the downtown area by 41.7% since 2010, according to O’Conner Consulting Group, yet the median home price of condominiums have grown as much (42%) in the last year alone as of May 2016 (NWMLS), spiked in part by the new construction inventory. Homebuyers across the state are seeing increases in prices, as The Seattle Times reported this week that “Washington’s escalating prices have sent it zooming past several other states toward the top of the list of priciest places in the nation to own a home.” The Times says statewide home prices rose nearly 11% in the month of April when compared to last year’s numbers, representing “the biggest jump of any state in the nation for the third month in a row.” The lack of inventory paired with a strong economy has caused home prices to increase in nearly all (37 of 39) counties in Washington state year-over-year.
It’s ironic that what was once Denny Hill, a mass of earth that used to run between 1st Avenue to Denny Way between Pike Street and 5th Avenue, is effectively filling in again with high-rise developments including the urban campus for Amazon. In the late 1800’s, city planner R.H. Thomson convinced property owners a tenfold increase in value if they allowed the City of Seattle to blast away the hills using water cannons that used more than twenty million gallons of water per day. After several phases and several decades, the hill was gone leaving flat, developable land. Now more than a century later, residents are again enjoying the view from this hilltop, albeit in the form of a high-rise condominium, apartment or office building.
The epicenter of this construction boom is the “Amazone” – nicknamed for the major urban campus being developed by Amazon.com. The tech and retail giant now leases and owns over 8 million SF of office space and will have over 10 million SF when planned projects are complete. This represents 14% of Seattle’s current Class A office space and will be 18% when they are finished. Amazon took up 2.6 million SF in 2015, 60% of all Class A absorption. Revenue in 2015 was $107 billion. In 2015 it grew its worldwide headcount by 50%, going from 154,000 to 231,000.
The Denny Regrade area and a northern migration of downtown Seattle is similar to the development trends of South of Market (SOMA) and Mission Bay in San Francisco. This 303-acre neighborhood on the outskirts of downtown San Francisco became the epicenter of a real estate bonanza that has rocked the Bay Area more than its 1906 earthquake. What’s different however, is Seattle is generally much more affordable, higher density and lacks the state income tax of California so it’s no wonder so many major companies, including tech firms like Google and Facebook, are opening major urban campuses in the Silicon Forest instead of the Silicon Valley.