Seattle Real Estate News - March 2024

Office Developments

Unlike office developments, which didn’t see much action this month, one of the biggest office leases in recent memory occurred in March. PATH, a non-profit health-equity organization, plans to occupy all of 437 N 34th Street in Fremont known as “West Dock.” The property was purchased by Hess Callahan and Grey in 2014 and had been home to Tableau for years before the pandemic and Tableau’s sale to Salesforce. Approximately 200 PATH employees will move to this new location from their previous space at 2201 Westlake in South Lake Union.

MLA Engineering, a structural consulting and design firm recently leased a new office at 1109 First Ave Watermark Tower. Previously located in the Fourth and Union building, their new 22-story office space is much bigger and a great base for their hybrid office model. The location overlooking the Puget Sound and Elliott Bay is fitting since they oversee the construction of aquatic concrete structures and wanted to remain connected to the downtown core.

Returning to the Office

In a recent update from Seattle's office market, it's clear that Seattle's office market has been more affected by pandemic-era hybrid working trends than the fallout from the dot-com bubble in the early 2000s. Office space occupancy in the area has dropped by almost 9.2 million square feet since the beginning of the pandemic. Interestingly, while Microsoft's pivot from its Bellevue offices to Redmond might have sparked concerns, Bellevue has managed to hold its ground robustly during this downturn, aided by significant moves from tech giants and innovative firms. Amazon's strategy to relocate nearly 12,000 employees to Bellevue, alongside fresh leases with the likes of Pokemon Co. International and TikTok's parent company ByteDance, illustrates a dynamic shift in the office space landscape. Yet, the looming expiration of company leases threatens to push vacancy rates even higher.

Amazon, facing a 33.8% office vacancy across its owned and leased spaces, is navigating through these uncertain times with plans to optimize its footprint and achieve around $1.3 billion in savings over the coming years. Moreover, the tech giant is innovating cost-cutting measures, including the "hibernation" of select office floors to trim down on utilities, all while continuing the development of promising projects in Bellevue.

On another front, the small tech firm Statsig embraces a different approach by reinvigorating the traditional five-day office week. By championing collective success, offering catered meals, and fostering interactive collaborations, they argue for the unique value of in-person work environments that simply can't be replicated remotely. Echoing this sentiment is Seattle City Council President Sara Nelson, advocating for a complete return to office work alongside council members, in hopes of setting a strong example. Despite the 13% increase in daily workers in downtown Seattle since last year, as reported by the Downtown Seattle Association, the current footfall barely crosses half of what it was pre-pandemic. DSA President Jon Scholes emphasizes the necessity of enhancing public safety as a cornerstone to encourage a broader return to in-person workspaces.

Downtown Recovery

The Downtown Seattle Association (DSA) held their annual State of Downtown Event, introducing a compelling vision for our city's heart, now dubbed “the experience district”. This concept aims to rejuvenate Seattle's central business district, focusing on enriching experiences for both tourists and locals alike.

A crucial discussion point at the event was public safety, especially with the ongoing fentanyl crisis. The importance of creating a safe and welcoming environment was underscored as key to attracting more residents and visitors to downtown Seattle. Interestingly, downtown is now home to a record number of residents, with weekday worker foot traffic reaching an average of 80,000 per day in 2023. This marks a significant 33% increase from 2022, yet there's a concerted push for further enhancement of the downtown atmosphere to boost this even more.

One notable insight from the event was the identification of business sectors that are pivotal in repopulating downtown areas. Currently, Seattle's downtown lacks significant representation from finance, insurance, and real estate sectors—industries known for encouraging office attendance over remote work. It's observed that cities with a high concentration of these sectors, such as New York and Miami, tend to have more workers in the office compared to the national average.

In terms of infrastructure, there's been a robust wave of investments in downtown Seattle, focusing primarily on mixed-use projects and apartments. This move is anticipated to encourage more residential foot traffic downtown. However, the reality of an 18% office vacancy rate presents a challenge. This figure is expected to rise if the current trajectory of returning to the office does not pick up pace. Still, there's a silver lining with an upward trend of 33%, albeit only half of pre-pandemic levels.

Foot traffic statistics released the week of March 17 highlight that downtown has seen more than 85,000 weekday workers, which, though promising, still only represents 57% of pre-pandemic figures.

On the security front, downtown faces its own set of challenges. Aleksandr Butowicz of Iron and Oak Protective Services sheds light on the efforts of their 125 unarmed officers trained in open-handed defense tactics to maintain peace. The firm is part of a broader trend of private security presence downtown, a response to a decline in police numbers following funding cuts. Despite these challenges, it's encouraging to note that downtown crime has seen an 18% decrease compared to 2023, signaling progress in making Seattle's heart a safer place.

Economy, Inflation, & Retail Sales

The U.S. economy has shown a robust annual growth rate of 3.4% for the last quarter of 2023, marking its sixth consecutive quarter of growth above 2%. Despite this resilience, inflation remains a concern, slightly above the Federal Reserve's target at 3.2%. As we eagerly await the first quarter GDP estimates for 2024, the backdrop of a strong economy continues to influence the real estate market.

Inflation has seen a significant drop from its previous peak of 9.1%, though prices rose by 0.4% from January to February. Core prices also saw a rise but at a slower pace than before, suggesting that price pressures are easing. This is crucial for the real estate market as inflation affects overall affordability and buying power.

Jumping into the Seattle housing market, home prices have increased by 8% in February 2024, with an impressive year-over-year growth of 14%. The spring season traditionally brings more homes to the market, but as has been the trend, supply remains tight. Buyers are responding by putting down larger down payments and even offering up to 30% above the asking price to clinch their desired homes. This level of competition underscores the continuing supply-and-demand imbalance in our local market.

Nationally, we're observing a shift toward a more balanced real estate market. Evidence of this comes from the increasing percentage of homes seeing price reductions. With 14.6% of homes listed for sale last month experiencing a price cut, it's a clear signal that the market is adapting, moving away from the frenzied competition spurred by low mortgage rates during the pandemic, which had inflated home prices significantly.

In conclusion, the broader economic indicators and specific real estate developments present a complex yet fascinating picture. Seattle's real estate market remains competitive, reflecting broader national trends but also demonstrating unique local dynamics. As we navigate through these changes and await further economic data, staying informed will be key to understanding the evolving landscape of real estate investment and homeownership in our vibrant city.

Housing

After a tense five-week climb, long-term U.S. mortgage rates took a modest dip in the early days of March. The 30-year fixed rate, a standard gauge for most homebuyers, receded from 6.94% to 6.88%. As the month progressed, these rates continued their subtle dance, dipping to levels reminiscent of February’s figures. Notably hovering just below the 7% mark, the rates remain significantly higher than last year's, but still shy of the 30-year record high of 7.79%.

By month's end, we observed another encouraging sign as the average rate on a 30-year mortgage further slipped to 6.79%. This slight yet meaningful reduction brought the average rate to its lowest in weeks, suggesting a potential easing on the horizon. For those considering refinancing, the news was also positive. The borrowing costs on 15-year fixed-rate mortgages, a favorite among refinancing homeowners, also saw a decrease.

Interest Rates

Switching gears to the Federal Reserve's actions, there was a notable pause in altering interest rates towards March's close. The Fed, holding rates steady at about 5.3% since last July, underscored a cautious optimism. Although acknowledging recent positive strides, officials maintained a 'wait-and-see' stance, not yet ready to commit to rate reductions. Their target remains achieving a 'soft landing'—easing inflation back to normative levels without triggering an economic downturn.

Looking ahead, there's a projected sentiment that rates may see a decline by year-end, potentially as early as June. This forecast comes amidst efforts to balance economic cooling measures against the backdrop of ongoing inflation concerns.

Jobs

The job market is showing resilience, with an additional 275,000 jobs added as of early March and unemployment rates maintaining a stead below 4%. This stability is noteworthy amidst economic uncertainties. However, it's important to keep an eye on the cooling wage increases, which could signal a shift in the job market dynamics. Despite notable layoffs in the tech sector, overall unemployment benefit claims have seen a slight decrease. This situation leaves many seasoned tech professionals facing challenges in securing new roles, pointing towards a noticeable shift in the employment landscape, with a preference for younger, tech-savvy candidates.

Other News

Moving onto real estate news impacting our city and beyond, there's a significant tightening in budgets across business districts, leading to a decrease in commercial building prices. A notable example is a 200,000-square-foot office building in Chicago, which recently sold for a fraction of its 2004 price.

Here in Seattle, a concerning trend unfolds as a once-proposed residential tower project on Fourth Ave sees its asking price slashed by 28%. This downturn is attributed to a combination of vacant storefronts and waning foot traffic, particularly in the submarket area.

Addressing the challenges of converting office spaces to residential units, Mayor Bruce Harrell has proposed new legislation aimed at easing financial and bureaucratic hurdles for developers. This move is part of a broader initiative to revitalize the city's numerous empty office buildings. However, the exemption of MHA (Mandatory Housing Affordability) programs from conversion requirements raises questions about the impact on affordable housing needs.

The efforts to combat these real estate challenges highlight the urgent need for adaptive strategies in an ever-evolving market. As Seattle navigates these transitions, the implications for both commercial and residential sectors remain a focal point of discussion. That’s all for this month in Seattle Real Estate News. This podcast summary was powered by Jellypod AI - download it on the App Store today! Thanks for listening.