Seattle Takes Off

Seattle has become one of the hottest cities in the US to live and work. Its picturesque waterfront city with the backdrop of  the 14,000 foot Mount Rainer – the highest mountain of the Cascade mountain range, overlooking its urban sprawl, outdoor climate, quality of life and more attractive cost of living have lured young high tech professionals to the Northwest’s best kept secret from around the US to move to Seattle.

Seattle is the second Silicon Valley but its humungous population growth may one day make it the number one city to live and work in the US.  Real estate professional’s coin Seattle as one of the club flagship cities among other notable cities like New York, San Francisco and Boston. According to a 2013 US Census Bureau study, Seattle’s population stood just over 650,000. Forbes rated it as the sixth fastest growing population in the US with 18% of its residents being ‘Yuppies’ 25-35 years old.

Boeing was once the key employer driving Seattle’s economic growth is slowly disintegrating and is now replaced with high tech giants like Microsoft, who came to Seattle in 1982 along with Nintendo in 1986, have added other big players like Amazon, Google, Expedia, Facebook, Marchex, Twitter, Zillow, Zuilly and Tablieu (both who just recently went public at valuations over $1 billion). Other companies like Oracle, Alibaba, Apple, Dropbox, Sears and HP have announced plans in recent months to open engineering centers in Seattle.

Expedia will be moving its headquarters from Bellevue to Seattle and is buying the Amgen campus overlooking Elliott Bay for $229 million. The move is slated for 2018 that will accommodate as many as 1,500 more employees, beyond its existing 3,000 in the Northwest region.

Amazon with its employee count at 24,669 is still trailing Microsoft with its roughly 40,000 employees. But what is startling is that Amazon is in the process of developing and expanding its presence in Seattle with its $266 million development of new light industrial buildings and its recent purchase of the South Lake Campus for $1.1 billion. Geek Wire and the Puget Sound Business Journal reported that Amazon is expanding its existing office space of 4.1 million square feet to 10 million square feet within 5 years.

Everyone knows that the basis for real estate growth is job growth. And with the advent of young high tech professionals opening up shop in Seattle, real estate is in demand. Colliers reported that lease rates in Q1 2015 for CBD class A office space is leasing for $36.87 per square foot up from $33.77 in 2014 representing a 9% increase.

According to the Northwest MLS, the average price of a home in King County reached $500,000 up from $420,000 in January 2014 – an increase of 20%. But what is most interesting is that average salaries for high-tech professionals in Seattle and the SF Bay Area are almost the same – Seattle $86,816 and the SF Bay Area $101,701. But how can you compare a beautiful home in King County that includes Bellevue, Seattle and Kirkland that is half the price of comparable homes in Silicon Valley matching apples to apples? But what is lagging is enough homes to meet this housing need. This shortage is fueling the huge leap in home prices and over-bidding of homes far and above their asking price. This is why Seattle Mayor Ed Murray plans on creating 50,000 new housing units over the next 10 years.

Looking at the commercial real estate sector in Seattle, Colliers noted that over $1 billion of class A office buildings in Seattle traded hands just in Q1 2015 to institutional buyers – mainly US and Asia. Just this month, Hong Kong investors purchased the 1,608,937 square foot Columbia Center office building for over $800 million, a price of $476 per square foot. Some of the other institutional buyer’s included Hines Global REIT, CBRE Global Investors, JP Morgan Chase, AFL-CIO Building Investment Trust while institutional sellers included the likes of Ivanhoe Cambridge of Canada and Brookfield. Colliers claims that there are more buyers chasing deals than product available and this is why when an office building comes to market its unpriced and goes through the bid process ultimately ending with best and final and selection of the ultimate buyer. CBRE in their recent cap rate study indicate cap rates for class A office building in the CBD of Seattle are trading for 4.75% to 5.25% cap rates and forecasted to compress even more making the deal less attractive for an astute investor.

About the Author
Ron Diller lives in Israel and has over 25 years’ experience in the US real estate industry, primarily in the multifamily sector.