Amazon, with its more than 300,000 global employees, has emerged as one of the world’s corporate powerhouses. But the company’s impact is especially evident in its hometown of Seattle, where its growth has ignited a construction boom unlike any in the city’s history.

The tech giant takes up approximately 20 percent of Seattle’s office inventory, one of the highest concentrations in the country by a single corporate entity. Six complexes that it occupies have sold for a combined $1.5 billion in the last 13 months, mostly to foreign investors. By 2022, Amazon says it could occupy 12 million square feet across 40 buildings in Seattle, up from 8.5 million square feet as of the middle of last year.

The real estate market is going through a modern day gold rush. We’ve never seen this kind of development ever in the city of Seattle’s history. It’s unprecedented, and the big question is, when does it stop?

In short, Amazon has been a driving force in Seattle’s ascension to becoming one of investors’ favorite office markets in the world. But it’s not just Amazon. In recent years, more than 80 of the biggest and fastest-growing tech companies have set up shop in Seattle, creating a deep roster of tenants for real estate developers to pursue and giving the area some economic diversity, something it has lacked in past booms.

Some analysts predict this will extend Seattle’s current run, protecting it from a downswing.

“If you asked brokers two years ago what they thought was going to happen, everyone was saying ‘oh it’s going to cool off, all these buildings are going to get built, there’s too much space coming online, there’s not enough demand,'” said Allison Fadden, co-founder of Seattle brokerage Suite Partners. “Everybody has been proven wrong. That’s not what happened.”

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And here’s why: Seattle is home to the kinds of people that tech and other companies want to hire, so the companies come to them. The city features a rapidly-growing computer science program at the University of Washington that turns out qualified candidates every year. Seattle is home to Amazon, Microsoft, Starbucks, Nordstrom and many other companies that have been building up strong engineering teams. New firms come in and see those people as ripe for poaching.

David Gurry, a senior vice president at Colliers International’s Seattle office, said the talent pipeline in Silicon Valley and San Francisco is starting to slow, leaving companies to look elsewhere to bring in new energy. Washington’s lack of income tax, as well as cheaper home prices and rents for office and and apartments (compared to San Francisco) don’t hurt either. Seattle now leads the nation in rising rents, with residential rental rates rising 8.4 percent, according to an analysis by Zillow. Home values also continue to surge in the Seattle area, up 11.7 percent. Even so, the Zillow Value Home Index for Seattle stands at $413,700, half the value of San Francisco’s $829,700.

“Seattle is well-regarded as being a highly-educated city, and we obviously have the Amazons and Microsofts of the world,” Gurry said. “The reality is these companies come here to poach our talent.”

The tech scene is also fueling much of the city’s population boom, and a historic level of apartment construction. Seattle and its surrounding counties added 86,320 new residents between April 2015 and 2016, marking the region’s biggest population gain this century.

That has led to some big growing pains, from increased traffic to a housing shortage that has caused both home values and rents to shoot up at a pace that has pushed out a significant chunk of the non-tech workforce. These are issues that observes say could bog down Seattle’s ascension as a top tier city both in terms of its office market, and overall.

Breaking the cycle

Typically, the real estate market works in cycles. A new one starts after a previous era has bottomed out — in this case, the recession in 2008 and 2009. Many put the beginning of the current cycle around 2010. What follows is usually a sustained period of growth, where office rents rise, the amount of available space starts to decrease and weary developers come out of hibernation to tee up new projects.

Then we hit a peak in the cycle, where prices for land and buildings skyrocket and more developers are building. One look around Seattle, with record-breaking sales prices, and a forest of cranes dotting the sky, shows we are right in the middle of this period.

That is usually followed by a downswing. The severity of the dip usually depends on the events surrounding it. A massive recession or something like the dotcom bust is likely to have a much greater effect on the office market than a simple readjustment of supply and demand at time when developers build too much.

But this time around could be different, in the view of some in the real estate business.

“The general rule of thumb is a 10-year cycle,” said Trevor Clark, co-founder at Suite Partners. “But given this new influx of large tech companies in Seattle, I think we’ve completely reset how we are going to analyze these cycles going forward.”

Underpinning this prolific office development cycle is a shift in how people like to live and work. Greg Smith, CEO of Seattle-based real estate company Urban Visions, presided over one of the bigger suburban-to-urban migrations in local history when timber giant Weyerhaeuser chose in 2014 to move its operations from the suburb of Federal Way, Wash, to his 200 Occidental building in the heart of Seattle’s Pioneer Square neighborhood.

The real estate market is going through a modern day gold rush. We’ve never seen this kind of development ever in the city of Seattle’s history. It’s unprecedented.

A fifth-generation Seattleite whose family settled in the region in the 1860s, Smith has watched the city grow up around him.

As recently as the 1990s, Seattle was what Smith called an eight-hour city. People drove to work from the suburbs, finished off their day and drove back. The South Lake Union neighborhood had yet to be turned into the massive tech hub it has become. At the time, Microsoft co-founder Paul Allen was trying to turn the neighborhood into a local version of Central Park. Voters twice rejected the plan, and the land reverted back to Allen. That set the stage for the redevelopment of the neighborhood that eventually led to Amazon’s decision to make South Lake Union its home base.

The explosive growth of Amazon, the trend toward urbanization, and the entrance of so many new companies to Seattle are creating a development climate unlike anything before. But what goes up must come down, right? Smith always has that possibility in the back of his mind.

“The real estate market is going through a modern day gold rush,” Smith said. “We’ve never seen this kind of development ever in the city of Seattle’s history. It’s unprecedented, and the big question is, when does it stop?”

Threats on the horizon?

Businesses and the real estate industry really like certainty. They want to know what to expect in terms of regulations at all levels of government, something that is very much up in the air right now with the election of Donald Trump as U.S. President.

Real estate insiders pay a lot of attention to the financial system. What are banks, insurance funds and other prominent lenders up to? Where are interest rates heading?

For years, interest rates have been so low, that developers have essentially had access to free money, creating less risk in their projects. But that is changing, with interest rates finally beginning to rise and construction costs increasing.

Many observers are keeping an eye on what will happen with some of the high rises under construction around town. Most tech companies prefer either a funky, older space with character, or a shorter building with huge floors. In addition, these companies don’t want to commit to an office three years before it’s ready, and that has forced a lot of builders to go ahead without any leases signed — to build on “spec,” as they call it in the industry.

“We’ve had historically low interest rates, and in addition explosive growth in Seattle,” Smith said. “That’s not going to happen for the rest of our lives, so it’s a little bit like musical chairs. When is the music going to stop and who is going to be left standing? I don’t want to be one of those guys.”

Tech companies, and to a point their workers, are not known for loyalty. While tech workers in Seattle tend to stay longer at companies than their counterparts in Silicon Valley do, everyone is looking at their next move, Clark said. That could be true of the employers, as well.

If suddenly Seattle runs out of talent, or offices and housing become too expensive and don’t fit what companies and their employees are looking for, or no one wants to deal with our traffic anymore, companies could pick up and leave. The way companies today are opening new engineering centers in Seattle, the same thing could happen in Portland, or somewhere else if the talent ends up there.

“What technology has told us in general is that they’ll go anywhere where there is a talented workforce,” Gurry said. “That’s why a lot of these companies have major holdings up and down the west coast.”

That said, no one expects Amazon to pick up and leave town. But observers are watching how Amazon handles its massive real estate portfolio. The company recently opened its second tower just north of downtown Seattle and is under construction on a third. It has purchased other parcels in the neighborhood and has options to buy a few more.

So if Amazon all of a sudden stops leasing buildings, or doesn’t renew leases in some of its current buildings, that could be a cause for concern. As of now, that doesn’t appear to be a concern, as the company in just the last few months has picked up several buildings in Seattle while also setting up shop on the east side of Lake Washington with a big new Bellevue office. Those leases total about 1.3 million square feet, greater than the size of one of Amazon’s new campus blocks.

Following the blueprint

Forecasters in Seattle have been predicting a slowdown, both in the regional economic boom and the local office market, for several years. Amazon has to pump the brakes at some point, doesn’t it? So far it hasn’t. And even if it does, other homegrown and out-of-town companies, mostly in tech, could step up to fill the void.

What technology has told us in general is that they’ll go anywhere where there is a talented workforce. That’s why a lot of these companies have major holdings up and down the west coast.

The big five tech companies right now are Amazon, Google, Facebook, Apple and Microsoft. All of those have a presence in the Seattle area. Amazon and Microsoft are obviously based locally. Google recently expanded in the city of Kirkland and is building a huge presence in Seattle after leasing multiple blocks in the South Lake Union neighborhood last year.

Not to be outdone, Facebook started moving into its fancy Frank Gehry-designed Dexter Station building last year, only to turn around and lease a pair of planned office buildings in December and take down a recently finished structure just a couple of weeks ago.

Apple quietly came to Seattle a couple years ago, before making a big splash in 2016. When it acquired machine learning startup Turi for upwards of $200 million, Apple sent a signal that it had designs on basing a machine learning division here in Seattle. Naturally, that growth will probably require a lot more space, so Apple has been on the hunt all around the area, or it might just expand within its current building at Two Union Square.

Just last week, GeekWire learned that Snap Inc., the company behind the hit Snapchat app, is poised to significantly grow the footprint of its Seattle engineering office. Just a year ago, the company took about 8,000 feet, and its new lease is for about 50,000.

Snap appears to be following a blueprint established by Facebook. First a company comes in and sets up a small engineering office, with only a couple of people, possibly in a co-working building.

Then it jumps up to a small office, like Snapchat did last year. Then if it gets traction, it upgrades to a bigger space, like Snapchat is doing and as Facebook did several years ago when it leased several floors at the Metropolitan Park complex. Then it becomes time to make that statement — like Google and Facebook did in grabbing some of the city’s more glamorous office projects — that the company has become a powerhouse locally.



What has real estate insiders so jazzed about Seattle is the potential for more companies who have recently opened offices in Seattle (like Uber or Pinterest or Airbnb) to follow this same blueprint.

“It’s a little hard to predict what’s going to happen,” said Fadden. “If they all continue the trend and if Amazon keeps taking more space, we are not going to see that cooling off period that we usually do.”

Extra: Seattle’s office market, by the numbers

Industry insiders keep their eyes on many metrics to judge the strength of a real estate market and, in some case, to inform billion-dollar decisions. Here are a few of them, and where they stand in Seattle.

Lease rates: This is the rent that a company pays for space in a building and it is calculated on a per square foot basis. In Seattle, landlords are asking for an average of $34.60 per square foot, according to information from real estate firm JLL, and brand new buildings in the hottest locations like South Lake Union are fetching upwards of $60 per foot, said David Gurry of Colliers International. Even the highest figures in Seattle are significantly less than San Francisco, where the average asking rent is $73.65. So a tech company can save a lot of money on its office space if it sets up shop in Seattle rather than San Francisco.

Vacancy rate: This is pretty self-explanatory, the percentage of vacant space. It is measured in individual buildings, neighborhoods and regional markets as a whole. Around 10 percent is considered balanced, in that it doesn’t favor landlords or tenants. The lower it goes, the better the environment is for landlords, and vice versa. Seattle’s vacancy rate is 9.2 percent, according to JLL. So it’s a pretty good time to be a building owner.

Net absorption: A figure used to track comings and goings of companies. It is the amount of space companies lease versus what they give up. Seattle has been in the midst of a record run under this metric. Historically, Seattle’s net absorption averages about 900,000 square feet, Gurry said, but from 2010 to 2016, companies took down a net of 11.6 million square feet, or about 1.7 million feet per year. This is where the big deals from Amazon, Facebook and Google make their mark.