Know your city: downtown development

The Downtown Seattle Association, a local advocacy group boasting 2,000 corporate, nonprofit and residential members, has published a report on downtown construction in 2018, and what we can expect for the next 2+ years.

A caveat up-front: since DSA is an advocacy organization, we should take everything they say with a certain amount of skepticism. It’s a reputable organization so it’s doubtful that it would intentionally publish false information, but we should look particularly hard at the conclusions it draws from the data and its recommendations, with the assumption that they are chosen to reflect the organization’s advocacy agenda.

The big take-away from the report is that for at least the next two years, downtown construction doesn’t seem likely to slow down. That goes against the economic forecast that the City of Seattle has been using in its budgeting — good news in general for the city’s economic prospects, for jobs, and for the city coffers (though bad news if you don’t like construction cranes and traffic detours).

The number of buildings completed should be steady through 2020 based solely on the number already under construction — 68 projects in total. And there are a healthy number in the pipeline for 2021 and beyond as well, though some of those in “predevelopment” will get scrapped before they break ground. Still, even if only half of the pre-development buildings are realized, construction is looking robust into 2022.

Residential construction continues to be a large part of that; according to the report, two thirds of the buildings under construction downtown have a residential component. In 2018, 3,780 units were completed, somewhat off from the 2017 peak of 5,723. This year’s construction will yield another 3,535, and 2020 should jump back up to nearly 2017 levels (around 5,600). Remember this is just downtown, which has been about half of the city’s total residential housing production in any given year.

The 2019-2020 units are primarily apartments (7,648), with about 1,000 new condos in the mix. The report discusses the barriers to condo development downtown:

While there has been an uptick in condo construction in response to pent up demand, barriers to condo construction remain. This is particularly true for lower priced entry-level condo units. Due to
the high cost of construction in Seattle, coupled with legal risks discouraging condo development, new condominium units tend to be offered at a higher price. This is a factor in the high cost of home ownership compared to renting.

The state legislature is currently considering revising some of the laws around condo developments to encourage more condo development as more affordable first-time ownership opportunities.

The report also includes a graph that explains perfectly why Seattle is in a housing crisis now: for several years up through 2011, there was little residential construction — despite a substantial influx of new residents over those years.

Compare that to Seattle’s population growth, which grew steadily throughout the recession. From 2005 to 2011, Seattle’s average annual growth was 5,600 people; from 2012 through 2018, the average was 16,900.

Seattle population growth. Source: U.S. Census Bureau.

Seattle got behind (in part because of the 2-3 years it takes for a construction project), and we’re now finally starting to dig out  — though there is still a lot of digging ahead of us. The good news is that the pipeline has almost 33,000 units downtown — though again, not all of the predevelopment units will get built.

Despite Amazon’s machinations, office space construction downtown is also booming. The report says that there are 300,000 jobs downtown now, occupying 70 million square feet of office space, and the city is adding another 11,000 jobs downtown every year. 500,000 square feet of new office space was completed in 2018 (a relatively low point, which looks like simply a timing issue), and another 6.4 million are due to be completed by the end of 2020.

Office construction ramped up after 2012; it was thought that 2017 was the beginning of a softening in commercial construction, but the DSA’s numbers seem to suggest otherwise. They identified 15 million more square feet of office space in the pipeline.

 

Hotel construction has been ramping up, with 2100 new rooms added in 2018 — a majority in a single project, the new Hyatt Regency with 1,260 rooms. 2019 will see few newly completed hotel rooms, but it’s expected to bounce back up in 2020 and the predevelopment pipeline is full for 2021 and on.


Some learnings from this report:

  1. Seattle should continue to see crazy growth in people and jobs, but the residential construction looks like it’s starting to catch up despite predictions of a national recession perhaps as soon as 2020.
  2. The DSA reminds us that the city needs to invest in public spaces, infrastructure, and amenities downtown. That includes parks, the transportation network (transit, freight, pedestrians and bicycles), and downtown schools. Half of the city’s new housing units are being built downtown, and that means families will be there too.
  3. The DSA warns that the downtown corridor is starting to run out of existing viable development sites (such as parking lots), which will substantially increase the pressure to redevelop existing sites — and increase displacement risk as older buildings are town down. Longer term, the city will need to rely more on new housing outside of the downtown core simply because there won’t be places to build downtown. That presents zoning issues, as (according to the DSA) single-family zones are 75% of the city’s residential land, but only 5% of the new residential housing since 2010. The pending MHA upzone legislation will provide a bit of relief in urban villages by incrementally increasing density.

And speaking of MHA, it will be interesting to see how many affordable housing units are created through the MHA program downtown. MHA is already in place downtown; Council member Johnson and his colleagues on the Council sped it through in early 2017 to capture as much of the current construction boom cycle as possible. The new prediction of an extended boom is good news for MHA’s prospects as well.

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