Market Outlook: Washington + Oregon

    Washington

    Facebook is taking upward of 1 million square feet (93,000 sq m) of space in Seattle’s South Lake Union neighborhood, doubling its footprint in the city, notes Orser, and Google has leased several hundred thousand square feet of space nearby.

    “Facebook and Google’s growth is part of a larger boom in engineering centers established by Silicon Valley tech giants in the Seattle region,” he says. “Facebook and Google and other Silicon Valley big boys are staking a position here because of the quality of life: there is good, affordable housing, and it is a great source for talent. But housing is affordable by their measures; it is certainly getting less and less affordable by our measures.”

    Travel website company Expedia is moving its headquarters from the east side of Lake Washington to the Seattle waterfront, and international forest products company Weyerhaeuser is occupying a new building in Pioneer Square, breathing new life into the southern edge of downtown, says Chris Beza, vice president in the Seattle office of CallisonRTKL, a global architecture, planning, and design firm.

    “There’s been quite a bit of new development at the north and south edges of the city, as well as in South Lake Union,” he notes. “Amazon continues to expand its giant urban campus, bringing thousands of employees to the downtown Seattle area and driving growth in the Denny Triangle neighborhood, too.” CallisonRTKL is working on a number of projects, including the Fana Group of Companies’ multi­phase, mixed-use project that will include two towers and a luxury boutique hotel, he says.

    Seattle is seeking to address its transit challenges, and Beza notes that Seattle voters in November approved Sound Transit 3, a $54 billion, 25-year program that promises to add 62 miles (100 km) of light-rail extensions to the 54 miles (87 km) already approved. “We’re excited about Sound Transit 3 because it will bring additional transit-oriented development and further improve the city’s transportation infrastructure,” Beza says.

    Continued job growth and the large Seattle infrastructure projects like those involving transit will stimulate density and allow more development, says Mark Sindell, principal at Seattle-based integrated design firm GGLO.

    “We see a continuation of dense, mixed-use, city-center projects,” says Sindell. “Hotel development continues to boom, and we’re seeing repositioning and value-add projects on the rise in Seattle. But some in Seattle feel all the construction is moving toward some level of market saturation.”

    GGLO is working on a number of developments in the area, including the BB6 multiphase high-rise tower project in Belltown, three neighborhood building projects in Bellevue’s emerging Spring District, a new hotel and resort at Chambers Bay, and Washington State University’s Elson S. Floyd Cultural Center in Pullman.

    “Capacity, availability, and affordability of development sites is a growing challenge,” Sindell says. “The sites left are difficult and complicated, and the cost of land—and construction—continues to escalate.”

    While development is booming in Seattle now, a correction inevitably will come to the region, cautions Orser.broadway_corridor_1web

    “I don’t think it’s right around the corner,” he adds. “Boeing says it is slowing production of its 777 airliner, . . . but Seattle has a broader, deeper, and more diverse economy than it did in the 1970s, when Boeing laid off thousands of workers. When the correction comes, we don’t anticipate a meltdown.”

    Oregon

    Spurred by job growth and increased demand, real estate development in Oregon is continuing. Portland had 1.1 million square feet (102,000 sq m) of office space under construction in the third quarter of 2016, according to CBRE, and overall vacancy was holding steady at just below 10 percent—a 15-year low.

    With 50 consecutive months of gains, job growth in Oregon remains healthy, and that is spurring real estate development, says Jason Chupp, vice president/division manager in the Portland office of Swinerton Builders, a San Francisco–based commercial construction company.

    “Wage growth is also accelerating as employers compete for talent,” he says. “All indications reflect a continuing trend of constraint on commercial office space, further tightening from last year’s 15-year low. The only significant properties with measurable vacancy and below-market rents [are those that] have not undergone a major renovation.”

    In the second quarter of 2017, Swinerton will start construction of a 150,000-square-foot (14,000 sq m) build-to-suit office building project as the initial phase of an office campus in Hillsboro, on the west side of Portland, for an unnamed client. It also will begin work on a 50,000-square-foot (4,600 sq m) office building for the Coos County Airport District, located on the Pacific Coast, that will house the regional Department of Health Services.

    Real estate development in Portland may be challenging in the future, Chupp adds, with several initiatives being implemented or considered. Portland’s Inclusionary Zoning Ordinance, which takes effect this year, requires apartment and condominium developers to set aside some units for low-income residents to mitigate the effects of rising housing costs, which have pushed renters and low-income homebuyers toward the city’s outskirts, Chupp notes.

    Also, some uncertainty surrounds implementation of the new 2035 Comprehensive Plan, he says; the plan is to take effect next January, guiding Portland’s future growth and physical development. In addition, labor shortages have been exacerbated by expansions at the two largest employers in Washington County, Intel and Nike, he says.

    Technology continues to be a positive story in the Portland area, with companies like Google, information technology automation software firm New Relic, and Puppet, which optimizes the performance of websites and mobile apps, all expanding their businesses and driving some of the need for more office space and housing.

    “We are seeing increased potential across multiple market sectors, including health care, academic, governmental, institutional, and private development,” says Jan Willemse, managing partner of ZGF Architects’ Portland office.

    “Also, legal and financial clients seem to have stabilized after a long climb out of the recession, and their needs are also providing possibilities for quality interior/tenant-improvement design projects. And with Under Armor opening a new facility in the city, Portland’s sports apparel sector is expanding and driving design opportunities, too.”

    IA Portland Offices - Interior Architects - Swinerton Builders - © Christian Columbres

    While some uncertainty exists regarding rising interest rates and the impact on project finance, as well as the impact of the presidential election, Oregon’s economy will continue to grow in the months ahead, especially in the housing and commercial real estate markets, Willemse predicts. “For now we continue to see quality project opportunities in the Oregon market,” he says.

    “The state will continue to grow despite uncertainty regarding rising interest rates and the impact on the financing of projects, as well as any emerging issues with the U.S. economy,” Willemse says.ZGF has a number of developments under way in the region, including the Oregon Health & Science University (OHSU) Center for Health & Healing South in Portland’s Waterfront District, a central-city mixed-use housing project, a mixed-use project at 11th and Washington streets, and the Canopy Hotel project with the Buccini/Pollin Group in Portland’s Pearl District.

    However, demands by Portland’s design review and approval process continue to pose a significant challenge in pushing projects out of the starting gate.

    “Sometimes the design review process can take several months to achieve approval and can require something close to full schematic design phase development,” Willemse explains. “This can be a significant investment and risk for any client. Out-of-town developers new to the process can be taken aback by the unpredictability, effort, time, and costs.”

    With diversified economies, strong investor demand, and expanding industries, Washington and Oregon expect to see development continue—although the real estate sector might not see as much construction in the future as it has in the past.

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