DEVELOPMENT GUIDE 2018 mid-year update
The Downtown Seattle Association publishes two development guides each year to measure construction activity taking place within downtown Seattle. The first, published each February, is an annual summary of all development activity for the previous calendar year. The February summary is followed by a mid-year update published in summer. Our downtown development database has tracked comparable data since 2005. An explanation of criteria used in this analysis and a glossary of terms are included at the end of this document. Except where otherwise noted, statistics in this update refer to projects currently under construction. For more information, please email info@downtownseattle.org or call 206-623-0340. DEVELOPMENT GUIDE 01
Introduction Since the start of the current boom in 2010, Seattle has grown at an unprecedented rate. Downtown is home to the largest share of that growth. Impressive new towers are changing Seattle s skyline and raising the city s profile internationally. Apartments continue to lead the way, adding record numbers of new units in the past few years, much of that in the South Lake Union and Denny Triangle neighborhoods. Office space and hotel rooms are also being constructed at unprecedented rates. With dozens of projects still underway, this construction boom continues to deliver. This continued investment shows a high level of confidence and contributes to a vibrant and dynamic economy. Key Findings Downtown Seattle is seeing a historic level of investment with $5.6 billion worth of projects under construction, topping a previous high of $5 billion one year ago. Residential construction continues to dominate. Sixty percent of projects under construction include a residential component mostly apartments. Downtown office construction has rebounded to nearly match its 2015 peak. In 2017, downtown Seattle saw more office construction than any other central business district in the U.S. In fact, Seattle represented 20 percent of all CBD office construction in the nation. Downtown will welcome a record 2,192 new hotel rooms in 2018. This includes what will be the largest hotel in Seattle upon completion: the 1,260-room Hyatt Regency near the future home of the Washington State Convention Center Addition. DEVELOPMENT GUIDE 02
Rendering: Amazon Development Activity Overview Downtown Seattle construction boom continues A record $5.6 billion worth of projects were under construction downtown at the end of the second quarter of 2018. These investments reflect optimism and confidence in the future of downtown s economy. The value of current construction is 27 percent higher than last year and nearly five times higher than in 2010 the decade s lowest point. Downtown represents 58 percent of the construction value for permits issued in Seattle over the 12 months between June 2017 and June 2018 (up from 50 percent for the same period last year). DEVELOPMENT GUIDE 03
Construction Value for Permits Issued 12 months ending June 2018 $2.5 BILLION $1.5 BILLION Seattle Downtown Downtown represents 58 percent of the construction value for permits issued in Seattle during the past 12 months. Source: King County Assessor Project Cost Under construction mid-year (adjusted for inflation) $6.0 $5.0 $4.0 BILLIONS $3.0 $2.0 $1.0 $0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Figures are in 2018 dollars. Construction cost does not include land or soft costs such as permitting and design work. DEVELOPMENT GUIDE 04
Downtown Seattle has 224 projects currently in the pipeline nearly as many as were completed in the previous eight years. Rendering: Populous Of the 224 projects working their way through the pipeline, 65 are under construction. Seven are in demolition, shoring and excavation phases. Another 27 have land-use permits but are awaiting building permits. The largest share (125 projects) is in predevelopment. From 2018 through 2020, an average of 52 projects are scheduled for completion per year. This is slightly above the historic average of 44 projects delivered per year since 2005. The largest share of scheduled deliveries is in 2020 with 90 projects scheduled for completion. Even if half of those in predevelopment are canceled, delayed or put on hold due to changes in the economy or other factors, annual deliveries through 2020 will be close to the historic average. Buildings by Current Status and Completion Year For those with announced completion dates 2010 2011 2012 2013 2014 2015 7 24 25 26 30 37 Completed Currently Under Construction Demolition, Shoring and Excavation Land Use Issued Predevelopment The numbers next to each bar indicate the total projects completed or scheduled for completion that year. 2016 27 2017 51 2018 26 2019 41 2020 90 2021 7 2022+ or TBD 67 DEVELOPMENT GUIDE 05
Residential development continues to outpace historic averages In 2017, developers completed 5,672 residential units downtown. This is more than twice as many as the year before and the highest number since tracking began in 2005. The majority (5,549) of these units are apartments. In the first half of 2018, there has been some evidence that this new supply improved the outlook for affordability of market-rate rental housing downtown. According to CoStar data, in the first quarter of 2018 downtown saw no year-over-year growth in average rents, higher vacancy rates and more landlords offering concessions.1 This suggests that additional housing supply can reduce pressure in a heated housing market. While challenges related to housing affordability remain, this dampening of a heated rental market is welcome news to renters. Residential Units by Current Status and Completion Year For those with announced completion dates Completed 2010 829 Currently Under Construction 2011 2012 202 1,875 Demolition, Shoring and Excavation Land Use Issued 2013 2,446 Predevelopment 2014 2015 3,292 3,600 The numbers next to each bar indicate the total completed or scheduled for completion each year. 2016 2,199 2017 5,672 2018 2019 3,793 3,978 2020 2021+ or TBD 6,339 18,849 1. Custom CoStar query, June 2018 DEVELOPMENT GUIDE 06
Residential Units Under construction mid-year 10K 8K 6K 4K 2K 0K 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Apartment Units Condominium Units The number of apartments under construction has decreased year-over-year but is up from the end of 2017. There are currently 6,883 apartment units under construction, compared to 8,880 during the same period last year. While down year-over-year, this is well above both the apartment peak from the previous cycle (2008) and the historic average. Despite high demand, the number of condominium units in production has remained low since the last development cycle ended during the Great Recession. This is, in part, because current state law discourages condo development. The threat of lawsuits under the state s condo defect liability law increases liability for developers. It also increases insurance and financing costs for each condo project. With high demand for condos, there has been a slight uptick in recent development. Due to the high cost of construction in Seattle, new condominiums tend to be at the high end of the market. The lack of recent condo development is a factor in the high cost of home ownership compared to renting. Because of this, Seattle is now a rentermajority city. More than four times as many apartment units are currently under construction than in 2008 the previous cycle s peak. In 2018, Seattle tied San Francisco for the highest expected increases in construction costs in the nation.² 2. Puget Sound Business Journal, Overheated Seattle and S.F. will have highest U.S. construction cost increases in 2018, report says, May 17, 2018. DEVELOPMENT GUIDE 07
The role land use plays in housing costs By 2022, Seattle is expected to surpass its 2035 population growth projections that were set only a few years ago. This is an extraordinary time in Seattle, yet our land-use policies are rooted in the early part of the 20th century, favoring single-family homes. Current regulations allow just 20 percent of Seattle s residential zones to accommodate multi-family homes. These constricted zones will face enormous pressure to absorb hundreds of thousands of newcomers in coming years. Confining development will have a direct impact on the cost of land, increasing rents and condo prices. With no significant changes to those century-old zoning restrictions, we can expect housing costs to continue to rise. A look at our sister city, San Francisco, tells a cautionary tale. San Francisco is well known for a shortage of housing driving up prices. Many fear Seattle is headed in a similar direction. However, a density comparison between the cities shows we still have room to grow. How does density in Seattle compare to San Francisco?³ Population density per square mile 8,210 Seattle 18,584 San Francisco While most land in Seattle is zoned for single-family homes, designated urban centers and urban villages in certain areas of the city allow for denser, transitrich development. San Francisco, with major barriers to growth, is growing about as fast as Seattle s single-family zones. Seattle s urban center and urban village zones are growing four times as quickly. In 2017, nearly 90 percent of new housing in Seattle was built on 18 percent of land zoned for residential.4 In fact, more than half of all residential development in Seattle was in the urban villages that make up greater downtown Seattle. From 2006 to 2017, Seattle netted 62,000 new housing units double what San Francisco added during that same period.5 Since 2000 Seattle urban center and urban village density increased by 2,664 residents per square mile to 9,508 residents per square mile. In Seattle, density in single-family zones added only 739 people per square mile to reach 6,404 residents per square mile. San Francisco s density increased only 12 percent, compared to 39 percent in Seattle s urban centers and urban villages. Seattle population density grew 22 percent citywide but only 13 percent in singlefamily neighborhoods. 3. Density, population and housing growth figures in this section are from Esri Community Analyst. 4. Seattle Times, Rapidly growing Seattle constrains new housing through widespread single-family zoning, May 3, 2018. 5. Sources: Seattle Department of Construction and Inspections, San Francisco Department of Building Inspection. DEVELOPMENT GUIDE 08
Office development continues at a strong pace, outperforming downtowns nationally Seventy million square feet of commercial office space supports our vibrant downtown economy. This sector has grown tremendously over the past several years, adding 12 million square feet on net since 2010. Despite expanding inventory by 21 percent during this period, downtown occupancy increased from 86 to 92 percent.6 With 6.5 million square feet under construction, the pace of office activity continues to soar above the historical average. Current activity is slightly off from mid-2015, when 7.1 million square feet were under construction. However, current levels are 61 percent more than the 4 million square feet under construction during office peak of the previous cycle in 2008. Downtown Seattle saw more office space completed in 2017 than any other U.S. downtown. In fact, downtown represented 20 percent of all central business district office construction completed in the nation.7 Office Square Footage Under construction mid-year 8.0 7.0 6.0 MILLIONS 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 6. Custom CoStar Query, June 2018 7. JLL Research, cited in State of Center City 2018, Center City District, Philadelphia DEVELOPMENT GUIDE 09
Rendering: Skanska Office Square Footage by Status and Completion Year in Millions For those with announced completion dates 2010 2011 2012 2013 0.4 M 0.5 M 1.2 M 1.6 M Completed Currently Under Construction Land Use Issued Predevelopment 2014 0.1 M 2015 2016 2.6 M 2.5 M The numbers next to each bar indicate the square footage (in millions) completed or scheduled for completion that year. 2017 3.8 M 2018 0.5 M 2019 3.3 M 2020 7.0M 2021+ or TBD 3.5 M Including space currently under construction, there is a total of 14 million square feet of office space in the pipeline. This is the equivalent of 20 percent of the current office inventory downtown. More than 10 million of that is scheduled for completion by the end of 2020. Between 2010 and 2018, developers delivered 13 million square feet of office space. More than two-thirds of that was in the past three years. DEVELOPMENT GUIDE 10
Downtown welcomes a record number of new hotel rooms in 2018 Rendering: LMN Architects With nearly 15,000 rooms, downtown already has the highest hotel capacity in the city. Seattle s growing tourism industry and the planned Washington State Convention Center Addition are expected to keep demand high. This strong development cycle comes after a period of calm, where hotel development ground to a halt in 2011. No hotels were completed for three years. Now, with room demand and occupancy among the highest in the nation, hotel developers are racing to make up ground. A record 2,192 rooms are scheduled for completion this year. This includes the 1,260-room Hyatt Regency near the future home of the convention center addition. A total of 6,414 new rooms are in the hotel pipeline. That s enough to increase downtown s hotel inventory by 43 percent. This includes 2,390 under construction, 925 with land-use permits and another 3,099 in predevelopment stages. The number of rooms under construction are three times as many as the 10-year average. They also represent an 81 percent increase over the peak of the previous cycle for hotel construction. The 6,414 rooms in various stages of development represent a potential 43 percent increase in downtown Seattle s hotel capacity. Hotel Rooms by Completion Year For those with announced completion dates 2010 2011* 2012* 2013* 408 Completed Currently under construction Land Use Issued Predevelopment 2014 119 2015 394 2016 2017 158 637 The numbers next to each bar indicate the total projects completed or scheduled for completion that year. 2018 2,192 *No hotel rooms completed from 2011 2013. 2019 236 2020 2,568 2021+ or TBD 1,935 DEVELOPMENT GUIDE 11
Downtown is seeing historically high levels of construction The number of projects currently under construction downtown is 41 percent higher than the peak number of projects during the previous development cycle in 2008. With some development statistics down year-over-year, one might be tempted to call an end to the current development cycle. Construction will certainly reach an apex at some point, but it is not clear we are there yet. With the number of projects currently under construction, downtown Seattle will remain busy with historically high levels of construction activity for at least the next two years. Number of Projects Under Construction 2005 33 32 2006 36 42 Last year, downtown development topped out at 74 projects. While down year-over-year, the number of construction projects downtown is currently up to 65 from 57 six months ago. It s also above an apparent peak at the end of 2014. One possibility for the appearance of peaks in 2014 and 2017 could be the timing of significant legislation related to development. A framework for mandatory housing affordability requirements applying to commercial and residential development in downtown was proposed by the City of Seattle in 2015, with final legislation signed by the City Council in 2017. This set into place height bonuses in exchange for the production of affordable housing units, either onsite or with funds from a fee-in-lieu provided by developers. Compared to the previous peak for each development category (office, residential, hotel, etc.) and 10-year averages, it s clear downtown s level of construction is unusually high. All but three of the main metrics tracked are significantly above the previous peak and all are above their 10-year average. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 11 12 20 29 32 42 51 46 44 40 37 44 44 45 50 49 39 56 65 68 2017 74 57 2018 65 Q2 Q4 DEVELOPMENT GUIDE 12
Comparison with Previous Peak Under construction mid-year Previous Cycle Peak Year 2018 Mid-Year Previous Peak % from Peak Apartment Units 2008 6,883 1,648 318% Total Residential Units 2007 7,531 3,625 108% Construction Costs (2018 dollars) 2008 $5.6 billion $3.1 billion 86% Hotel Rooms 2006 2,390 1,324 81% Office (sq. ft.) 2009 6,459,000 4,000,000 61% Total Projects 2008 65 46 41% Retail (sq. ft.) 2005 383,328 596,000-36% Biotech/Medical (sq. ft.) 2008 584,000 1,208,000-52% Condominium Units 2007 648 2,272-71% Comparison with 10-year average Under construction mid-year Current (2018) 10-year Average Difference from Average % from Average Hotel Rooms 2,390 754 1,636 217% Biotech/Medical (sq. ft.) 584,000 296,900 287,100 97% Office (sq. ft.) 6,459,000 3,643,853 2,815,147 77% Construction Costs (2018 dollars) $5.6 billion $3.4 billion $2.2 billion 65% Condominium Units 648 415 233 56% Apartment Units 6,883 4,506 2,377 53% Total Residential Units 7,531 4,920 2,611 53% Total Projects 65 46 19.5 43% Retail (sq. ft.) 383,328 287,515 95,813 33% DEVELOPMENT GUIDE 13
Numerous projects continue to work their way through the development pipeline. In addition to the 65 projects under construction, seven are in the demolition, shoring and excavation phase, 27 have land-use permits and an additional 125 projects are in the planning stages. More than two-thirds of the 224 projects in the pipeline have a planned completion date of 2020 or earlier. Some may adjust timelines due to the time it takes to secure permits and other factors (including both regulatory barriers and economic cycles). Some of these projects may change as the marketplace adjusts to the record levels of inventory recently delivered. Even if some projects are delayed or canceled this cycle, Seattle and downtown will continue to be a dynamic marketplace. Number of Projects by Status Currently Under Construction 65 Demolition, Shoring and Excavation Land Use Issued 27 Predevelopment 125 Total Pipeline 224 7 DEVELOPMENT GUIDE 14
Conclusion Historic investment in our center city s core neighborhoods continues to drive a downtown boom. As of summer 2018, downtown has $5.6 billion worth of building construction projects underway. Developers are showing confidence in our local economy, adding convention space, residential, commercial office and retail space and the largest number of hotel rooms under construction in a single year. With more people choosing to live near work and other amenities, residential construction continues to dominate the current cycle. Almost two-thirds of buildings under construction have a residential component. Most of these are apartments. While the pace of residential construction slowed in the past year, it is still well above the historic average. More than double the number of units are under construction when compared to 2007 (the last peak for total residential units). With even more working their way through permitting in the pipeline, the current residential construction boom is expected to continue. Development of office space continues at a historically high rate. There are currently 6.5 million square feet under construction. This is 61 percent more than the office peak of the previous construction cycle in 2008 and near the historic high of 7.1 million square feet of office space under construction just three years ago. Downtown also makes a strong showing against our peers across the nation. In 2017, downtown Seattle saw more office space completed than any other central business district in the country. Amazon isn t the only source of growth, either. Other top tech companies, including Facebook, Google and Apple are leveraging the local talent pool to rapidly expand. With 14 million square feet still in the pipeline, downtown office construction appears poised for a continuing trend of historically high levels of activity. Of all the categories explored in this report, the most unprecedented level of construction is in hotels. A record number of rooms are expected to be completed this year. This is largely due to the new Hyatt Regency Seattle, which will add 1,260 rooms to downtown s hotel inventory, making it the city s largest hotel. Workers and residents are moving downtown for amenities only available in a healthy, vibrant urban core. Downtown provides access to jobs, convenient transportation options, and recreational opportunities like shopping and dining. Developers are responding with an expansive building strategy that is extending our economic growth. As more people discover this amazing place to live, work, shop and play, the boom will continue. With more employees, residents and visitors downtown each year, it s more important than ever for investment in downtown infrastructure and public space improvements such as light rail, more public spaces and parks, a bike network, streetcar and a downtown school. If Seattle continues to add 80 percent of new residents into 20 percent of the residential land, those areas (including downtown) need the amenities and infrastructure to support these populations. DEVELOPMENT GUIDE 15
Status of Downtown Development Projects As of June 2018 BY PROJECT CATEGORY Completed January 2017 June 2018 Currently Under Demolition, Shoring Construction and Excavation Land Use Issued Predevelopment Total All Projects 58 65 7 27 125 282 Biotech/Medical 2 2 5 9 Cultural 2 6 3 11 Hotel 3 6 2 7 18 Hotel/Office 2 2 Hotel/Residential 1 3 16 20 Industrial 1 1 Mixed Use/ Residential Office 2 1 3 8 11 1 2 19 41 Office/Residential 1 3 1 4 9 Residential 40 33 6 16 67 162 Retail 1 2 3 Unknown / TBD 1 1 Transportation 1 1 2 BY SPACE USAGE Completed in 2017 Currently Under Demolition, Shoring Construction and Excavation Land Use Issued Predevelopment Total Apartment Units 6,429 6,883 2,938 3,288 14,790 34,328 Condo Units 123 648 352 299 851 2,273 Residential Units (unknown type) Hotel Rooms 736 1,294 2,030 1,154 2,390 925 3,099 7,568 Office (sq. ft.) 4,006,000 6,459,355 261,100 7,334,840 18,061,295 Biotech/Medical (sq. ft.) Retail (sq. ft.)* 584,000 250,000 860,509 1,694,509 182,490 383,328 199,514 147,507 512,866 1,425,705 *Most retail is a component of other project types (e.g. residential, office). DEVELOPMENT GUIDE 16
Notes on Criteria Included in this report are downtown Seattle projects with structural components that have construction costs of $1 million or more (occasional exceptions to this criteria are made for some high-profile projects). Transportation projects are only included if they involve a building structure. Infrastructure such as rail and roads are not included. Parks and significant building renovations are included. The geography used for this analysis is the area within downtown Seattle. The Downtown Seattle Association uses the following boundaries for downtown: South Lake Union to the north to South Lander Street to the south; Elliott Bay to the west and Broadway to the east. UPTOWN BELLTOWN WATERFRONT WEST EDGE SOUTH LAKE UNION DENNY TRIANGLE RETAIL CORE PIONEER SQUARE CAPITOL HILL FIRST HILL CHINATOWN- INTERNATIONAL DISTRICT SODO Definitions of Development Project Status Predevelopment Project has no land-use or construction permits issued related to a planned new building construction. Land Use Issued Project has land-use permits issued but not building construction permits. Permit activity determines project status. Note that the criteria changed in 2016 to allow for a more refined examination of projects by status. In order to ensure accurate reporting, please contact DSA before comparing this report s numbers to reports from previous years. Demolition, Shoring and Excavation Project has construction permits issued related to demolition or shoring and excavation to prepare for construction of a new building. Currently Under Construction Project has building construction permits issued and passed preconstruction and first ground disturbance inspections. Completed Final inspections related to the building permits are completed. downtownseattle.org/devguide DEVELOPMENT GUIDE 17