Trending: AmazonFresh Pickup expands to Prime members in Seattle, with automatic license-plate recognition

A construction crane hovers over Seattle, with the iconic Space Needle in the background. Photo via Flickr Creative Commons.
A construction crane hovers over Seattle, with the Space Needle in the background. Photo via Flickr.

News this week that Amazon.com plans to occupy two more South Lake Union office towers is the type of headline that would make most cities salivate.

The Troy block where Amazon is taking new space in South Lake Union.
The Troy block where Amazon is taking new space in South Lake Union.

A fast-growing technology company with high-paying jobs leases an 817,000 square-foot office complex in a once-blighted neighborhood, adding to a growing footprint of real estate holdings.

But there are warning signs to Amazon’s stunning growth in Seattle.

With the lease of the historic Troy Block along Fairview Avenue, Amazon.com is now on track to occupy roughly 10 million square feet of office space, which according to an analysis by The Seattle Times would equate to about 25 percent of the premium office space in downtown Seattle, up from roughly 13 percent now.

That reliance on one single tenant has some Seattle residents who’ve experienced boom and bust cycles worried.

Could Seattle follow the same path as Detroit? Is Amazon.com the equivalent of General Motors?

There certainly are differences between Motown and the Emerald City, namely a diversity of industries in Seattle. (Starbucks, Boeing, Fred Hutchinson Cancer Research Center).

But Amazon’s outsized impact on Seattle should be closely examined, potentially impacting the city for decades to come. After all, this is a city where billboards in the 1970s once advised: Would the last person who leaves Seattle please turn out the lights.”

“Amazon’s appetite for space is both impressive and scary at the same time,” said Kip Spencer, a longtime Seattle real estate observer. “They have single-handedly driven the expansion of the Seattle office market and could single-handedly drive it back down.”

Amazon is planning biodomes for its Denny Triangle project, which is now under construction
Amazon is planning biodomes for its Denny Triangle project, which is now under construction

That has happened in the Seattle area in the past. In the late 1980s and early 1990s, Boeing drove double digit vacancies in southern King County.

Seattle also famously lost its largest downtown tenant during the financial crisis when Washington Mutual collapsed in 2008. At its peak, WaMu leased about one million square feet of office space in the downtown core.

Amazon.com is already about four times larger in terms of its holdings in Seattle, and with its planned development in the works, including a 3.3 million project in the Denny Triangle area, it is headed towards 10 times the footprint of Wamu.

Amazingly, Amazon built that in just 20 years.

“They are taking 500,000 square feet here and 800,000 square feet there,” said Spencer, contrasting Amazon to the smaller office chunks that Wamu consumed. “It is in a whole different level that is unprecedented.”

The commercial vacancy rate continues to fall in the Seattle area, now at about 10.7 percent. And while rents are going up, they are nowhere near the levels seen in New York or San Francisco, perhaps one of the reasons why companies such as Dropbox, Facebook, Salesforce.com and Twitter are expanding in Seattle.

Despite strong rent growth in the last three years, downtown Seattle remains a much more affordable place to open an office than many other major markets, such as San Francisco and New York. Source: JLL
Despite strong rent growth in the last three years, downtown Seattle remains a much more affordable place to open an office than many other major markets, such as San Francisco and New York. Source: JLL

According to a presentation earlier this year by real estate firm JLL, Seattle ranked fifth in terms of real estate holdings by a single entity: Amazon.com.

And that standing likely will rise in the coming years as Amazon’s real estate holdings more than double, perhaps even eclipsing Charlotte, North Carolina where Bank of America holds 22.7 percent of the prime office space in the southern city.

Representatives for JLL declined to comment for this report, as did several other real estate sources given their direct ties to Amazon.

Spencer noted that Amazon’s booming employment is very much a “good problem to have,” and he optimistically pointed to the company’s growth and future prospects.

Amazon worldwide  employment, compared to Google and Microsoft.
Amazon worldwide employment, compared to Google and Microsoft.

That was also the view of Jim Allison, a principal at commercial real estate firm Urbis Partners in Seattle.

“Amazon is the best thing that’s happened to Seattle since the Denny Party,” said Allison, referencing the city’s founding settlers who landed at Alki Point in 1851. “I think many of us have PTSD from the dot com crash, and to a lesser extent the Boeing turn-out-the-lights era, but Seattle now is recognized by national investors and companies less as a boom-bust town and into a permanent fixture on the scene, similar to a NYC, San Francisco, Boston and Chicago.”

That said, Amazon’s booming business is causing stress on the city, creating new issues that government leaders have not yet fully grasped.

Traffic and infrastructure issues are a prime complaint of many Seattle residents who’ve been stuck in the so-called “Mercer Mess” just north of Amazon’s campus. As an example, Seattle’s downtown core became completely gridlocked with traffic Tuesday night after a semi-truck flipped over on state route 99, causing a several hour delay for many commuters. The Seattle Sounders even were forced to push back the kickoff of the soccer match due to the traffic snarls.

Add 20,000 or 30,000 more Amazon employees, and people just won’t be able to move given current transportation systems. Policing and schools also could get overloaded.

Amazon's HQ in the South Lake Union neighborhood. Photo via Ben Lakey
Amazon’s HQ in the South Lake Union neighborhood. Photo: Ben Lakey

Those issues will likely worsen as Amazon and other tech giants — including Tableau, Google, Zillow and Twitter — grow their workforces in the city. Facebook earlier this month inked a lease for 275,000 square feet in the South Lake Union neighborhood, giving the social networking giant enough room to accommodate about 2,000 employees.

Last fall, Amazon real estate director John Schoettler told a group of real estate professionals that it will need developers to build 30 new residential buildings in and around downtown Seattle, with at least 200 units each, just to accommodate its employees in the coming years.

By 2019, Amazon.com — which does not disclose its Seattle workforce numbers and did not disclose its total real estate holdings in the city — could have enough office space to house about 70,000 workers in the city. It is estimated that Amazon.com currently employs about 25,000 people in Seattle.

“We could have built a suburban campus. I think it would have been the wrong decision,” said Amazon CEO Bezos at the company’s annual shareholders meeting last year.  Bezos added that the types of people Amazon employs and tries to recruit “appreciate the energy and and dynamism of an urban environment.”

Those people are also drawn to other tech companies, which are putting down roots with increasing numbers in areas such as Pioneer Square and Fremont.

The dynamic of the city is changing as a result, tied in part to the fortunes of Amazon.com.

That is a scary thought, especially given the company’s inability to turn consistent profits. But Allison, the commercial real estate broker with Urbis Partners, is not overly concerned.

“What we found is that their growth in revenue and growth in office space are very closely correlated, and is so close you know it’s been very well planned and executed,” he said. “This isn’t some dot-com that’s land-banking for a pie-in-the sky business model, but rather a company that’s been publicly traded for 18 years that is just trying to keep pace with the $100 billion of revenue that they have that’s growing at over 20 percent per year.”

Previously on GeekWire: Amazon’s boom beats Microsoft’s: 2014 saw record number of newcomers to Seattle area

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