Tech companies are looking beyond Seattle for new office space, and the pandemic is enabling more employers to allow remote work. Both trends are concerning for government leaders in the Emerald City.
Seattle Mayor Bruce Harrell, speaking at the opening session of the GeekWire Summit on Thursday, said he was worried about the impact of people working at home on the city’s retail businesses and potential loss of tax revenue.
“I’m trying to encourage employers to get folks back, develop the energy and synergy that we need,” Harrell said. “But the fact of the matter is, there will never be the good ‘ol days where everyone’s downtown working.”
Harrell’s 2023-2024 budget proposal, released last week, said the tech sector “continued to be a driving force behind the growth of the regional economy,” specifically citing the headquarters of Amazon and Microsoft in the region, as well as engineering offices for Apple, Google (Alphabet) and Facebook (Meta).
However, the budget also acknowledged looming challenges to the city’s continued expansion as a tech hub.
Harrell’s budget notes that the work-from-home model “appears to have permanently shifted employment patterns for at least some industries. Downtown Seattle’s workforce is about 40% of its pre-pandemic levels, and a return to traditional five days in the office “seems unlikely for many,” the budget acknowledged.
“A smaller commuting work force will translate into less day-time demand for restaurants, retailers and other downtown businesses,” the budget document added. “At the same time, fewer productive employees working in the city will also reduce or at least slow the growth of the taxable economic activity that supports revenue streams such as the Business and Occupation Tax and the Jumpstart Payroll Expense Tax.”
The budget proposal also alludes to companies looking elsewhere for office space.
Amazon is the biggest example of that trend. After a series of high-profile political battles over the city’s attempts to boost corporate taxes to fund human services, the tech giant shifted its growth in the Seattle region to nearby Bellevue, Wash., at the same time the company builds a second headquarters, a.k.a. HQ2, in Arlington, Va.
“Whether the city of Seattle remains the focus of technology sector’s regional growth is a point of uncertainty looking forward,” the proposal noted. “Several of the region’s larger employers are making capital investments in office facilities elsewhere in the region, and this could preview a shift in where growth will be focused in coming years.”
Longer term, real estate experts say there is also another risk: the possibility that landlords will appeal their tax assessments as their buildings see lower occupancies and therefore lower rental income, which could have an even more significant impact than a near term hit to municipal from the B&O and payroll taxes.
Harrell said he’s focused on improving safety across the city. The mayor is also trying to figure out how to incentivize people to come downtown in this new age of hybrid work.
“I cannot mandate people to come downtown unless there’s something to drive them there,” he said.
Related: Seattle Mayor Bruce Harrell says city still has its mojo, asks tech leaders to get engaged