The Eastside commercial real estate market is booming, driven largely by major office expansions in Bellevue by Amazon and Facebook, in Kirkland by Google, and in Redmond where Microsoft is renovating and expanding its campus.
These developments are putting pressure on communities to quickly develop enough housing to handle the influx of workers, including affordable housing across myriad income sectors, industry experts said June 8 during the Bellevue Chamber’s first Eastside Real Estate Symposium.
While the coronavirus pandemic resulted in much work-from-home success, there is a desire for many companies to return to the office on at least a hybrid basis, speakers said. They also noted an increase in focus on building design that offers more square-footage per employee, greater connection to the outdoors, better air-filtration systems, and enticing areas for collaboration and work. Other amenities like great food and superior technology — not just fast internet, but touchless technologies to eliminate touching many common surfaces — were also discussed.
Gary Guenther, executive vice president at Kidder Mathews, opened the virtual event with an overview of the sizable office development under way and yet to come, particularly in Bellevue. He cited 5.9 million square feet of office construction under way, with at least 9.1 million square feet in the pipeline over the next decade.
Seattle’s “JumpStart” payroll tax — which has survived one court challenge and calls for taxing businesses with at least $7 million in annual payroll between 0.7 percent and 2.4 percent on salaries paid to Seattle employees who make at least $150,000, according to the Seattle Times — could push more companies across Lake Washington, Guenther said.
“If Seattle’s JumpStart tax survives challenges, I expect we’ll continue to see Seattle companies look east,” he said. “We’ve quantified the JumpStart tax as an additional $4 to $7 per square foot on an annual office rental rate, which is a really big number. I also expect we’ll see more demand from California and other areas. So I think as long as Bellevue can continue to keep doing what they’re doing, keeping the open-for-business sign out, as well as maintaining a safe and secure area, we’re going to continue to see more demand coming to us.”
“We’re obviously in a massive need of new supply” of multifamily housing on the Eastside, he said, noting myriad projects largely planned along the East Link light rail line opening in 2023.
Brandon Morgan, director of residential development at Vulcan Real Estate, sees the jobs-to-housing balance worsening in the near future. He added that there’s a lot of work to do in Eastside jurisdictions to get ready for the job growth that’s already occurring.
“We need to be prepared to keep up with our housing production, and right now it’s off to a bad start,” Morgan said during a panel discussion on residential and affordable housing. “We cannot build housing fast enough.”
The best thing is for jurisdictions to examine closely their zoning policies, comprehensive plans, “everything and anything that can allow us to loosen up the strings a little bit and get more housing production, and in particular I’d say midrise housing production” that costs less to build, Morgan said. High rises may have a lot of units, but they aren’t very affordable for most people. The best thing to do is maximize wood and modular construction, he said.
Jane Broom, senior director of Microsoft Philanthropies, noted her company’s work to increase affordable housing stock in the region. There are a lot of challenges to developing affordable housing, she said.
“We need more businesses, companies, organizations to actually think about this issue and put some actual resources — either people resources or financial resources — into it,” Broom said, complimenting the company of panel moderator Pearl Leung, senior manager of external affairs for Amazon, for its work to address the issue.
It’s difficult working on policy angles municipality by municipality on the Eastside, Broom said of navigating different processes. “We do need policy to modernize and to change in order to stimulate the developer community the way that we need it to happen,” she said.
She also mentioned the idea of changing the perception of what affordable housing is and who it’s for, noting that on the Eastside, affordable housing prevents people from being rent-burdened, she said.
“And right now, in this community, if you’re thinking about middle-income housing and workforce housing, people who are making 100 percent of AMI (area median income), that is approximately $100,000 a year of income,” Broom said. “That is considered, in some cases, affordable, and we need people to understand that housing is across the full spectrum and we need to have housing that meets the needs of the people that live here across all income levels.”
Morgan called for support of expanding more access to the 9 percent federal tax credit, which he called a key tool to create more affordable income-restricted housing across the country. “That’s an effective tool, we just need more of it,” he said.
Morgan also called for reexamining land-use policy across the Eastside, including reducing parking ratios or eliminating parking minimums altogether and letting the market decide what’s appropriate. He noted that parking is an expensive part of housing that inflates rents if there is a surplus of parking. He also called for examining impact fees and looking at comprehensive plans to allow rezones or development agreements to happen periodically without having to do a comprehensive plan amendment process to get a rezone done.
On a retail and hospitality panel, Anthony Anton, president and CEO of the Washington Hospitality Association, encouraged more focus on luring in-state travelers until out-of-state and international travel recovers — something he said could take a few years.
Jena Thornton, managing director at Magnetic ERV, thinks Bellevue can leverage its strengths to attract leisure travelers and return to pre-pandemic lodging levels by 2023, about a year or two ahead of Seattle.
Laura Miller, commercial broker at Gibraltar, sees big demand from restaurants for more space, particularly those that repositioned their concept during the pandemic. Connectivity to outdoors for retail business, and outdoor seating is key to restaurants, she said. Still, operators are having difficulty finding space available and also struggling to find staff, she said.
Anton said the crisis for his restaurant members initially was “get us open, get us open, get us open; and now, it’s find me workers.”
The hospitality sector is short 90,000 workers, he said.
Jaebadiah Gardner, CEO of GardnerGlobal, encouraged developers who are planning ground-floor retail in their projects to support small businesses as much as possible in those areas to have “organically vibrant spaces.”
Added Rob Arron, senior director of marketing and leasing for Vulcan, “I completely agree. Our goal as a developer is to have as many local businesses combined with interesting national, so that’s exactly spot on.”