A Resilient Downtown

Residents Office Market Businesses

Residents Return to Downtown Seattle

For the past two decades, downtown’s residential population experienced almost nonstop growth until the COVID-19 pandemic. In 2020, for the first time in at least 20 years, downtown had fewer occupied apartments than in the previous year, losing nearly 1,500 households. During that period, the apartment vacancy rate rose from 5% to 11%, with downtown representing more than 80% of the decline in occupied apartments at year-end in Seattle.

Total Occupied Apartments Downtown
Since 2012
Source: CoStar.com

One out of every three apartments in Seattle is located downtown.

Downtown Vacancy Rate for Established Apartment Buildings
Stabilized vacancy rate

Source: CoStar.com

Annual Change in the Number of Occupied Apartments Downtown

Source: CoStar.com

In 2021, however, downtown Seattle resumed its residential growth trend, proving more resilient than anticipated at the start of the pandemic. In spite of the challenges facing the residential sector, the center city added nearly 4,000 households in 2021 and had a higher number of occupied apartments than in 2019. In fact, downtown represented nearly half of the increase in apartment occupancy within the entire city of Seattle. The apartment vacancy rate, which had climbed to 11%, returned to the pre-pandemic average of approximately 5% following the initial lease-up period.

By mid-2021, as demand for apartments grew, rent concessions that had been in place throughout 2020 largely went away. Reflecting this growing demand, by the end of 2021, the market rate per unit downtown had increased slightly over the 2019 period. After the challenging initial year of the pandemic, downtown Seattle residents had returned, helping downtown begin to recover.

Market Rent per Peer Downtown Apartment
Average monthly rent per unit


The increase in downtown apartment occupancy in 2021 was not isolated to Seattle. Most of our peer downtowns saw double-digit increases and a higher rate of growth in occupied apartment units than their greater metropolitan areas. Downtown Seattle currently ranks second in occupied apartment growth among peer downtowns.

Similarly, all peer downtowns saw rents not only rise, but approach or surpass pre-pandemic levels. This reflects increasing demand across the U.S. for living in an urban environment. Compared to peers, downtown Seattle ranked sixth in average monthly rent per unit. In terms of pandemic recovery, nearly all peer downtowns now have more apartment households than they had in 2019, showing the resiliency of urban centers.

 

Net Change in Peer Downtown Occupied Units
2020–2021

Market Rent per Downtown Apartment Unit 2019–2021
Average monthly rent per unit

Source: CoStar.com

Office Market Performed Better Than Expected, but Uncertainties Remain

While the resurgence of apartment demand is encouraging, office market performance remains mixed. On some metrics, downtown Seattle fared better during the most recent downturn than in the previous two recessions. Office rents did not decline as much as they did in 2002 and 2009, and vacancy rates remained lower than in those prior two periods. Compared to our peers, Seattle’s decline in occupied office space was average.

Downtown Office Rent Growth
Year-over-year

Source: CoStar.com

Downtown Office Vacancy Rate

 

There are three times more jobs per square mile in Seattle’s downtown than in the average metro across the country.

Copacino Fujikado on Fourth Avenue

As major downtown Seattle-based employers seek to expand in nearby markets and the country continues to experience the impacts of COVID-19, downtown leasing activity remains significantly down.

At the start of 2021, worker foot traffic in the office-centric downtown core was only 15% of pre-pandemic levels, but by the end of the year that had doubled to nearly 30%. While there is still a long way to go to return to the worker foot-traffic levels of 2019, a DSA survey conducted in December 2021 offered signs of optimism. According to the survey, more than 70% of responding organizations were planning to have employees spend some time in the office, with the majority anticipating 50-100% of the time in person.

With 81% of Seattle office space located downtown and a transit system concentrated around the center city, downtown will remain an important jobs center. There are three times more jobs per square mile in Seattle’s downtown than in the average metro across the country.

Change in Occupied Office Space
Year-over-year change in occupied square feet among peer downtowns, 2020–2021

Net Change in Occupied Office Space Downtown
In millions of square feet

Rooftop of The Net Office Tower on Third Avenue (rendering) / Credit: ___

Despite recent setbacks, downtown Seattle continues to see significant investment in office properties, reflecting ongoing confidence in the market. Prices per square foot have consistently trended upward in recent years and continue to perform well above the historic average. In April 2021, the 770,000-square-foot former Macy’s building on Third and Pine sold for $580 million. The 810,000-square-foot Safeco Plaza on Fourth Avenue sold in July for $465 million. And in September, Kilroy Realty bought the 28-story West 8th Tower for $490 million. Additionally, downtown continued to see new office projects delivered in 2021, such as Rainier Square. Despite the pandemic, 2021 saw nearly 2.5 million square feet of office space being delivered.

Throughout the pandemic, sales of biotech properties have also remained strong. Boren Labs in the Denny Triangle sold for $119 million in April 2021. In July, Alexandria Real Estate sold a 70% stake in the 400 Dexter Building for $1,255 per square foot — the second-highest price on record for a life sciences building in Seattle. The Puget Sound area ranks third nationally for life science growth, according to real estate research firm Newmark. Related venture capital in the region increased 200% during the past five years and rose 300% year-over-year to reach $1.1 billion in the first quarter of 2021.

Office Property Sale Price Per Square Foot
In downtown Seattle

Key Downtown Sectors Face Challenges and Opportunities

Dining and Retail Recovery

The emergence of a global pandemic brought both challenges and opportunities for downtown Seattle. From restaurateurs to retailers, the continued impacts of COVID-19 made 2021 another challenging year for street-level businesses downtown. In 2021, more than 250 ground-floor business locations throughout the center city permanently closed. Dining establishments were particularly hard hit, representing more than 40% of the street-level closures, while retail stores represented about one fifth. At one point early in the pandemic, retail and worker foot traffic were both less than 20% of 2019 levels. However, with the distribution of vaccines and improving health metrics, foot traffic began to return slowly.

In anticipation of workers and visitors returning, new businesses began to emerge throughout the year. By fall 2021, retail foot traffic in downtown Seattle grew, rising to more than 80% of 2019 levels in fall 2021 — a big increase from early pandemic lows. Additionally, 164 new ground-floor businesses opened, twice the pace seen in 2020. More than 40% were restaurants, with Uptown and Capitol Hill leading the way in new street-level restaurants.

The core of downtown also added exciting new dining options in 2021, including Ethan Stowell’s Victor Tavern near Amazon headquarters, Bourbon Steak on Fourth Avenue and Tidal+ in the Denny Triangle. In early 2022, the newest PCC Community Market opened at the base of the new Rainier Square, which rises 850 feet above downtown on Fourth Avenue.

Citywide, Seattle has recovered 91% of pre-pandemic retail foot traffic. However, certain downtown ZIP codes such as 98101 remain at only 50% of pre-pandemic levels due in part to the delay in returning to in-person work. Among peer downtowns, the urban core of Seattle lags in retail foot-traffic recovery, but at the start of 2022 there is growing optimism.

Percent Retail Foot Traffic Recovery Among Peer Downtowns
Most central ZIP code—percent recovered compared to 2019 baseline as of December 2021

Source: Placer.ai. Retail foot traffic was compared between each peer downtown’s primary central business district ZIP code.

Total Monthly Foot Traffic

Source: Placer.ai

Retail Foot Traffic Recovery
2021 traffic at downtown retail stores compared to 2019 baseline

Source: Placer.ai. Retail foot-traffic recovery measures visits to most of the nation’s retail chains in 2021 compared to an equivalent timeframe in 2019.

Café Streets Program

The pandemic changed the way we do a lot of things, but one positive enhancement was the city of Seattle’s Café Streets Program, which allows restaurants and retailers to expand onto streets for outdoor dining or displays. Recently, the Café Streets Program was extended through January 2023.

Hotel Recovery

In addition to retail and dining, the hospitality sector downtown was also hard hit at the outset of the pandemic, as business and leisure travel suddenly plummeted. However, in spring 2021, with the onset of mass vaccination efforts, visitors started to return to the heart of the city. Prior to the arrival of the delta variant, summer 2021 saw a large increase in out-of-town visitors. Hotel occupancy increased rapidly and attractions like Pike Place Market saw increased visitor foot traffic. Compared to peer downtowns, Seattle was in the top four at about 80% recovered. While the delta and omicron variants tempered tourist traffic, downtown hotels finished the year at about 60% of 2019 levels.

Credit: Port of Seattle

After two very challenging years, there are signs of optimism for Seattle’s hospitality and tourism growth. In 2022, the Port of Seattle is anticipating 296 cruise ship sailings carrying an estimated 1.26 million passengers to Alaska. This represents a record number of sailings and passengers. Additionally, a growing number of conventions booked at the Washington State Convention Center will bring tens of thousands of visitors in 2022 and 2023, and several new hotels are set to open, including the Astra Hotel Seattle and Level Seattle in South Lake Union, as well as citizenM in Pioneer Square.

Average Daily Hotel Rooms Occupied
Downtown Seattle

Source: STR, Visit Seattle

Hotel Recovery — Peer Downtowns
Occupancy Rates in July 2021 compared to July 2019

Pike Place Market received more than 2.2 million visits in summer 2021, four times as many as in 2020.

Monthly Pike Place Market Visits
2021 visits compared to 2019

Source: Placer.ai

Monthly Hotel Room Demand
2020–2021

Source: STR, Visit Seattle