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May 4, 2017

A tenant roster for Seattle’s largest office spaces reads like a who’s-who in the tech world. So it may not be surprising that the city’s growth is so strongly tied to the companies that have been at the forefront of technology and innovation that help your digital world run.

Historically, industry-centric markets lead more diversified markets in real estate cycles. They’re typically the leaders during the expansionary period, followed by diversified markets two to three years later. But being the first to experience growth means these markets are also the first to feel slowdowns.

In this stage of the real estate cycle, many industry-centric markets are seeing growth plateau given limited slack in their economies and tight real estate fundamentals. However, Seattle is breaking the mold and experiencing continued growth.

“Seattle should be experiencing the softening we’re seeing in similar markets, but it’s not,” said Sean Coghlan, Director of Investor Research at JLL. “The city is seeing an atypical, prolonged period of growth—likely the longest of U.S. markets this cycle.”

How has Seattle managed to weather the storm that’s affecting its peer markets?

Why Seattle stands out from the pack

Seattle has extremely strong anchor tenants across its Downtown and Eastside, which are stabilizing the market and sustaining growth. The growing roster of leading Seattle- and Bay Area-based tech companies have sheltered the city from slowing growth being experienced in other markets. A key difference in Seattle’s growth is that it’s diversifying, which mitigates risk for investors around tenant concentration. These dynamics are expected to support long-term appreciation in the market, a shift for Seattle specifically.

“In the current market environment, investors are hesitant to put too much cache in a market driven by one industry or too few tenants,” explained Coghlan. “Seattle has faced this hurdle, but it has and continues to dwindle, and investors are being rewarded for taking the risk.”

San Francisco’s growth is also having a ripple effect on Seattle. Many established tech companies are tapping the talent pool and taking advantage of relatively cheaper office space and lower cost of living in Seattle.

Can Seattle prolong its sustained growth?

For Seattle to continue on its growth path, companies must continue to attract talent to the area. While Seattle has become the most concentrated market for STEM talent in the U.S., the market is more reliant on recruiting talent from other markets to fill its expanding list of job openings, and the market has become more expensive. However, while office and multifamily rents increased 4.6 and 7.5 percent, respectively, last year, people are still flocking to Seattle in troves, and the market remains affordable compared to markets like San Francisco and New York. The U.S. Census Bureau estimates that more than 1,000 people move to the Seattle area each week.

“Seattle’s core tenant anchors will help keep the market somewhat stable relative to what we’ve seen in the past,” noted Coghlan.

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Sean Coghlan

Director, Americas Research, JLL

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