2021 Exclusive Report AN OVERVIEW OF OUR REGION’S EVER-CHANGING LANDSCAPE
RSIR.COM
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eattle’s booming and diverse economy has
of California. Will the City of Seattle regain her nation-
spurred
and
leading position? In this article, we study some of the
population growth with a clear urbanization
leading indicators influencing the current investment
trend. Thanks to leading employers on the front lines
cycle in the region, take new stock of Seattle’s West Coast
of enabling essential services and work-from-home
competition from Vancouver B.C. and San Francisco, and
agility, Seattle weathered the COVID-19 challenges of
offer some perspective on how the housing trends may
2020 better than many U.S. metros. The past year saw
unfold ahead.
unprecedented
development
increasing competition from the Southwest, as Phoenix, Las Vegas, and the state of Texas drew refugees from
DOWNTOWN SEATTLE IS OPEN
higher taxes and a deteriorating quality of life in the state
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GEOGRAPHY + ZONING Unlike the ring road cities of China, or the sprawling metroplexes in Texas (where urban growth can be accommodated with hub-and-spoke interchanges to distant flatlands), Seattle’s topography is as variable as it is beautiful. Numerous waterways, bridges, hills, and surrounding mountain ranges have forced a collection of regional neighborhoods to become their own urban centers—or “boomburbs”—each a distinctive community paired with mostly single-family residential enclaves, where residents often face challenging commutes to
primed for high-rise apartments and condominiums if
urban job centers. There is also the overlay of the Growth
residential developers are willing to contribute towards
Management Act, adopted in 1990, which encourages
affordable housing in accordance with city regulations.
urban density in favor of conserving rural, farm, and forest lands.
Seattle’s limited footprint, with virtually all buildable sites in current zones already developed, presents little space
In recent years, downtown Seattle has seen residential
for new projects.
towers rise ever higher, and downtown Bellevue has been upzoned as civic leaders trade the one commodity they have left to offer—height. This bonus density is especially
At approximately 2.3 square miles, downtown Seattle is just slightly larger than its northern neighbor downtown Vancouver, which offers a 20-year case study in successful planning and urban development. In 2006, Seattle city planners re-envisioned downtown Seattle’s skyline after Vancouver’s tall-and-slender zoning with thoughtful tower spacing, in a scheme known as the “One Center City Plan.” This plan increased the height for tall-and-slender zoning and made development pencil on smaller sites, closer to the urban core, creating a catalyst for scores of new towers today and in the future.
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Broadly, the entire City of Seattle remains 38 percent
single-family neighborhoods. Local voters, many of whom
less dense than the City of Vancouver today; but the area
don’t prefer Seattle’s rate of growth and rising property
of downtown Seattle is already 32 percent denser than
taxes, have been a major headwind in grander rezoning
its model city 150 miles north—and it’s growing faster,
efforts, effectively forcing city planners to further densify
too. Single-family zones make up 75 percent of Seattle’s
high-rise zones, especially near transportation nodes.
landmass, but non-urban neighborhoods received just
Legislation passed by the City of Seattle in 2019 allows
five percent of the new housing supply since 2010. Unlike
construction of accessory dwelling units (ADUs) and
Vancouver, where local government has already rezoned
basement units. Progress toward acceptance of these
many street fronts along major arterials for multi-family
units was not slowed by last year’s COVID-19 restrictions.
housing to frame single-family communities, Seattle’s
The City issued 447 permits for ADUs in the first 10
lawmakers have been slow to address the need to densify
months of 2020.
Quick Takes Tacoma | After reform legalizing backyard cottages and removing requirements for parking, owner occupancy, and more, the city saw 148 permit applications. According to the City of Tacoma, applications received averaged 0.5 per month before the code change to 9.25 per month after. Sightline reports that three additional cities that enacted ADU reforms over the past year have yet to see changes in the permitting numbers, according to officials. Burien | New rules passed in December 2019 allowed two ADUs on a single-family lot, and removed owner-occupancy and parking requirements for ADUs built within a quarter-mile of a transit stop.
Kirkland | Reforms permitting two ADUs per lot and removed owner occupancy restrictions went into effect in March of 2020. Here the updated rules went further by removing parking requirements entirely for lots with a single ADU. Though the City of Kirkland still requires one additional off-street parking space for lots with two ADUs. Kenmore | Amending its rules to allow backyard cottages on lots smaller than 10,000 square feet, and notably—dropping the requirement for one parking space per ADU, the City of Kenmore had previously banned detached accessory dwelling units (DADUs) on smaller lots.
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MARKET FUNDAMENTALS The COVID-19 lockdown and coincident political unrest
billion in 2019—two-and-a-half times that of metropolitan
wreaked havoc on the local economy. The Downtown
Vancouver. With 3.98 million residents, that brings the
Seattle Association reported,
Seattle MSA’s per capita GDP to $96,135.
The area lost 45,000 jobs in the second quarter. This
As the Information Technology (IT) center of the Pacific
compares with 28,000 jobs lost during the Great
Northwest, sometimes referred to as the “Silicon Forest,”
Recession. All told, downtown lost nearly six percent
Seattle and the Eastside dominate job growth in the
of its residents and almost 12 percent of all jobs last
region.
year. The retail sector and the combined hospitality and arts sector were hit especially hard, with the former seeing jobs decline by 42 percent, and the latter losing a whopping 61 percent. ‘It was tragic and it was immediate,’ said Tom Norwalk, president and CEO of Visit Seattle, one of
In 2020, as many residents redefined what they wanted in their home, 1,580 households made the move from Seattle to Bellevue.
the speakers at DSA’s virtual State of Downtown in February 2021. DSA said it does not expect a full recovery for two or more years. The restrictions imposed under the threat of COVID-19 doubled King County’s unemployment rate from 3.4 percent in 2019 to 6.8 percent in December 2020. Yet as these conditions prevailed nationwide and were not confined to our own region, Seattle’s out performance of competing metros presents opportunities to valueseeking investors, entrepreneurs, and job-seekers. Seattle still means business, with 1.68 million employed in the Seattle metropolitan statistical region (“Seattle MSA”). According to the U.S. Bureau of Economic Analysis, the Total Real Gross Domestic Product (GDP) in chained 2012 dollars of the Seattle MSA was $382.6
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Seattle has emerged as the nation’s top labor market by percentage of workers in STEM fields, with 19 percent of its 470,000-strong workforce thus employed. In the preceding two decades, the city’s growth was led by Amazon’s meteoric rise. In 2020, the retail and cloud tech behemoth, Amazon,
the city. Despite the year’s upheaval, Seattle continued to
surpassed Boeing as Washington State’s largest
see job growth of 2.3 percent in 2020, compared with 0.8
employer. Amazon now has more than 50,000 employees
percent growth in San Diego, and employment declines
in the city, a total of 80,000 employees statewide, and
of 2.6 percent in San Francisco and San Jose; 6.2 percent
hundreds of thousands more around the world, reflecting
in Los Angeles; and at the bottom, 7.0 percent in New
a nearly 25 percent increase over 2019.
York City.
Other local companies headquartered in Seattle include
The region’s aerospace industry suffered over the past
Weyerhaeuser, Expedia, Nordstrom, Starbucks, F5
two years due to problems that began with disasters and
Networks, Zillow, and Zulily to name a few. Microsoft,
subsequent grounding of the Boeing 737 Max fleet and
headquartered in Redmond, Washington, will also have
were compounded by COVID-19 related travel restrictions.
offices expanding to spaces in Seattle. Bay-Area-based
However, that industry’s setbacks are expected to be
tech titans like Apple, Facebook, Google, and SalesForce/
offset by new initiatives of cloud computing giants
Tableau are continuing to install substantial regional
Amazon, Microsoft, and Google. For this reason, the
satellite offices in downtown Seattle grossing several
Milken Institute has continued to rank Seattle among
million square feet. Collectively, the aforementioned
its Tier 1 Best Performing Large Cities in the country—in
companies already employ more than 100,000 staff in
2020, the only West Coast city to be recognized as such.
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Seattle regularly appears at or near the top of “best of” lists, recently including No. 1 in the nation among Best Places for Businesses and Careers by Forbes. From Visit Seattle, here is a partial list since September 2019:
2020 ACCOLADES
February 2020 - Seattle ranked second among Healthiest Places to Live in the U.S. January 2020 - Seattle placed sixth in Top 10 U.S. Cities with the Most Overall Votes.
2019 ACCOLADES
December 2019 - Seattle placed seventh among Top 50 U.S. Cities Ranked by Progress of Urban Sustainability. December 2019 - Port of Seattle wins the Cruise Critic Award for Best North American Homeport 2019. December 2019 - Washington State ranked #1 in Best States Rankings for 2019. November 2019 - Seattle-area among the top 20 Best Cities for Healthy Aging. October 2019 - Seattle remains #1 in the nation for Best Places for Businesses and Careers. October 2019 - Seattle ranked as the Second Most Dynamic Large City in the Nation. October 2019 - Two Seattle museums among the top 25 list for best museum restaurants. September 2019 - Seattle ranked #1 for Best Coffee Cities in America. September 2019 - Seattle has the best public transportation in the United States. September 2019 - Seattle named #16 Best City in the Nation for Singles.
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With ample employment, no state income tax, and relative affordability compared with other West Coast gateway cities, such a reputation has made it easier for employers to recruit and retain talent here.
Citywide this tech talent pool spiked significantly.
98,000
157,000
IN 2011
IN 2018
Which equates to a roughly 60 percent increase with most new residents choosing to locate near job centers to avoid commuting. That outcome is observed by savvy corporate tenants, too, as tech companies enjoy relative affordability in Seattle as well. Office leasing in downtown Seattle is still significantly less expensive than Manhattan, even after rents there have fallen to $74.39 per square foot, from $83.28 a year ago. These many advantages will continue to draw expanding companies to Seattle rather than competing West Coast markets.
2020
2021
OFFICE RENT
OFFICE RENT
$83.28
$74.39
PER SQ. FT.
PER SQ. FT.
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HOUSING COVID-19 pulled the tablecloth out from under the feast of new housing inventory that had been set. In King and Snohomish Counties, 20,000 apartments were scheduled to open in 2021 and 2022. Brian O’Connor, principal of O’Connor Consulting Group and Commercial Analytics, reported that apartment vacancies in these counties rose from 3.8 percent to 6.1 percent in 2020; and that unless demand rebounds, vacancies could rise to 6.9 percent by early 2023. “All this product in the pipeline is there because of what the demand used to be,” he said. “The market did what it should have done — stepped up supply. COVID hits. Demand drops. All those units are still in the pipeline.” Between Seattle and Shoreline, net demand for apartments dropped by 7,900 units last year, comprising nearly four out of five units delivered in the preceding year. By September, rents had declined by 9.5 percent in these cities, and by 15 percent in the downtown core. Meanwhile, rents were only 1.6 percent lower on the Eastside, and actually rose in South King County and Snohomish County.
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The number of rentals operated by individual investors within condominium buildings is less than 50 percent as limited by developers, homeowner’s associations (HOAs), and restrictions for warrantable mortgages to be sold on secondary markets. Unlike Vancouver (and with effect in 2019, the states of California and Oregon), rent control is illegal in Washington state, having been banned by the State Legislature since 1981; so free markets dictate lease rates and rent growth. Meanwhile, more than half of the 2,079 new construction condominium units across 15 new buildings that are currently offered for presale (with delivery scheduled between 2018 and 2023) have already found buyers, including an increasing volume of international investors. Since delivery of new projects commenced in early 2018, spiking inventories have been gradually relieved by regular sales averaging 40 units monthly. Among units both new and resold within the city of Seattle, the median price paid for a condominium rose at a compound annual growth rate (CAGR) of 8.2 percent from 2014 through 2020, while the average price per square foot paid rose at 7.8 percent CAGR during the same years, reaching $605 per square foot in 2020. New construction unit prices per square foot rose at a slower pace in Downtown and Belltown (CAGR: 4.8 percent, but much faster in Central Seattle (CAGR: 16.4 percent). At the high end (interpreted as the 90th percentile price per square foot), condominium prices downtown and in the city at large have risen at CAGRs of 6.5 percent and 7.2 percent, respectively. These rates compare with a residential median price CAGR of 8.5 percent throughout the city of Seattle.
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Seattle median household incomes rose by $42,300 to $102,500 since 2010, sustaining its rank as the third-highest in the U.S. for income growth, according to 2019 U.S. Census data.
according to the Downtown Seattle Association. The resident population is 55 percent male and 45 percent female and predominately Caucasian, although Asian
DEMOGRAPHIC TRENDS
demographics are the second-largest group and the
Current residents of downtown Seattle skew younger,
Seattle median household incomes rose by $42,300 to
with a median age of 37, although there is a growing
$102,500 since 2010, sustaining its rank as the third-
population of move-down empty-nesters shedding larger
highest in the U.S. for income growth, according to 2019
single-family homes and choosing the lock-and-leave
U.S. Census data. With an estimated six households
lifestyle of city living, often cashing out home equity to
moving to the city center each day since 2010, most
buy a second home in a resort destination. More young
development has focused on apartments. Today, 82
families are remaining in the city with nearly 5,000
percent of the residents are renting in downtown
children in residence, doubling in the past decade, with
Seattle, while just 18 percent of the housing comprises
school-aged children having increased by 133 percent,
condominium ownership.
fastest-growing. Two-thirds of the residents are welleducated, earning a bachelor’s degree or higher.
This balance is likely to shift toward ownership over the
The resident population is 55 percent male and 45 percent female. Twothirds of the residents are well-educated, earning a bachelor’s degree or higher.
next decade, as newly-relocated renters seek to put down roots. Some of the more affluent will enjoy restricted stock units (RSUs) offered by their tech employers, which can vest, be cashed in, and provide for a down payment. RSUs are also being used by some lenders for income qualification. As their incomes rise, their accountants will advise them to explore purchasing homes for mortgage interest deductions and to participate in the rapid equity gains of the city.
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NEW CONDOMINIUMS
account that tens of thousands of well-qualified tech millennial workers are already living in pricey apartments downtown, and many will migrate to ownership. From a macro perspective, Seattle has a long runway to catch
Condominium presales in the Seattle metro area are
up to more mature, global cities such as San Francisco
attractive because the Washington Condominium Act
and Vancouver.
limits the non-refundable deposit structure to only 5.0 percent earnest money as an escrow deposit (vs. 20–30
When dividing median household incomes into the
percent in Vancouver), and the developer cannot sue
median condominium price in its peer cities, Seattle’s
for specific performance. If the presale buyer elects
ratio of home cost to annual income is just 4.9:1, whereas
to cancel the purchase at any time before closing, the
Vancouver is more than twice as challenged with a ratio
only financial exposure for the buyer is the release of
of 10.8:1, and San Francisco is even further out of reach
the earnest money deposit to the seller as liquidated
at 11.5:1. This dynamic stems from Seattle’s rather high
damages. Likewise, if the developer fails to deliver the
median household income ($93,481 per year) and for
building as represented, the buyer may exit the presale
now, modestly priced condominiums.
and recover their deposit. To ensure accountability, the builder is unable to withdraw these deposits towards construction costs, so 100 percent of the capital stock
Median Price of a Condominium
must be secured by the developer without any buyer proceeds.
$1,149 PER SQ. FT.
Compared with many markets, buyer presales help fund
$1,275,000
the project. Condominium presales in Washington are
$791
pricey and risky for developers and only typically occur
PER SQ. FT.
when the markets are rising, meaning the homes are
$594,187
worth more at closing than when presold. This is why the substantial majority of developers have opted to build purpose-built apartments instead of condominiums for sale to ride the market growth. This also results in far fewer
SAN FRANCISCO
VANCOUVER
$586 PER SQ. FT.
$479,950 SEATTLE
new condominiums being delivered to the city, which is why the rate of appreciation has grown by double-digits in recent years. In the 2015-2018 development cycle, it was common to see home values rise by 15–25 percent
New construction in the urban core is certainly more
from initial presales to resales after closing. Demand
costly but still tracks at a fraction of the West Coast
is expected to increase substantially for new presale
gateway cities.
condominiums, as well as existing resale properties, on
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OFFICE DEVELOPMENT In a recent 2018 measurement, downtown Seattle witnessed $4.8 billion of capital investment on new projects in the city center, an increase of 12 percent from 2017. Two-thirds of projects under construction are residential, and mostly all are apartments for rent. Between 2010 and 2018, more than 13 million square feet of office space was delivered; and by 2019, an additional 6.4 million square feet were under construction, with yet
Amazon shared its plans to return to an “office-centric”
another one million square feet in excavation and 6.7
culture, with remote work expected to wrap up by autumn
million square feet in the pre-development process. As
2021. The company had already doubled-down on its
of July 2019, 49 tower cranes were deployed in Seattle,
commitment to the Puget Sound with its announcements
matching Los Angeles for the most in the nation at
of growing its Eastside headquarters to house 25,000
one time—and Seattle has more than 100 projects in
employees by 2025.
the development pipeline. Since 2010, nearly half (49 percent) of the City of Seattle’s total permit-declared project values were in the downtown core; and with this building boom, construction employment has grown by 32 percent since 2010. Retail businesses grew by 58 percent in the ten years spanning 2004–2015, introducing more services and attractions to the city center.
Officials from the City of Bellevue and Bellevue Chamber announced in October that 11.5 million square feet of office growth projects were underway, approved, or proposed.
Other major capital projects include the SR-99 deep-bore tunnel, now complete at more than $3.2 billion; the new
As Amazon sets up massive expansion in Bellevue, city
Seattle waterfront revitalization project at over $1 billion;
leaders there are focusing on how to propel growth as
the Washington State Convention Center Expansion at
well as maintain support for small-to-medium sized
over $1.8 billion; and the Climate Change Arena costing
businesses and start-up companies that could get
over $1 billion. Construction on the Convention Center was
priced out of the area. That plan has them counting
halted last year as needed revenues from the King County
on forthcoming transportation options, to connect
lodging tax dried up under COVID-related restrictions. In
downtown Bellevue, not just to Seattle, but additional
January 2021, both Seattle Mayor Jenny Durkan and King
Eastside business hubs.
County Executive Dow Constantine offered loans to keep that project moving forward.
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TRANSPORTATION Seattle continues to take cues from Vancouver and San
Sound Transit 3 Was Approved By Voters In 2016.
Francisco. With the foresight of growth and in anticipation of the 1986 World’s Fair in Vancouver, British Columbia’s provincial government embarked on what would become SkyTrain. Today, this light rapid transit system links dozens of regional communities with quick, convenient, mostly elevated light rail lines. Seattle had the same opportunity after its World’s Fair in 1962, but ultimately, the federal funding packaged to voters known as “Thrust Forward” failed in the polls in 1968. By the early 1970s this earmarked investment instead went to Atlanta to fund the MARTA transportation system. Similarly, San Francisco’s heavy-rail Bay Area Rapid Transit (BART) system connects East Bay bedroom communities and
serve 37 additional stops for the regional system—a 116-
the San Francisco airport with the city. Seattle stands in
mile transit network that will originate from an urban hub
contrast with no subway infrastructure and limited light
at King Street Station in Seattle. This is a game-changer
rail for a city of its size and prosperity.
for the region, as the residential and job centers of the Eastside will finally be connected to downtown Seattle
That is all about to change. In response to regional
by 2023, and reaching downtown Redmond by 2024.
highway congestion increasing 95 percent between 2010
The Eastside link is projected to boast ridership between
and 2015 (the average peak hour commuter spent 63
43,000-52,000 riders including the downtown Redmond
hours in traffic in 2014), Sound Transit 3 was approved
extension, by 2026. The Seattle area leads the nation in
by voters in 2016. The plan adds 62 miles of light rail to
metro ridership adoption, and for good reason—pent up
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demand for commuting solutions that are long overdue
Square’s waterfront (accommodating the world’s largest
translates to public transportation use.
ships and sparking a likely rezoning of the immediate neighborhood from industrial to residential/mixed-use).
Other investments include the recently completed SR-
For downtown residents, new bike lanes, bike share,
99 tunnel underneath downtown Seattle, a renovated
and an effective Uber/Lyft ecosystem have greatly
Washington State Ferry Terminal, and the expansion of
reduced the dependency on driving altogether, much like
the Seattle Streetcar, linking independent routes in south
Manhattan.
downtown and Capitol Hill to South Lake Union. Sea-Tac International Airport remains the fastest-growing airport
Owning a car in downtown Seattle is now more of an option
in the U.S., as the global West Coast hub for Delta Air
instead of a requirement and most new condominiums
Lines, and Seattle’s Alaska Airlines growth bolstered by
are offered with parking as optional, with stalls priced
the acquisition of Virgin America. There is also ongoing
from $65,000 to more than $100,000. According to the
exploration
high-
Downtown Seattle Association, 41 percent of center city
speed train expected to potentially add $355 billion in
residents do not have a vehicle, and only 10 percent have
economic growth for the Cascadia region. On the water,
two vehicles. Many new condominium and apartment
Seattle’s cruise ship industry has grown by a factor of 34
projects are being programmed with parking of 0.4 or
percent since 1999—to 1.2 million passengers in 2019
fewer stalls per unit.
of
a
Vancouver-Seattle-Portland
with a new terminal announced for Pier 46 on Pioneer
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This was the case with the enactment of the foreign buyer tax in the B.C. Lower Mainland, which was an arbitrary decision of the Clarke government. Here again is another contrast as to the enactment of provisions that distinguish foreign from domestic buyers: constitutional division of government in the U.S. assigns foreign policy, including policies concerning immigration, to the federal government rather than to the states. In any case, restrictions on where foreigners can buy and the subsequent taxes on their transactions are subject to review and consideration by multiple overlapping jurisdictions within the U.S. Changes come slowly, if at all.
POLITICAL SECURITY
A SUPERIOR CLIMATE Similar to Vancouver and San Francisco, Seattle
Seattle has attracted international investment and has become a preferred financial safe harbor for global wealth, given the stability of the local and state government.
rises along a picturesque bay, with its dramatic skyline surrounded by natural wonders. Yet Seattle is distinguished from these competing cities by proximity to freshwater lakes, and not one but two mountain ranges crowned by the majestic Mt. Rainier (14,411 feet).
There is no income tax, no foreign buyer home tax, or any limitations on international citizens’ ownership of property. Simply put, the business rules and tax policies are clear and unlikely to change. Thwarted efforts to enact even local income taxes in Washington State, most recently in 2019, demonstrate the contrast between state and local policymaking in the United States versus such actions in other countries, where in some cases, they may proceed nearly instantly and without notice as a result of administrative action.
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Despite its notorious drizzle, Seattle enjoys 11 percent fewer rainy days than Vancouver.
OUTDOOR RECREATION Seattle is second only to San Francisco for ranking the most healthy city in the U.S., according to WalletHub® research. With clean air, natural beauty, open spaces, and backcountry to explore, Seattle is synonymous with
The dry summers are very similar, averaging a high of 72; and winters in Seattle are substantially warmer than those in Vancouver, with an average high of 47 degrees, well above freezing (snow is relatively rare in the lowlands surrounding Seattle). The Seattle area is considered “low risk” for climate-oriented disasters, and the region is noted as being “highly-prepared” with an abundance of natural resources. This compares favorably to regions of Southern California, where drought, wildfires, and mudslides have become very common. Seattle is also ranked among the most “Environmentally Progressive Cities” in the U.S. according to PCMA.
the “work-hard, play-hard” mindset. The City of Seattle itself has more than 5,540 acres of parkland and offers popular urban trails for jogging and biking. These include the South Lake Union Loop and the Burke-Gilman Trail, which is a 27-mile long pathway from Bothell on the Eastside to Golden Gardens beach on the Puget Sound. There are also many waterfront promenades like Myrtle Edwards Park and Alki Beach granting access to Elliott Bay. Google mobility data show that Seattle’s abundance of park spaces offered Seattle residents multiple avenues of escape from cabin fever as the COVID-19 restrictions wore on.
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Away from the shoreline, more than a dozen public and
OUTDOOR ACTIVITIES
private golf courses are conveniently accessible from downtown Seattle. Further onward, popular weekend excursions include trips by ferry or a quick 45-minute flight via Kenmore Air’s famous seaplanes at South Lake Union to the picturesque San Juan Islands. In the summertime, both Lake Union and Lake Washington offer an abundance of water sports, and annual attractions, such as the Seafair celebration where the U.S. Navy Blue Angels perform each year. Wintertime is equally compelling with numerous regional ski destinations within an hour or two’s drive from downtown Seattle. Many Seattle residents also frequent the sunnier destinations of Southern California, Arizona, Hawaii, and Mexico as quick jaunts out of the winter gloom.
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CONVENIENCE + WELLNESS
Ranked first in the nation by U.S. News & World Report in 2018 among the “Best Big Cities to Live In,” Seattle boasts a relatively compact urban core, ranked eighth by WalkScore in 2020 among the “Most Walkable Cities” in the U.S. With the residential renaissance over the past 20
Given the youthful population base, pristine environment,
years, downtown Seattle has transformed from a
access to high-quality, organic foods and eateries, and
working city to a thriving 18-hour metropolis. There
a plethora of recreational opportunities, Seattle is also
are dozens of residential conveniences such as urban
second-ranked among the “Healthiest Places to Live,”
grocers, pharmacies, and service providers, hundreds
according to WalletHub® in 2021, and also scores well
of acclaimed restaurants and bars, and an explosion
in their “Happiest Cities” index. The city is top-ranked
of creative retail concepts thanks to the boom of high-
in the U.S. for the share of adults who are physically
rise development in the city and the need to fill retail
active, and third nationally for running trails available.
requirements (vacancy rates were estimated to have
Downtown Seattle residents also benefit from renowned
reached 2.5 percent by the end of 2020, according to the
medical institutions nearby, including Virginia Mason
Downtown Seattle Association).
Hospital, Swedish Hospital, Harboview Medical Center, the University of Washington Medical Center, Seattle Children’s Hospital, and Fred Hutchinson Cancer Research Center.
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ARTS + CULTURE As the most-educated big U.S. city where 8 in 10 newcomers have a college degree, Seattle’s prosperity and giving spirit supports countless cultural projects. SMU DataArts consistently ranks Seattle among the top 10 “Arts-Vibrant Large Communities” in the U.S. with metro populations over one million. The city has the most bookstores per capita and no surprise, the highest consumption of coffee, too, thanks to the hundreds of independent shops that thrive in Seattle’s communities. For larger venues, the Seattle Opera and Pacific Northwest Ballet both perform at McCaw Hall and the Seattle Symphony performs at Benaroya Hall. Broadway plays frequent 5th Avenue Theater and the Paramount Theater
Seattle also boasts five high-profile professional sports
with local acts and lectures as well. Other cultural venues
franchises including Seattle Seahawks (football) and
include The Seattle Art Museum, Museum of Pop Culture,
Seattle Sounders FC (soccer) at Lumen Field, Seattle
Chihuly Garden and Glass, Museum of Flight, Museum of
Mariners (baseball) at T-Mobile Park, and both the Seattle
History and Industry, and the Seattle Center, which was
Storm (WBNA basketball) and the much-awaited Seattle
home to the 1962 World’s Fair and famous for its iconic
Kraken, a new expansion team for NHL hockey that will
landmark, the Space Needle.
play at the newly renovated and renamed Climate Pledge Arena. Rumors persist that the NBA will one day also
The pandemic has placed a financial strain on live
grant Seattle a professional basketball franchise to bring
music venues, performance groups, and other arts
back the beloved SuperSonics.
organizations that depend on large gatherings and ticket sales to sustain them. Several emergency funds have been created to help them weather the storm, and some have found ways for audiences to experience concerts and performances remotely which may be enough to keep these organizations alive. As businesses begin to reopen, we will see the full scope of COVID-19’s impact on the region’s arts and culture groups, but the outlook, so far, is optimistic.
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LUXURY DEMAND As seen in the Luxury Outlook 2021. No one could have predicted that a pandemic would curb demand so suddenly, as buyers have either gravitated toward single-family homes or left cities altogether, creating a perfect storm of available inventory and softening prices.
“Timing is everything, and the time to purchase condos is right now, more than ever before,” says Harvey Daniels of ONE Sotheby’s International Realty. “Buyers are now starting to focus on the high-end, larger condominiums mostly because the house market is priced out and inventory has been depleted.”
“I strongly believe prices are going to rise very quickly for high-end condos,” he says, adding that a number of record-breaking condo sales have already occurred across South Florida during the pandemic.
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In San Francisco’s scorching market, condo prices fell flat
have homes in Malibu, Palm Desert, Orange County, as
in 2020, even with the segment recovering some activity
well as on the East Coast.”
toward the end of the year, as wealthy tech employees have upsized into larger homes in the East Bay, or used
Buyers want low-rise communities in Beverly Hills and
flexible work-from-home policies to decamp to resort
Century City with gardens and grounds for private
markets like Aspen or Lake Tahoe. The bidding wars that
outdoor use.
once typified condo sales in San Francisco and that led to the three percent to five percent premium on asking
“The lack of inventory and low interest rates have kept
prices in 2019 disappeared, with the average condo
the price points high, and I have had multiple offers and
buyer in the second half of 2020 paying the asking price.
record sales in price per square foot, with strong demand that I see continuing in 2021,” Berris says.
Los Angeles may be a bellwether for what’s to come in denser cities; the city’s burgeoning luxury-condo market has boomed as Los Angelenos who moved further afield look to downsize in the city. “The luxury-condo market picked back up in August 2020 and hasn’t stopped,” says Lori Berris of Sotheby’s
For investors looking to buy and hold in urban condo markets that have taken a temporary hit, there hasn’t been a better time to negotiate in recent memory.
International Realty—Beverly Hills Brokerage. “These particular buyers are downsizing from homes and looking for new and remodeled product to move right into. Many are buying condos as second homes in the city, and also
Exclusive Metro Report // 22
WHERE WE GO FROM HERE
The business community knows Seattle’s growth can’t
additional 1,712,000 people from 2000–2040 to the
survive on a “sugar high” from the most recent economic
regional geographies in the Central Puget Sound region.
expansion. Employers and business generators like
The five metropolitan cities of Bellevue, Bremerton,
Amazon remind voters that companies have choices
Everett, Seattle, and Tacoma are slated for 32 percent of
as well, so the region had better stay competitive.
the growth, adding 550,000 people to those city centers.
Meanwhile, post-COVID messaging from the Federal
Despite the challenges of the past year, it is reasonable
Reserve has assured that interest rates will remain low.
to assume Seattle and particularly downtown Seattle
COVID-19 does not appear to have kept stock markets
will receive an outsized share of the economic expansion
down for long, and above all, the regional housing market
and housing demand. The market pressures in the
has shown its resilience.
Seattle metro area are unable to push out to the growth management boundaries; they simply must push upward
Longer term, the Puget Sound Regional Council
in the form of the residential and commercial towers that
published VISION 2040, which was adopted in April
are now reshaping this city.
2008, and plotted strategies for distribution of an
Exclusive Metro Report // 23
POLITICAL & ECONOMIC ROUNDUP
When forecasters speak of discontinuous change, they mean the kind of change and upheaval that could not be better exemplified than what we have seen in the past year. As so many plans and schedules have been upset by
in December were up 30.4 percent year-over-year
these events, we have narrowed our scope of political
nationwide, and higher by 20.5 percent in the Western
and economic subjects for this report to a handful with
states.1 For the year 2020, an estimated 977,000 single-
direct bearing on the immediate future of our local real
family homes were authorized by building permits
estate markets.
nationally and 230,000 in the West, up 13.3 percent and 9.8 percent, respectively. In contrast, possibly due to an aversion to shared living arrangements under
Nationwide home construction trends ended the year higher.
COVID-related social distancing advisories, nationwide authorizations of five units or more were down by 10.8 percent on the year.
After the March stock market crash and the initial shock
By January 2021, year-over-year single-family building
of COVID-19, home construction across the country
permits were steady at 29.9 percent nationally, and up
rebounded by midsummer. Privately-owned, single-
by 27.2 percent in the West.2
family housing units authorized by building permits
Exclusive Metro Report // 24
Privately-owned,
single-family
housing
starts
in
December were 27.8 percent higher year-over-year nationwide, and 34.6 percent higher in the West. An
Provisions of the new capital gains tax
estimated 991,000 single-family homes were started nationwide in 2020, 11.7 percent more than in 2019. In the West, there were 241,000 single-family housing
At this writing, SB 5096 remains to be signed by Governor
starts, 12.4 percent more than in the preceding year. In
Inslee; but no surprises are expected, as he pushed the
January 2021, single-family housing starts increased
tax for years. The bill levies “a seven percent tax on the
their gains to 17.5 percent year-over-year; but in the West,
voluntary sale or exchange of stocks, bonds, and other
the increase narrowed sharply, to 2.6 percent.
capital assets where the profit is in excess of $250,000 annually.” The $250,000 basic exemption applies to both
Finally, single-family home completions in December
individuals and married couples or domestic partners,
were up by 9.0 percent nationwide, and by 2.2 percent
filing separately or jointly.
in the West. An estimated 915,000 privately-owned, single-family housing units were completed in 2020,
While the bill’s main targets are profits taken on financial
and 225,000 in the West, for year-over-year gains of 1.3
transactions, real estate transfers do not appear to be
percent and 2.1 percent, respectively.
wholly exempt. Transactions that are clearly exempt are those where real property is transferred “by deed, real estate contract, judgment, or other lawful instruments
Mortgage interest rates have decoupled from the Fed funds rate.
that transfer title to real property and are filed as a public record.”3 Interests in property held by a qualified small business for five years or more are likewise exempt. There is also a laundry list of exemptions for farmers, ranchers, cattle, livestock, harvested timber, forestlands, fallen trees, Christmas trees, commercial fishing, property condemned by the federal government, and so forth. Yet where a real estate interest is sold or exchanged by a ”privately held entity,” the exempt share of that interest is limited to “the fair market value of the real estate owned directly by the entity less its basis, at the time that the sale or exchange of the individual’s interest occurs.” Moreover, the law will allow the state Department of Revenue to determine fair market value, regardless of transaction price or any other agreed amount:
Exclusive Metro Report // 25
The department is not bound by the parties’
value where there is a motive to limit tax exposure.5 This
agreement as to the allocation of assets, allocation
would be the case among some Section 1031 exchanges
of consideration, or fair market value, if such
of real estate. It appears the Washington State Legislature
allocations or fair market value do not reflect the fair
had such exchanges in mind when amending SB 5096
market value of the real estate. The assessed value
for final passage.
of the real estate for property tax purposes may be used to determine the fair market value of the real
While in the works for years, final enactment of the
estate, if the assessed value is current as of the date
Washington State capital gains tax comes amid new
of the sale or exchange of the ownership interest in
proposals by the Biden administration for both a 39.6
the entity owning the real estate and the department
percent federal capital gains tax and a capping of
determines that this method is reasonable under the
Section 1031 exchanges at $500,000.6 Either of these
circumstances.4
controversial measures would need to pass an evenly divided Senate, which is arguably unlikely.
Recent court rulings show jurists beginning to question transaction values as certain indicators of fair market
REFERENCES Carese Busby of Caliber Home Loans in Seattle provided the following market highlights in 2 March 2021: • The Bond market volatility has risen over the past two weeks, with inflationary fears from the large stimulus package passed by Congress driving rates higher—yet rates remain at historical lows.
• Fear of inflation is causing investors to speculate that the Federal Reserve may have to shift policy sooner than expected, by either reducing bond purchases or even raising rates at some point.
• Bond yields are at their highest levels in a year, and stock are on edge.
1 Monthly New Residential Construction, January 2021, Release Number: CB21-25, U.S. Census Bureau and the U.S. Department of Housing and Urban Development, 18 February 2021. 2 “Quarterly Forecast: Housing Market Continues to Perform Strongly Primarily Driven by Historically Low Mortgage Rates,” Federal Home Loan Mortgage Corporation, 14 January 2021. 3 ESSB 5096, 6(1). 4 Ibid., 6(2)(iii)(c). 5 Example: “The Minnesota Supreme Court questioned whether a Section 1031 exchange truly represents an arm’s-length price. The Court noted that this unique type of transaction provides certain tax benefits that enable property owners to defer the recognition of capital gains or losses. But the record evidence lacked any information indicating the motivations of the buyer and to what extent the transaction price was impacted by market forces versus tax-savings motives. Absent evidence indicating that the Section 1031 exchange was at market levels, the Court could not conclude the Tax Court properly relied on the transaction to determine the market value of the property.” Faegre Drinker Biddle & Reath LLP, “Minnesota Supreme Court Rejects Section 1031 Exchange as Evidence of Property’s Value,” 4 March 2020. 6 Laura Davison and Allyson Versprille, “Biden Eyeing Tax Rate as High as 43.4% in Next Economic Package,” Bloomberg, 22 April 2021; Emily Cadman, “Biden Targets $41 Billion Tax Break for Rich Real Estate Investors,” Bloomberg, 28 April 2021.
Exclusive Metro Report // 26
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