Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Tribune News Service
Tribune News Service
Business
Paul Roberts

Seattle's downtown needs office workers. Do workers need offices?

To a casual visitor, the 56-floor Two Union Square building looks well ahead of the pack in downtown Seattle's slow march back to the office.

At lunchtime, the food court of the sleek, zebra-striped tower at Union Street and Sixth Avenue bustles with employees from the 200-plus tenants in Two Union and its smaller sister, One Union Square. The vast underground garage below is nearly full again.

But like many Seattle offices, Two Union Square is still missing most of its workers — another unsettling sign for a downtown recovery that has been largely on hold since COVID-19 sent most office employees home in early 2020.

Any given day, the number of workers in the two buildings, though roughly doubled from this spring, is still only around 40% of pre-pandemic levels, says Mark Barbieri, executive vice president at Washington Holdings, which manages the complex.

And some tenants report much lower rates. Seattle-based HomeStreet Bank, whose headquarters take up parts of five floors at Two Union, has around 20% of its 300-person staff working in person, says CEO Mark Mason, even though senior management would love "to have everyone physically back."

At the Seattle office of recruiting firm Robert Half, on the 43rd floor, occupancy is still 15% to 20%, says district president Josh Warborg.

And like many downtown office towers, both One and Two Union Square are seeing remote work's other, second-order effects.

Many tenants are so uncertain about when and whether remote workers are returning that they're hedging decisions about office space that, for larger tenants, can cost millions of dollars a year. Some are opting for shorter leases, Barbieri says. More than half are considering downsizing.

HomeStreet, for example, has nearly seven years left on its lease, so a smaller office "is only theoretical at this point," says Mason. But if headquarters staff remains mainly hybrid or remote, "we would cut our space by more than half," Mason says.

"There's still so much uncertainty," Barbieri adds. Employers "are still trying to understand what all of this means."

Workerless in Seattle

It's a familiar conversation across the Seattle-area office ecosystem.

Despite repeated campaigns to lure back remote workers — and despite predictions that the start of another school year would unleash a wave of returnees — much of the Seattle area's office return is stuck in a limbo.

Just 36% of downtown Seattle's office workers were back as of last week, according to cellphone data posted by the Downtown Seattle Association. That's actually down 10 percentage points from mid-July — and among the worst back-to-office performances of any major U.S. city.

Seattle's stalled return is playing havoc with remote workers and creating unprecedented HR problems for their employers. Some, like Amazon, have had to postpone or scale back office return goals. Others, such as Boeing and the city of Seattle, have pushed ahead with mandatory back-to-office policies, but now face employee backlashes.

More broadly, Seattle's lagging return is raising questions about the office economy and the businesses — from restaurants and shops to commercial real estate firms — that counted on steady demand for new office space and a steady supply of workers to fill them.

In September, more than a fifth of the office space in Seattle's central business district was available, or nearly two-and-a-half times pre-pandemic levels, according to Savills, a commercial real estate firm that represents tenants. In August, interest in new Seattle-area office leases by prospective tenants plunged 14%, the third-biggest decline among major U.S. cities, according to the VTS Office Demand Index.

Few are ready to call the end of the office or the death of downtowns. But few are eager to predict when the office might return to its pre-pandemic status.

After more than two years of pandemic, "I would have thought ... that we'd have some sort of consensus" about a return timeline, says Andrew Shultz, a senior director at commercial real estate firm Cushman & Wakefield who works primarily with Seattle-area office landlords.

Instead, he says, Seattle's office return still "feels like it's a grand experiment that we're living in real time."

What's behind Seattle's lag?

The Seattle area isn't the only metro struggling to get its remote workers back.

Seattle's average workplace occupancy rate for July was actually better than two of what the Downtown Seattle Association calls "peer" cities — Los Angeles and San Francisco — and was barely behind Portland.

But in a more national comparison, Seattle ranked just 27th out of 31 large North American metros, according to cellphone-data study this spring by The Institute of Governmental Studies at the University of California, Berkeley.

Experts and industry officials see several factors behind Seattle's slow office return.

Cities such as Seattle where employers sent workers home early in the pandemic often have struggled more to get those workers back, according to Mark Ein, chair of Kastle Systems, a security firm that tracks office worker presence via key card use at office towers.

Similarly, cities like Seattle that rely heavily on public transit often have seen slow office returns, in part because, despite the waning pandemic, many office workers are still "more comfortable (commuting) in their own car than they are in a subway or a bus," Ein says.

Also lagging: metro areas with lots of tech firms. Tech workers shifted relatively easily to remote work and the tight tech labor market has given them more say over whether to come back.

One big, if hard to quantify factor: Employers that mandated some degree of in-office work typically have higher workplace occupancy than do those which kept things voluntary.

T-Mobile, which last fall announced that most remote employees had to return to the office at least half the time, currently has a workplace occupancy rate of around half in its Bellevue headquarters, company officials say.

At the other end of the policy spectrum are employers with minimal in-office requirements — and low workplace occupancy. Last fall, Seattle-based Weyerhaeuser postponed reopening its Pioneer Square headquarters and now requires its more than 650 HQ staff to come in just one or two days a week. Workplace occupancy is around 10% to 20%, says spokesperson Karl Wirsing.

Amazon, which initially emphasized a "return to an office-centric culture as our baseline," and planned to bring back workers starting in fall 2021, also since adopted a more relaxed stance — in part, industry watchers say, to avoid losing workers. The tech giant won't disclose occupancy numbers, but employees at several of Amazon's downtown office towers estimated average daily occupancy to be between 20% and 40%, with spikes on meeting days.

Likewise at HomeStreet, which is forgoing any in-office mandates partly out of fear of losing workers in an ultratight job market. "We've been very soft about it so far," CEO Mason says.

'A lot of right-sizing'

Interestingly, while Weyerhaeuser initially cited employees' safety concerns about the Pioneer Square area when it delayed reopening, the current low occupancy is also driven by employees' more familiar back-to-office concerns around commuting, schedule flexibility and the like, Wirsing says. Those factors may become even more salient as the company begins "evaluating what's the next phase of pandemic."

That's an evaluation many employers are making — and one that, collectively, may bring a marked shift in office strategies.

In late 2021 and much of 2022, many Seattle-area employers tried a slew of enticements to get remote workers back in the office — among them, free parking, commuting stipends, gourmet lunches and appealingly redesigned offices.

But over the past year, some employers have watched those strategies deliver lower-than-expected results or stall out.

"We tried for three days a week in-office, but most are still just doing two, even after we offered to pay for their parking," says Erica Murray, office manager at Two Union tenant Horizon Realty Advisors. Office occupancy now averages around 36%, with higher rates on Mondays and Wednesdays.

As a result, some employers have shifted to strategies that are more defensive.

"The return-to-office has failed to materialize in a lot of ways," says Trevor Youngren, a Cushman & Wakefield senior director who helps tenants find office space in the Seattle area. Instead, he says, many employers "are now looking more long-term and trying to figure out what their space needs are going to be."

While some are taking advantage of Seattle's softening office market to lock in previously unaffordable long-term office leases, many others, especially small and midsized employers, are opting for shorter leases.

Consider: In the second quarter of 2022, the length of a new lease in Seattle's central business district averaged just 3.6 years, down 33% from the second quarter of 2019, according to a Cushman & Wakefield analysis.

Many employers are also shrinking their office footprint.

So far in 2022, new office leases in Seattle's central business district have averaged 8,960 square feet, down 26% from the 2015-19 average, Cushman data shows. For comparison, the average office lease in Bellevue's central business district shrank 50% in length and 20% in size over the same periods.

And some tenants are dealing with remote work's enduring popularity by ditching the office altogether.

Seattle-based nonprofit Sightline Institute was considering trading its offices, in downtown's historic Vance Building, for a fully remote model before the pandemic. But "when everybody started working from home and it seemed to work OK and people liked it, it made the decision easier," says Dan Bertolet, Sightline's director of housing and urbanism.

Defensive moves like these mean more downward pressure for a local office market that was already struggling. "It is definitely a tenant's market and will be for the foreseeable future," says Eric Lonergan, Savills' executive managing director.

Office market downturns typically are worse for older, lower-quality buildings, which often lack amenities such as parking or food courts. But this one is also hitting many high-end Class A properties, especially in downtown Seattle.

At the recently renovated Two Union Square, for example, vacancy is around 9%, up slightly from before the pandemic, Barbieri says. That doesn't include space current tenants are trying to sublease as they shrink their office footprint.

"It certainly is a salient trend," he says, of many tenants' interest in smaller spaces. "There is a lot of right-sizing going on."

'The die has been cast'

For now, many Seattle-area employers are stuck.

At HomeStreet, company officials want another year or so to see whether more workers come back, says Craig Kennedy, who oversees the bank's real estate. Kennedy thinks the bank's workplace occupancy could eventually recover to 40% or even 50%, but concedes that "it's going take a while to get there."

Other employers are banking that a possible recession and a weaker labor market will give employers more leverage over where their employees work.

But some employers worry that Seattle's office return has largely run its course. After years of false starts and failed forecasts — most recently, the non-surge after school started last month — some expect only incremental increases.

At the Robert Half offices in Two Union Square, the firm's workplace occupancy rate is already close to its new normal, Warborg says.

"If you call me again in a year, maybe it's marginally higher," he allows, but adds that employees are already coming in as often as they want or need to.

"I think the die has been cast on a lot of this," Warborg says. "People have created their new lifestyle and that's the way that they're going to do it."

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.