I recently visited my financial advisor at his office in downtown Seattle. Traffic wasn't bad on the way there and the lobby was void of the normal hustle and bustle of people going to work. I got in the elevator... alone. I reached the 30th-something floor and was buzzed into the space to meet Jason as I do once a year. The cubicles were empty and the entire floor was so quiet you could hear a pin drop. "Hey Jason, it's good to see you!" He greeted me with a warm smile and a handshake like he always does. I said, "Man, it's eerie in here. Where is everyone?" He replied, "They mostly work from home now."
Let me preface this post by saying not all markets will be facing as great of a crisis as the Seattle Metro area. I'm sure there are other areas where class-A properties will be somewhat insulated from the work-from-home trend but in places like Seattle and San Francisco, a big problem is looming. Not only are companies like Google halting expansion projects like the one in Kirkland on the Lee Johnson site, but Amazon also says it will pause construction on five towers in downtown Bellevue, and hold off, for now, on the construction of a sixth new tower in the city. Facebook purchased REI's newly constructed Bellevue campus for $390 Million but in retrospect that might have been a poor decision since the work-from-home trend doesn't seem to be going anywhere.
For the past 15 years tech companies have been building and building and BUILDING to accommodate their workforce. Now it is obvious they overbuilt for today's work culture. We are cruising right along into 2023, almost 3 full years after the lockdowns of Covid-19 and people are STILL working from home. What's the plan for all of this office space?
It's not just tech towers either. Columbia Tower, 1201 3rd, Rainer Square Tower, and all the rest are relatively unoccupied. Sure they may have leases that people are obligated to pay but what happens when those leases failed to be renewed? What happens when there's no need for office space? At some point, REITs and private equity companies that own these towers are going to be feeling the pain. It may take a while, but I do suspect there will be a domino effect in the commercial sector.
When people think of a real estate crash they think of housing or residential real estate. Yes, values have dropped in residential, and maybe they'll drop some more. Overall, I think residential real estate and especially single-family homes will rebound very quickly. Rates improved just a little bit over the past two weeks and buyers are out in full force. Housing is a basic necessity, people have money sitting on the sidelines and the Seattle/Bellevue areas have little room for expansion due to limited land to build on. Furthermore, the work-from-home culture is alive and well - WFH is not going anywhere anytime soon. People need homes that accommodate a new way of life and they're in relatively short supply. I get a foreclosure list from my title company every month to track whether or not a housing crash is coming. Surprisingly, The list hasn't grown very much at all in King County.
I'd love to talk to you more about all things real estate. Please email, text, or call me to discuss trends in our region!