Q&A About Amazon's Impact on Seattle

Chris Kagi is an Assistant Director in Savills Seattle office. Chris advises clients across all industries -- from tech start-ups and insurance companies to law firms and non-profits – and has his hands on the pulse of the Seattle market. Below, he comments on Amazon's impact on the Seattle real estate market.

For some context, how much space does Amazon currently occupy in the greater Seattle region?

This number changes monthly. As of today, Amazon occupies ~14 million SF in Seattle and ~3 million SF across the lake in Bellevue, with another 3 – 5 million SF of planned development. 

Describe Amazon’s growth over the last 10 years. 

Amazon began in Seattle with incremental growth in the first couple of years. First, they were in a stand alone building of 150,000 SF then shifted into 300,000 SF in the Central Business District (CBD).

At that time, Amazon partnered with Vulcan RE (Paul Allen’s development company) to acquire and build office sites in South Lake Union (SLU), which was primarily an industrial area of Seattle. The development of this area had been a long-term goal of Paul Allen, who had acquired most of the sites a decade earlier. Initially, Amazon leased 2 million SF of new development from Vulcan, which enabled them to convince the city to build a streetcar line from the CBD to their campus.

After their move to SLU, Amazon’s growth became exponential. They leased any new product that was built in the area and eventually acquired sites of their own, ultimately building three 1 million SF office towers. In 2012, they purchased most of their occupied buildings from Vulcan for $1.16 billion.

In 2018, Amazon decided they were over-leveraged in Seattle and began the search for “HQ2” around the nation, eventually selecting DC and NYC. When their NYC plans fell through, they shifted their focus to City of Bellevue/Eastside, a submarket across Lake Washington that houses Microsoft’s headquarters.  As of today, Amazon has leased 3 million SF on the Eastside and have either purchased for development or are in negotiation to lease development of another 3 – 5 million SF.

Put into context Amazon’s presence in the Seattle Metro.

Amazon's footprint has made Seattle the largest “company town” in the nation. Amazon is twice as large as any other company in any other US city (see article below). 

Describe Amazon’s impact on the market over the past 10 years.

Amazon has been the biggest demand driver for office space in Seattle. For a period of 5 years, Amazon competed for – and always won - any large block of space (300,000 SF or larger) of new development, which, trickled down to the rest of the market with other users competing for the remaining space. Seattle saw Class A rents double over the decade from 2010 to 2020. 

In addition, Amazon’s growth -- and the hiring that went along with it -- attracted several other large tech users to Seattle/Bellevue to compete with hiring, specifically engineering talent.   Google and Facebook each occupy over 3 million SF in these markets and continue to grow. 

What challenges have come with Amazon’s explosive growth

As you can imagine, Amazon’s exponential growth has had an enormous impact on the Puget Sound region. Amazon couldn't sustain hiring from Seattle alone, which has led to a huge relocation of talent from around the world. This influx of talent has attracted competing tech companies to the region.

This growth has had an impact on traffic, schools, government services and residential real estate. Home prices doubled and Seattle has seen massive growth in multi-family. Due to the Puget Sound’s geographical restrictions (water/mountains on all sides), this trend will continue if Amazon keeps growing. Even with the COVID crisis, Amazon continues to grow with no signs of slowing down. E-commerce seems to be minimally impacted and is, if fact, benefiting from the pandemic. 

What’s being done to mitigate those challenges?

King County has started the development of a light rail project to service the Puget Sound. Still 10 years from total completion, the line linking Bellevue and Seattle will be completed next year with the hope of reducing traffic, which is some of the worst in the nation.

The other big discussion has been around taxes. Washington State has a very favorable tax system (sales tax 11%, 1% property tax, and no income tax). With the major changes Amazon has brought, the city, county, and state are looking at ways to ensure that Amazon pays into the cities and communities in which they derive their income. The City of Seattle attempted to pass a head tax on all large city business, but this failed. As of July 6th, a “salary tax” was passed, which will be an approximate 1% tax on all businesses with over $7 million in payroll on their salaries over $150,000 -- specifically targeted at Amazon. Amazon has threatened to leave but given how much space they occupy, it seems to be an empty threat. 

What would you say to the residents and businesses in the DC metro area about Amazon’s HQ2?

Once Amazon is set up in a location, they do not leave so you can expect competition for development and talent to increase significantly. This means an increase of high paying jobs, an increase in people and the ancillary growth that comes along with those changes.