Why Seattle becoming the next Detroit might not be the worst thing

Every few weeks I receive an email from a reader arguing that Seattle “will be the next Detroit.”

They might want to reconsider that. First, because I laid out all the reasons why this wasn’t likely in a 2020 column.

Second, because Detroit — which fell from the nation’s fifth-most populous city in 1980 (where Ronald Reagan held the Republican National Convention) to the 29th as of 2022 — has made a significant comeback.

The Wall Street Journal reported this month about what its reporter called “America’s most unlikely boomtown”; billions are being spent on office construction in Detroit’s central business district.

Among the most symbolic is Ford Motor’s purchase and rehabilitation of the grand Michigan Central Station into an innovation center for the automaker, as well as home for 90 startups.

I think about Seattle as I read about Detroit beginning to reverse the proverbial “urban doom loop.” This is defined as post-pandemic changes such as fewer workers returning to downtown offices, causing retailers and restaurants to close, thus leaving fewer services for center-city residents and causing tax revenues to decline.

My colleague Paul Roberts recently wrote about Seattle’s most consequential developer, Martin Selig, facing serious financial challenges on seven of his approximately 30 downtown office properties. Selig owns about a tenth of downtown’s office space.

He wrote that on March 20, a $239 million loan funded by seven of Selig’s approximately 30 downtown office buildings was transferred to a so-called special servicer and identified for “imminent maturity default.” This is according to the commercial real estate data firm Trepp.

An imminent maturity default means borrowers are predicted to be “unable to repay the loan in full upon its maturity,” Stephen Buschbom, Trepp’s research director told Roberts.

These servicers usually oversee loans in default, at risk of default or needing modification.

Selig’s company stated that the servicers were “a required step in the renegotiation process that many borrowers are currently experiencing … and our lenders continue to be supportive in reaching a positive resolution.”

The pandemic was chief among the catastrophes that put a bulldozer to Seattle’s once-thriving central core.

The Downtown Seattle Association’s Recovery Dashboard showed that July 2023 posted the highest level of weekday worker foot traffic since the start of the pandemic. Even so, this was only 55% compared with July 2019.

For now, downtown Seattle is much more dependent on tourism and the arts than in 2020.

The situation on the Eastside appears to be better than in Seattle. A study by the real estate services firm JLL found that downtown Bellevue’s 106th Avenue held the most expensive commercial office rental prices in the region. The vacancy rate there is only 2.7%. (This was previously reported by the Puget Sound Business Journal.) The asking price for this spot in Bellevue was $70.72 per square foot. By contrast, downtown Seattle sees prices as low as $38.25.

Bellevue’s 106th Avenue ranked fourth in the United States in terms of low office vacancies and prices, with Austin’s Fourth Street coming in No. 1, with a 1.5% vacancy rate.

Before the pandemic, Seattle’s central core showed the highest leasing activity and highest prices in the region. Now commercial real estate power has shifted east in the metropolitan area.

Even so, more than 40% of the office space of the Eastside’s I-90 corridor was for lease at the end of the past year. “Available” signs also proliferated in downtown Bellevue in February, even as Pokémon committed to lease 347,000 square feet in the Eight tower.

According to the most recent Emerging Trends in Real Estate, a gold-standard survey produced by the consultancy PwC and the Urban Land Institute, Seattle ranked No. 10 in overall real estate prospects. Seattle is considered one of the “establishment” metropolitan areas.

The establishment is defined as metros that are well-established knowledge and innovation centers with diverse economies, in addition to being magnets for high-end talent. These are the most favored markets for real estate investors.

The report acknowledged that ratings by real estate professionals for these metros have been “volatile” the past few years, for the most part because of “the changing fortunes of the tech sector, which figures heavily in these economies. San Jose and especially Seattle both improved this year after tumbling in last year’s ranking.”

The report also stated that Seattle developers are increasingly focused on mixed-use projects, including multifamily developments.

Success in avoiding commercial office troubles is happening outside Detroit and Sunbelt cities such as Austin, Texas, and Nashville, Tenn. (Tech giant Oracle just announced it would move its headquarters from Austin to Nashville.)

New York City’s Hudson Yards development on Manhattan’s West Side is thriving.

According to The New York Times, a key reason for the comeback is that employers are requiring workers to return to their offices.

That’s been a critical element in downtown Seattle’s more modest comeback: Amazon’s requirement that employees work in the office at least three days per week. Other technology firms, including Microsoft, and nontech companies have also instituted similar requirements. It’s so-called hybrid work, but this is something to forestall a doom loop.

As part of his Downtown Activation Plan, Mayor Bruce Harrell announced that design review requirements for some developments, such as research and development labs, hotels, and residential buildings will be suspended. The aim is to hurry along these projects.

Still, it’s a long road back and will depend on continued engagement by the city with major employers and on public safety.

My condo tower sits between two Selig buildings: the “Darth Vader” building on Fourth Avenue and the new Modern apartments at Third Avenue and Lenora Street — which was intended as a mixed-use tower including the coworking company WeWork.

Martin Selig has seen good and bad times in Seattle commercial real estate. But this is the greatest challenge that he, and the city, has ever faced.

The “next Detroit”? We can only hope.