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Seattle Construction on A Rabid Pace

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By Neil Gonzales

Steve Kelly, who is paid to know all about the construction industry in Puget Sound, doesn’t need to go far from his office to see firsthand how busy that sector is.

“You can walk 50 yards from here and see two new condos going up, and next door is a site for a new hotel development,” said Kelly, who works in downtown Seattle as an associate principal for independent global property and construction consultant Rider Levett Bucknall. “I feel the construction activity here quite keenly.”

Real estate development is booming in the Puget Sound region, while residential projects represent approximately 50 percent of the tower cranes in Seattle

While the industry in much of the rest of the country is trudging along, Seattle is among just a handful of markets that are on fire. Fueled by a technology boom similar to that in places such as San Francisco and Silicon Valley but offering an affordability not seen in those markets, Seattle is experiencing a rabid pace of building in office, residential and other spaces.

“Real estate development is booming in the Puget Sound region, while residential projects represent approximately 50 percent of the tower cranes in Seattle,” RLB said in a report released in January that tracked the number of construction hoists in major cities nationwide.

“Large office complex projects also represent a portion of the total cranes with some sites having multiple cranes,” the report said. “The expectation is that the number of tower cranes will continue to increase in Seattle over the next year as new projects have already broken ground or have received permits.”

Job creation—particularly from the tech arena—is fueling this building boom, said Chris Toher, the Seattle-based executive vice president and general manager for construction services company Skanska USA.

Long-established Seattle-area companies such as e-commerce giant Amazon.com and aircraft manufacturer Boeing, plus outside players like California-based advanced-rocket maker SpaceX that want to have a presence in Puget Sound, are generating plenty of employment opportunities, Toher said.

“Companies are capitalizing on the talent pool residing in Seattle,” he added.

And much of that talent is migrating from high-expense areas such as the San Francisco-Silicon Valley region, Kelly said. “To them, it’s more affordable here.”

According to a Puget Sound office market report by real estate services firm Colliers International, the region recorded 395,622 square feet of positive net absorption through the first quarter of 2015—which drove the vacancy rate down by 40 basis points to 9.8 percent.

The under-construction pipeline saw an increase—to 8.2 million square feet—with 58 percent of the space in those projects pre-leased, according to the Colliers report.

“The market continues to be dominated by the technology industry, which accounts for 90 percent of pre-leases and more than 60 percent of tenants currently in the market,” Colliers said. “Technology companies—including Amazon, Dropbox, Facebook, HBO, PayScale and Porch—were amongst the notable leases signed this [first] quarter in Seattle, and Google is expanding its Kirkland campus by 180,000 square feet in [the second quarter of] 2015.”

Meanwhile, the area’s strong residential growth is expected to taper off this year only to be replaced by robust hospitality development, RLB said.

All the increased construction activity, though, is leading to a shortage of highly skilled labor from various trades as most of those workers are on a job already.

“Elevator contractors are at capacity, and those in glass and glazing are over capacity,” Toher said. “Most of the trades are starting to show stress.”

Industry observers note that the construction surge is also contributing to rising costs in labor and materials as demand for various types of space continues to pick up and bid prices escalate, among other factors.

Expenses rose close to 6 percent in Seattle over the past year ending in April—compared to San Francisco’s nearly 8 percent and just below 5 percent for New York, according to RLB’s second quarter 2015 report on U.S. construction costs.

In contrast to hot markets such as Seattle, RLB said, the industry nationwide showed “no signs of momentum. Construction put-in-place saw a paltry 1.7 percent increase over the June 2014 figures while the construction unemployment rate went up over the same period.”

The momentum seems to be just revving up in Seattle, though. “I’m fairly confident the construction outlook here will be very positive for the next four years,” Toher said.

“I’m not seeing any slowdown anytime soon,” Kelly added. “You can’t look around without seeing a crane doing something. We’ll continue to prosper here and continue to be a busy market.”