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Originally published August 17, 2013 at 8:05 PM | Page modified August 23, 2013 at 7:08 PM

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Corrected version

Filling downtown Seattle skyscrapers a tall order

After a 20-year hiatus, developers plan three new major office towers in Seattle’s central business district. But traditional tenants aren’t expanding as rapidly and there’s still plenty of vacant floors in landmarks like the Columbia Center.

Seattle Times business reporter

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From his office in Seattle’s Columbia Center, Todd Summerfelt can see through nearby skyscrapers. Many of their floors are empty.

As chief operating officer for Carney Badley Spellman, Summerfelt is exploring whether the law firm should stay or move to a nearby tower when its lease expires in 2016.

He won’t be looking for the most prestigious address or the best view — “it’s going to be where we perceive the best value.”

Like the law firm, many traditional downtown tenants are getting by with less space due to technology and slower growth, while the tech firms that have driven Seattle’s office boom haven’t shown much affinity for the central business district.

There’s the rub for developers who plan to build the first new office towers in Seattle’s central business district in about a decade. At least one expects to break ground by the end of the year without a major office tenant, while two others are still fishing for financial commitments to move forward.

New skyscrapers will have to justify their higher rents with smart design, super-efficient floors and killer amenities, experts say, because of abundant space in the business district.

The district has more than 2.8 million square feet of vacant office space, according to OfficeSpace.com’s latest data. In the area where developers want to erect new towers, almost 30 percent of Columbia Center is vacant; at the Wells Fargo Center, 1201 Third Ave. and 901 Fifth Ave. towers, vacancy ranges between 17 and 25 percent, far above the 13 percent vacancy rate for the broader downtown Seattle market.

“Those buildings need to fill up or stabilize before new product can break ground,” said Jesse Ottele, senior vice president at CBRE.

Developers are betting on a tighter market by 2016. They’re also betting on long-term demand for corporate headquarters and regional offices.

According to commercial real-estate brokerage Jones Lang LaSalle, there were more than 175 companies in the Seattle and Bellevue markets looking for as much as 4.3 million square feet of office space.

Tech firms are high on the list of sought-after tenants, given their heavyweight presence in the Seattle area. But these firms haven’t been attracted to downtown’s towers — with some notable exceptions.

Amazon.com, for example, has signed leases for more than 2.5 million square feet to keep up with its red-hot growth. The company also owns its 1.7 million square-foot South Lake Union campus and has begun construction on one of three planned high-rise towers in Denny Triangle.

Zillow, the online real-estate marketplace, occupies more than 87,000 square feet on four floors in Russell Investments Center and plans to add two more.

It’s not yet clear that other big tech firms will beat a path to downtown Seattle, though.

“Tech tenants tend to avoid downtown buildings that are too corporate,” said Chad Yoshinobu, regional design director of Gensler, a global design firm. “They like weird buildings.”

‘Quality sells’

Developer Kevin Daniels, who plans to break ground on the 43-story Fifth & Columbia in November, says his hotel and office tower will differentiate itself from the commodity high-rise spaces downtown.

“Most of them are cookie-cutters or just plain ugly,” Daniels said in an interview earlier this year. “Even in tough times, quality sells.”

The angular $400 million glass-and-steel tower will cantilever out above the other two buildings on the block, a 1908 domed church and the 1904 Rainier Club. The building’s exterior, with 16 facets, is designed to be distinctive but also functional, letting in as much daylight as possible.

The tower at 811 Fifth Ave. would deliver 760,000 square feet, 70 percent of it office space, to the market in 2016. SBE Entertainment Group will operate a 184-room luxury hotel on floors 2 through 15.

If Daniels follows through, it will be the tallest tower to break ground in downtown Seattle in 20 years.

Meanwhile, Schnitzer West has permits in hand to begin construction on Madison Centre, a 37-story tower at 505 Madison, with the intent of completing it in 2016.

The developer doesn’t plan to break ground until 50 percent of the office space — nearly 750,000 square feet — is pre-leased, said Steve Cook, Schnitzer West’s senior investment manager.

Madison Centre’s defining architectural feature will be a three-story glass rotunda, complete with fireplaces and a “living wall” carpeted by plants. The property will offer tenants large floor plates to allow a higher density of workers, energy-saving building systems and amenities like a gym, wireless connectivity and “quiet rooms” to unplug from it all.

“We feel we have a premium product that will help tenants conduct their business more efficiently and attract and retain the best talent,” Cook said.

A third skyscraper, the 43-story Civic Square, would occupy a full city block bounded by Cherry and James streets and Third and Fourth avenues. The tower would add 600,000 square feet of office, 40,000 square feet of retail and 190,000 square feet of residential space.

Seattle-based Triad Development, run by local developers John Goodman and Fred Grimm, has an agreement with the City of Seattle to develop the tower on the site of a former municipal building.

Triad received city approval for the tower in 2011 and faces a $2 million penalty if it doesn’t have the project financed and a construction permit by January 2016, said Brett Allen, Triad’s senior vice president.

If Civic Square can be built for about $325 million, as Allen thinks it can, that would work out to about $392 a square foot. In May, the Wells Fargo Center sold for $389.9 million, or $397 a square foot.

“We’re seeing buildings selling above replacement value,” Allen said. “That’s a signal to banks that lending on new development isn’t as risky as it has been in the last five to six years.”

If Seattle towers keep fetching high prices and rents for premium office space keep rising, that would kick-start a lending market that froze during the Great Recession.

“All the stars have to line up,” Allen said. “But we’re seeing them get a whole lot closer.”

Steve Schwartz, managing director at Jones Lang LaSalle, said he thinks there’s definitely room in the downtown core for one new skyscraper.

“Today’s buildings are more efficient and designed with better infrastructure,” he said. “There will be a significant price spread, but it’ll still be attractive to a segment of the market.”

Challenge to fill

Developers will have to be creative to fill up their skyscrapers: Across the nation, downtown mainstays like banks, law firms and consulting firms aren’t growing like they used to.

At the law firm where Summerfelt works, for example, digital media is shrinking the space required for file rooms and a law library. More attorneys are trading private offices for shared space.

And until recently, the tech companies that provide much of this region’s employment growth eschewed downtown high-rises for brick-and-beam lofts in nearby neighborhoods or suburban office parks.

After touring other buildings, Redfin, a Seattle-based online real-estate brokerage, chose to stay put at the 13-story Market Place Tower near Pike Place Market and took over another floor once occupied by a law firm.

Big Fish Games decided to expand within the five-story Elliott Avenue West building it leases on Lower Queen Anne. A high-rise space downtown wasn’t attractive, said Evan Cottingham, its global real estate and facilities director.

Being in a giant building with other companies “of which you’re a little piece, was not a direction Big Fish wanted to go because it didn’t give us a sense of self,” he said.

Yoshinobu, the design director at Gensler’s Seattle office, says the typical tech firm finds it more attractive and sustainable to reuse existing space that is “hackable,” especially older low- and mid-rise buildings with big floors, character and high ceilings.

“It’s about being together, not being pancaked in a high-rise,” Yoshinobu said.

But Matt Christian, executive director of Cushman & Wakefield/Commerce, says that in markets across the nation, tech companies are moving downtown because of the easy access to transportation hubs and amenities.

Just look at what’s happened in downtown Bellevue. Several tech companies in the past year have left Redmond for downtown Bellevue, Schwartz says:

Concur Technologies, a travel expense software company, moved into the 22-story Key Center. Online auction site eBay leased the 21-story One Bellevue Center. And Apptio, which helps companies manage technology costs, is at the nine-story Plaza East.

Paul Sweeney, a broker at the Broderick Group, also notes that Microsoft occupies the three newest high-rises in downtown Bellevue — Lincoln Square, Bravern and City Center Plaza, and that Expedia has taken over a fourth high-rise on 108th Avenue Northeast.

“The tech tenants are competing for high-paid employees,” Sweeney said. “They want to offer them something more than suburban space. They want amenities, parking, retail, 24-hour nightlife.”

Tech shift

In Seattle’s central business district, Zillow, Walt Disney Co.’s technology operations and, most recently, NBC News Digital, are among the few well-known tech tenants.

Indeed, when they get big enough, even former tech startups seem to find big towers appealing.

Zillow, with about 500 employees in its downtown office, chose to be headquartered at the 42-story Russell Investments Center.

To improve the flow within its headquarters, the company built out internal staircases between its floors in the tower. In addition to easy access to public transit, restaurants and retail, the skyscraper offers Zillow’s employees amazing views along with a 17th-floor roof deck, said chief marketing officer Amy Bohutinsky.

“We think this can be a huge plus when hiring,” she said.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com On Twitter @sbhatt

Information in this article, originally published Aug. 18, 2013, was corrected Aug. 19, 2013. A previous version of this story incorrectly stated that developers plan to build the first new office towers in Seattle’s central business district in 20 years. There were two built more recently: The Russell Investments Center, built for Washington Mutual in 2006, and the Fourth & Madison building, completed in 2002. The story also should have said Kevin Daniels’ planned tower at 811 5th Avenue would be the tallest tower built in two decades, not the largest; the Russell building is larger.

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