Technology companies from California continue to set up shop in Seattle to take advantage of the comparatively lower cost of living and the depth of engineering talent in the area….
Technology tenants are driving the Seattle/Puget Sound office market, with a helping hand from this Silicon Valley migration. There are over 80 out-of-town technology companies with engineering offices in Seattle, according to GeekWire. A majority of these companies call the Bay Area home.
Pinterest, valued at $11 billion, is just the latest example of the northward trek of tech companies. With more than 100 million active monthly users and 800 employees worldwide, the social media site will ramp up Seattle operations as other tech transplants have. It opened an office in downtown Seattle at the Westlake Tower WeWork space this August. Plans are to outgrow the coworking space, expand headcount to 30, and open a permanent office.
Companies in the competitive world of high-tech are looking to poach veteran talent from stalwarts such as Microsoft and Amazon (who combined occupy 20 million square feet in the Seattle region). San Francisco-based companies are being priced out of an extremely pricey office market and are looking to Seattle as a more cost-effective option. Rents on the San Francisco peninsula are so expensive, it recently passed Manhattan for the most expensive office market in the country.
The West Coast tech migration is not a one-way street though. Amazon’s video game streaming site, Twitch, signed a lease for 185,000 square feet in early August at an under construction tower in San Francisco. However, Twitch’s starting rent of $62 per square foot per year plus operating expenses is almost twice that of what some tenants are paying for new construction in the downtowns of Seattle and Bellevue.
Here are 20 significant California-based companies with engineering offices in the Seattle area:
Google calls the Puget Sound its home away from home. The search giant is currently on track to occupy roughly 1 million square feet of office by 2019, far and away from the small offices it occupied in Seattle and Kirkland in the mid-2000s. The Mountain View-based company made a monumental move earlier this year, when it announced it was leasing all 600,000 square feet of office at Vulcan Real Estate’s newest South Lake Union project, Lakefront Blocks. Plans are to move employees over from Fremont to the new buildings in early 2019. On the Eastside, Google has been expanding its campus in Kirkland. SRM Development expanded the campus with another 180,000 square foot office building earlier this year, adding to its existing 200,000 square feet. Google also has a 60,000 square foot office up north in Bothell. There are now over 2,000 Google employees working in Seattle and Kirkland.
Facebook came to Seattle in 2010. Initially opening a small office near Pike Place Market, the standard bearer for social media expanded from 2 employees back then, to over 1,000 today. The company was growing so fast in 2015 in its Met Park office along I-5, it had to lease an entire new building near Amazon, more than quadrupling its leased space in Seattle. The company has already hinted that they will likely need more large blocks of space in the future in Seattle. Jay Parikh, VP of Engineering, clarified the differences between Washington’s and California’s tech climates. “We’ve been growing very aggressively here,” Parikh said to GeekWire, pointing out that the market for talent here is competitive, but not quite as competitive as Silicon Valley. Facebook is accelerating Seattle operations at an astronomical rate. Its virtual reality company, Oculus VR, is also expanding, in Seattle and Redmond, surpassing 100 employees in early 2015. But things are still full speed ahead in the Bay Area. The company is already planning a 962,000 square foot office development in Menlo Park to house an additional 6,550 employees, more than doubling its current 6,000 employees in the city. Sources are also suggesting that the social media behemoth is considering an expansion into San Francisco, possibly leasing hundreds of thousands of square feet in the tech-centric SoMa neighborhood.
Even though Salesforce would miss out on acquiring social networking site, LinkedIn, that did not stop the San Francisco-based company from landing the first big deal in downtown Bellevue during this construction cycle. The cloud-computing firm entered the Seattle market in 2011, leasing half a floor at West 8th, a Class A tower Amazon leases near its campus. Rapid growth demanded the company expand to a full floor. Then, Salesforce signed a lease for 85,000 square feet at the brand new 929 Office Tower in Bellevue, developed by Trammel Crow. Plans are to move Seattle employees to Bellevue this fall.
Oracle’s cloud division has been expanding its operations in Seattle since arriving in 2014. Larry Ellison’s Redwood City-based company is in a fierce competition with Amazon and Microsoft right now as it struggles to keep up with the revenue growth posted by Amazon Web Services and Microsoft Azure. Oracle still claims to be the king of databases, but the way things are going, the two Seattle-area companies could continue gobbling away market share. There are already over 900 Oracle employees in Seattle and Bellevue. The company occupies a Colliers International listing in downtown Seattle, Century Square, where it is growing rapidly, as well as a floor at One Bellevue Center. Seattle, Washington has become the front line in the epic cloud war currently underway up and down the West Coast.
DocuSign is located and growing in another downtown Seattle Colliers listing, 999 Third. Though the electronic signature company was originally founded in Seattle, it has since moved its corporate headquarters to San Francisco, though would always retain a sizable Seattle presence. Its first significant downtown Seattle office was in The Columbia Center. It would soon grow out of there and move to Russell Investments Center, the tower Zillow now calls its headquarters. By the end of 2015, it would outgrow its 88,000 square feet of occupied space, signing a lease for 118,000 square feet at 999 Third. The trajectory of this company suggests more growth to come.
The trend of technology companies from California opening up engineering offices in Seattle shows few signs of slowing down. In addition to locals Amazon, Microsoft, Redfin, Zillow, Tableau, and Avvo, Bay Area tech firms keep coming back for more. Rumors are circulating around the real estate community about Apple being close to completing a deal in Bellevue. The Cupertino-based company would lease all of Centre 425, a 350,000 square foot tower under construction in downtown Bellevue, developed by Schnitzer West. Others have suggested the secret tenant could be Amazon, the first time the e-commerce company would open up a local office outside the city of Seattle. This would be a big boost for downtown Bellevue, a submarket some investors have been scared away from, especially after the news broke that Expedia will be moving to Seattle’s waterfront by 2020. At the end of the day, downtown Bellevue is a world-class technology hub, with over 25,000 technology workers, and it will likely lure another big-time tenant in the near future.
Looking at the largest office deals over the last seven-plus years, it is clear that tech tenants are driving the market, bringing the region to a low vacancy of 8.7 percent in Q2 2016. As a percentage of leases signed over 50,000 square feet during 2009, tech tenants only made up 30 percent of deals. Flash forward to the first half of 2016 and already over 80 percent of the leases signed so far have gone to technology companies. Some wonder if the region is too reliant on tech firms for growth, however, companies like Amazon and Microsoft have been around since the dot-com bubble, and will continue to be the anchors to a well-diversified regional economy.
It simply makes sense for tech companies to take advantage of what the Seattle-Bellevue area has to offer. Talent has been pouring out of Redmond-based Microsoft since the mid-1970s, leading to a flurry of former employees starting their own businesses, including the Bellevue/Seattle-based Expedia, founded by former Microsoft executive Richard Barton (who also happened to found a little company called Zillow). The same pattern is now playing out at Amazon, as Jet.com, Pro.com, and Flipkart were all founded by former Amazonians.
CEOs seem to be the only ones who can afford to live in The City by the Bay. Home values in San Francisco are more than double Seattle and Bellevue. San Jose is almost as bad at almost double Seattle-area home values. Apartment rents are no better. In 2015, rents rose fastest in Portland (over 16 percent), San Francisco (13 percent), and Denver (12 percent), according to Pierce-Eislen. This is significant for Seattle, competing with these other tech hubs, but The Emerald City was right behind at almost 10 percent annual growth. Decision makers will take every aspect into consideration when looking for a new tech office to open up or where to target further growth – from office rents to tech talent to apartment rents.
The California companies flooding the Seattle market and subsequently expanding is great for King County’s economy. And, this stream of new workers and companies could only accelerate if current trends in California continue. According to a report from Spectrum Location Solutions, about 10,000 companies over the last eight years have left the state or shifted operations out of the state to reduce costs. The report notes that California does not offer incentives to lure businesses and the business environment will be worsened further if new taxes are imposed on businesses in 2016 and 2017.
If the Apple / Amazon deal gets done in downtown Bellevue, it will be only the latest in a string of Silicon Valley (or Seattle) companies doubling down on their future in the Seattle market. Apple’s recent acquisition of AI startup, Turi, signals that the iPhone maker could be ready to plant a flag in Seattle. Video game maker, Valve already made the biggest splash in Bellevue this year, leasing 225,000 square feet at Kemper Development’s under construction Lincoln Square II. This deal is just one example of local tech companies growing right alongside its California competitors in the Pacific Northwest.
Tech simply continues its dominance in office leasing. Amazon is on track to occupy almost 12 million square feet of office in downtown Seattle by 2022 and maybe more if it decides to venture into Bellevue. Cloud-based tax company, Avalara inked a deal for 133,000 square feet at the soon-to-be-delivered Hawk Tower in Pioneer Square. Redfin signed a lease for 113,000 square feet at the recently delivered Hill7, just down the street from Amazon’s South Lake Union campus. Zillow is also on a tear, taking up any space it can in Russell Investments Center, as evidenced by its 113,500 square foot expansion signed in late 2014, setting itself up to occupy 268,500 square feet by early 2017.
As Seattle sets itself apart from other tech hubs, companies from California are increasingly drawn to the surplus of tech talent, slightly less competition, and lower office and apartment rents.
Will Seattle become the next San Francisco or Silicon Valley? Or will it set itself apart?
Feel free to reach out to me at email@example.com for more detailed information on California tech tenants in the Seattle area or anything else on the Puget Sound’s office, industrial, retail, and multifamily markets.
The views expressed in this article are mine alone and do not necessarily reflect the views of Colliers International.