America’s second-largest tech hub is already struggling to recover from the pandemic-era hollowing out of downtown.
(Bloomberg) — Job cuts at Amazon.com Inc. and Microsoft Corp. are the latest blow for the Seattle region, which is still struggling to recover from a pandemic-era decimation of the commuter economy that, as in many cities, is the lifeblood of America’s second-largest tech hub.
The number of jobs lost—at least 28,000 globally between the two companies—may seem minor for a region that employs more than 2.1 million. But it’s a psychological blow that will make investors hesitant to start new projects and businesses even more reluctant to re-open or expand.
Before the pandemic, cranes building new office towers dotted the skyline, and Seattle’s biggest problem was finding enough room for all the tech industry transplants. The city consistently ranked among the fastest-growing in the country, adding more than 128,000 people from 2010 to 2020. Now a growing glut of empty office space downtown suggests things will likely get worse before they get better.
In a potentially ominous sign, Amazon plans to vacate a 28-story office tower on 8th Avenue when the lease expires in April and relocate 2,000 employees. The company said the job cuts haven’t affected its real estate decisions and that it’s cutting space because more people are working remotely.
“This downturn in tech is going to be devastating for Washington, and the long-term effects will be quite profound,” said Jeff Shulman, a marketing professor at the University of Washington. “Tech companies have fueled so much growth and change that when they tap on the brakes and go in reverse, it puts everything else in peril.”
After 2010, Amazon singlehandedly transformed Seattle’s South Lake Union neighborhood from a hodgepodge of warehouses and garages into a ritzy district of bars, burger shops, apartments and salons. The company quickly filled the available space and marched closer to downtown with new office towers and an architectural statement: biospheres that resemble massive Christmas baubles, filled with plants and trees where employees can relax.
The campus was central to Amazon’s recruitment of young techies seeking an urban lifestyle. And recruit Amazon did. Since 2010, the company’s Seattle headcount has grown 10-fold to top 50,000, generating economic growth but also pushing up home and rent prices. Meta Platforms Inc., Alphabet Inc. and Salesforce Inc., eager to poach Amazon employees, set up shops nearby.
For its part, Microsoft built a suburban enclave in Redmond and gradually spilled into adjacent Bellevue, so its retrenching presents less of a blow for the region’s urban core. Bellevue, once home to strip malls and a couple of modest office buildings, has been refashioned into an outpost for tech giants, anchored by Microsoft, which swooped in during the 2000s to lease a handful of huge office buildings, including some at the core of a growing downtown.
Amazon’s Seattle campus is a quieter place these days, with echoes of a similarly afflicted San Francisco. Sidewalks and restaurants are empty. Earlier this week a black spaniel played alone in an Amazon dog park that once bustled with pups. The first Amazon Go, a cashier-less store that opened in 2018 with lines stretching up the block, is now resorting to tired convenience-store marketing tactics, including 79-cent sodas and $1 coffee Mondays.
Even before starting to lay off workers late last year, Amazon throttled back some construction, the Seattle Times reported at the time, citing uncertain office demand amid the pandemic’s shift to hybrid work. Microsoft has said it will let some major leases lapse in the coming years, while Meta is seeking to sublease an office building, the newspaper reported.
That’s a big problem for the urban core. Worker foot traffic slowly resumed in 2022, but remains less than half pre-pandemic levels, according to the Downtown Seattle Association, which represents 1,700 businesses, nonprofits and residents.
The association estimates that Seattle’s core is about half office space, making it less exposed to remote work than cities like San Francisco and Boston that have a larger concentration of offices. But reviving local businesses will still require persuading more people to resume commuting, said Jon Scholes, the association’s president and chief executive officer. He’s hopeful companies recognize the importance of bringing workers to the office.
“We’re in a period of a lot of reevaluation, and companies are changing their tunes on remote work,” Scholes said. “There’s sort of a standoff and stare-down, where employees are saying ‘I’m not coming back in at all because I don’t want to go back to the way it was.’”
Meanwhile, Seattle landlords are watching vacancies mount. Leases of new office space in the region were down by more than one-third from pre-pandemic levels. And the share of offices available to rent rose to 22.3% at the end of last year, nearly double what they were at the end of 2019, according to a report by office real estate broker Savills.
The industry’s presumption is that, with fewer people trekking into the city each weekday, companies will need a lot less space. For Amazon, that change would be sufficient to empty entire buildings, a process that will play out over the next several years as leases expire.
Even before the pandemic, Amazon was looking beyond Seattle to grow, partly due to rocky relations with the city and partly to make it easier to recruit. The company expanded into Bellevue, built satellite office hubs in cities like Austin, New York and Boston and picked Arlington, Virginia, for its second headquarters following a much-hyped bakeoff that pitted cities against one another.
For now, Seattle’s best hope for displaced workers and office brokers could be startups, including many launched by entrepreneurs who previously worked at Amazon and Microsoft.
“We haven’t seen a slowdown in the rate at which startups are forming and hiring,” said S. Somasegar, managing director at Madrona, a Seattle venture capital firm. “It’s going to be a tough year, but hopefully we start to see things bounce back in 2024 or 2025.”
–With assistance from Natalie Wong and Dina Bass.
(Updated with Amazon comment in the third paragraph. A previous version of this story corrected the name spelling of the professor in the fourth paragraph.)
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