Seattle is a good indicator when it comes to the national economy. We're usually the last area to come out of a downturn.
This is an extremely upbeat article.
M
Monday, November 08, 2004, 12:00 A.M. Pacific
Region again hears sound of building boom
By J. Martin McOmber
Seattle Times business reporter
Three years after recession ended the region's unprecedented building boom, commercial construction appears to be roaring back with a ferocity that has surprised even developers, contractors and economists.
In Seattle and Bellevue, new office, retail, medical and condominium projects are either planned or under construction, revitalizing a building industry that just a year ago was hunkered down for a long, slow spell.
All the activity is welcome for an economy trying to recover from a recession that hit this region longer and harder than the rest of the country. Economists watch the industry closely because construction — more so than airplanes or software — tends to mirror the overall health of the economy.
At Seattle's Department of Planning and Development, the value of commercial-construction-permit applications is on pace to hit nearly $1.4 billion this year, a 129 percent increase over 2003.
In Bellevue, the value of commercial-building permits issued this year is on track to grow 40 percent, much of it driven by developers reviving projects mothballed in the worst real-estate downturn in a decade.
Those numbers mean more work on the horizon for the region's major contractors. At McKinstry, which designs and builds plumbing and heating systems for large developments, business is approaching levels last seen during the construction frenzy of the late 1990s.
"In a year, everyone will be slammed," said McKinstry spokesman David Allen, a 27-year veteran of the construction industry. "There will be cranes all over the place.
The jump in commercial-permit applications indicates a growing confidence, said Roberta Pauer, an economist with the state Employment Security Department.
"This isn't a government forecast," she said. "This is private-sector money with their own opinions and assessments saying commercial demand in Seattle is going to be good."
A spike in construction permits is common after a recession as companies dust off postponed additions and developers elbow each other in a rush to build as soon as a major tenant materializes.
"Some of this might be developers getting their projects a little ahead of the curve, and there is not a commitment to build," said Bob McClesky, president of Sellen Construction, one of the region's largest general contractors. "But a lot of folks want to be ready to jump."
Surprise to industry
Ups and downs are common in the industry. But the rapid nature of this recovery has caught most people off guard.
By the end of September, the value of commercial applications had passed $1 billion, according to Seattle's Department of Planning and Development. If it stays on track through the end of the year, the amount could reach the second-highest on record.
The figure is based on the city's estimated cost of construction for new buildings and major renovations and includes office towers, shopping centers, schools, hospitals, warehouses and projects that mix condominiums and commercial elements, such as retail. It does not include other housing or apartment construction.
The value of permit applications peaked in 2001, just as the region's overheated economy started to cool. By 2003, it had plummeted to $611 million, the lowest level in nearly a decade.
Confidence up
"We all went into a deep freeze," said Joe Constance, vice president for development for
RAFN, a construction-management company. "When the economy is heading south and the future is unknown, money gets bottled up. Now there is much more confidence [in the economy], and there is a wave of optimism that is driving these projects."
Seattle has received 2,128 applications for commercial construction and renovation this year. The top five are for projects totaling nearly $400 million in construction spending:
• $160 million for the main phase of Washington Mutual's 42-story headquarters tower.
• $84 million for the exterior and core of Virginia Mason Medical Center's new eight-story tower.
• $74 million for the main phase of Paul Allen's 2200 Westlake hotel, condominium and retail development in the Denny Triangle.
• $50 million in renovations and additions to Roosevelt High School.
• $32 million for excavation and shoring of Hotel 1000, the 24-story hotel and condominium project at the former site of Warshal's Sporting Goods near Pioneer Square.
Bellevue busy
The story is similar in Bellevue, which tracks issued permits but not applications. Construction spending there is projected to grow 40 percent this year to $170 million.
That is still down significantly from a peak of $429.3 million in 1999. But no one in Bellevue is complaining.
• Work has resumed on the city's largest development, Lincoln Square — the retail, office, hotel and condominium project that sat idle for much of the past two years.
• Canadian developer Bentall is adding the upper floors of an office building capped in 2001.
• Developers are looking at completing the ill-fated Bellevue Tech Tower, possibly as a high-rise condominium.
• Wright Runstad and Equity Office Properties have dusted off plans to build the 34-story City Center II office tower.
Other big projects are under way, including the $300 million expansion of Overlake Hospital Medical Center.
The increase in construction has brought jobs.
Nearly 3,000 construction-related jobs have been created this year in the Seattle metro area. That's about a quarter of the 11,000 lost since 2000, when construction spending began to dive.
And the hiring is expected to continue.
Help wanted
Most major contractors say they are adding staff for the first time in years. And companies are lining up to recruit the 100 or so construction-management students expected to graduate this year from the University of Washington.
"We have all of our interview days scheduled from here to December," said John Schaufelberger, chairman of the school's construction-training program. "We have companies coming here who know what they want, and there is clearly a great demand right now."
Bellevue hired 10 temporary employees this year to handle the crush of construction-related paperwork and inspections, said Mike Brennan, the city's deputy director of development services.
More so than in previous years, a wide range of projects is behind this surge in construction, industry leaders say.
Overlake and Virginia Mason are part of an increase in hospital construction around the region as the medical industry gears up for aging baby boomers. School-related construction, including at the University of Washington, remains strong, while biotech buildings in the South Lake Union and Denny Triangle neighborhoods have helped keep construction companies working.
But one area in particular has stood out in recent months: developments that combine housing with commercial uses.
Business has tripled in the past year for Compass Construction Management, which specializes in mixed-use residential building. The company is overseeing condo and retail developments on Queen Anne and Capitol Hill and is a partner on Vulcan's South Lake Union project Alley24, which will include office space for architecture firm NBBJ and contractor Skanska.
"[Mixed use] has just gone nuts," Compass President Ken Coleman said. "There was some indication that things would heat up, but we had no idea that it would be this hot."
Little office construction
What's missing from the turnaround — at least so far — is speculative office construction in Seattle and Bellevue. Although vacancy rates in the cities' downtown cores have improved, rents have not rebounded enough to make construction profitable for more private developers.
There are exceptions, including Washington Mutual's new tower and Alley24. But those are based on a handful of companies willing to pay a premium for the prestige and efficiency of new office space.
At another of the region's largest builders, Turner Construction, business is up 25 percent this year, and the company expects another increase next year.
"The cycles are reasonably predictable," Turner general manager Tom Gerlach said. "Overall, it is at its peak when you have office buildings being built."
Some signs indicate office construction may not be far off. Clise Properties has proposed about 250,000 square feet of office space in a mixed-use condominium tower the company hopes to build next year in the Denny Triangle.
Lincoln Square review
In Bellevue, developer Schnitzer Northwest plans to start work on an office tower next year. And Kemper Freeman, developer of Bellevue Square, says he may consider restarting the mothballed office tower at Lincoln Square before work is finished on the hotel, condominium and retail portion of the project — if demand materializes.
But those projects depend largely on continued growth and job creation in the overall economy. Economist Paul Sommers of Seattle University tempers builders' growing enthusiasm.
"If you look at the long-term forecasts, next year could be the top of the economic cycle," Sommers said. "We are well into a recovery, and it is not the kind of boom we had in the 1990s. There is no reason to expect it will be."
J. Martin McOmber: 206-464-2022 or mmcomber@seattletimes.com
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