5. Retail Leakage and Demand Analysis

This analysis summarizes information on retail demand within the Northeast Pioneer Square area by examining consumer expenditures, overall retail supply, and retail sales which are key metrics that provide insights into the existing and future retail performance by retail store category. ECONorthwest also complied covered employment data from PSRC to estimate worker demand for retail.

Understanding that remote work will continue to influence how many employees are back in the office, ECONorthwest developed a retail demand model that considers resident spending and worker spending. Different return to work scenarios were modeled to show the retail demand of workers based on the assumptions that not all employees will return to the office. These scenarios assume that 30, 50, and 70 percent of all workers in the market area will return to the office. Nearby employees represent the largest segment of demand for retail and services in the Northeast Pioneer Square area and the near-term future of retail opportunities in the area will be influenced by employees returning to in-person work.

Exhibit 20 below shows that the vast majority of potential retail demand comes from employees and that food and beverage retailers and restaurants are in the highest demand in the Northeast Pioneer Square area. If 70 percent of employees returned to the area, as much as $57 million in food and beverage products could be demanded in the Northeast Pioneer Square area. Under existing return to office trends, less than $30 million in food and beverage products is likely demanded.

Exhibit 20. Total Worker and Resident Demand, Northeast Pioneer Square, 2022

Source: ECONorthwest Analysis of Claritas, PSRC, and ESRI Business Analyst data

However, encouraging workers to return to the office is not the only way to increase retail demand in Northeast Pioneer Square. Investing in housing in the area will both increase retail demand and build community resiliency.

Exhibit 21 below shows the potential new resident demand that could arise from adding 964 new household units in the Secondary Market Area if the proposed 4th and Columbia mixeduse tower is built 4. These new households could contribute to a 122 percent increase in residential retail demand in Northeast Pioneer Square, assuming their spending habits are the same as current residents.

Exhibit 21. Current and Potential Resident Demand, Northeast Pioneer Square, 2022

Source: ECONorthwest Analysis of Claritas, PSRC, and ESRI Business Analyst data

Retail Leakage and Demand

Demand for retail in the Northeast Pioneer Square area is measured through consumer expenditures Typically, workers spend around 5 to 10 percent of their disposable income near their places of work (lower-income workers spend a higher proportion of this income). Examining consumer expenditures can provide insights into the demand for retail store types.

Exhibit 22 below shows that, under current conditions (Low (30%) scenario), there is a surplus of retail supply across all categories, meaning additional retail services are not demanded in the area. However, this surplus decreases in scenarios with higher shares of workers returning to in-person work. This analysis indicates that retail demand and retail market potential in the Northeast Pioneer Square area is extremely sensitive to what future employment looks like because employees represent such a large segment of overall demand.

Only in the high return to work scenario (70 percent of pre-pandemic employees returning to work) is there additional demand for more food and beverage services to help support streetlevel activation.

4 https://www.crescentheights.com/portfolio/4th-columbia

Beyond a return to in-person work, adding housing and attracting new residents to the area is another way to generate additional retail demand. Under a hypothetical housing scenario where 50 percent of workers return to in-person work and 964 new households are generated in the area, retail gaps emerge across nearly all spending categories. The greatest gap is projected to be in clothing and clothing accessories stores with over $15.9 million in potential unmet demand.

Conversely, if current remote work and hybrid work trends continue at current observed rates with around 30 percent of employees back in-person and no new housing is developed, it is likely that existing businesses in the Northeast Pioneer Square area will continue to face headwinds related to a lack of nearby employees and residents to support existing businesses.

Exhibit 22. Retail Gap/Surplus Analysis, Northeast Pioneer Square, 2022

Source: ECONorthwest Analysis of Claritas and PSRC data

Retail Market Potential

The retail leakage analysis indicates what could be demanded for additional retail store categories in the Northeast Pioneer Square area if the number of in-person employees in the area increased and new residents were attracted to the area. For workers, retail demand is predominantly for food and beverage services while new potential residents are more likely to demand clothing, accessories, and home goods as well as nearby eating and drinking restaurants.

We have also heard consistently through conversations with stakeholders that much of the existing and vacant retail space available in the Northeast Pioneer Square area is not suited to demand from target users without expensive tenant improvements. The primary demand for businesses in the Northeast Pioneer Square area is smaller format food service and personal service businesses that are looking for less than 2,000 square feet and oftentimes less than 1,000 square feet.

Where demand does exist for missing business types in the Northeast Pioneer Square area, there is not readily leasable space for those businesses. The existing retail inventory in the area tends to be larger format that requires substantial investments to partition into smaller spaces, which also often triggers additional building improvements. Additionally, many existing vacant retail spaces would require a change of use or substantial building system improvements that are major cost and process barriers for small businesses to undertake as tenant improvements. If more retail supply was available in the Northeast Pioneer Square area, either through improvements to existing retail space or through new inventory, that was better suited for the needs of small businesses, it is likely that the neighborhood would see more businesses that meet the needs of residents and workers in the area.

Much of the food and personal services that have historically located in and around the Northeast Pioneer Square area are internally focused within larger office buildings and take the form of food court type quick service restaurants, employee-serving delis, or personal services not easily accessible to non-office workers. Given post-pandemic trends, it is timely to think about how retail and services can be more externally facing to serve both workers and residents from other parts of the area, especially as workers in office buildings continue to work from home.

Stakeholder Perspectives on Pioneer Square

To gain perspective on ground floor retail trends and the effect that remote work caused by the COVID-19 pandemic has had on businesses in the Northeast Pioneer Square area, ECONorthwest staff hosted a workshop with a set of stakeholders, including property and business owners, brokers, and property managers. The following section summarizes common themes discussed by multiple stakeholders.

Stakeholder Interviews Summary Themes

 Encouraging King County and the City of Seattle employees to return to the office or the area for recreational purposes will help support a thriving retail environment. King County and City of Seattle are major employers in the area and its employees help support the local businesses in the area by shopping for lunch and other goods and services.

 The concentration of social service providers in the area provides challenges for ground floor retailers.

 Large retail spaces greater than 1,500 square feet in size are challenging to lease up in Northeast Pioneer Square due to businesses requiring smaller spaces.

 A substantial number of ground floor retail spaces in Northeast Pioneer Square are large, deep, and narrow with little to no opportunities for subdividing these spaces.

 Stakeholders have expressed interest in changing the use of ground floor retail spaces, but the costs and required seismic upgrades to the building that are triggered with this action are cost prohibitive.

 Public safety issues in the area have hindered return to the office. Some stakeholders expressed that the safety of their employees is a concern in returning to the area.

6. Recommendations

Based on the analysis in this report and conversations with stakeholders, ECONorthwest developed a set of strategies to help support ground floor retail in the Northeast Pioneer Square area.

 Diversify the Mix of Uses in and Around Northeast Pioneer Square. The near single-use function of the area as an employment center has resulted in impacts to district resiliency in response to the pandemic. The Alliance should continue to work with City agency partners and district stakeholders to support a more balanced mix of uses in the district with an emphasis on creating more workforce and market rate housing in the area.

 Add Market-rate Housing to Support Neighborhood Resiliency. A more diverse mix of housing will support a more resilient neighborhood economy. The chief recommendation from a 2022 report produced for the Alliance by MIG 5 was that Pioneer Square lacked both workforce and market rate housing. Adding more housing at a range of affordability levels will attract more residents to the area and help to stabilize it in the wake of the pandemic and the remote work era. The addition of new household units will also help with replacing some of the worker demand for retail. 5

 Leverage the Area’s Rich Arts and Culture Scene with Complimentary Uses. Capitalizing on the area’s active arts and culture scene with public art installations, gallery showings, and other outdoor art events will not only support the arts community but will also help to draw in visitors and increase their dwell time. Recognizing Pioneer Square’s arts and cultural assets and the marketing of them is an important element of economic development that can help create resiliency across the Northeast Pioneer Square District. Arts and cultural exhibits alone cannot change the retail dynamics of an area. Marketing of these assets and continued programming of complimentary uses are needed to boost visitors and attraction to the area year-round.

 Support Ground Floor Activation in Large Redevelopment Projects. Our analysis indicates there are a few challenges for retail and service uses in the area, including public safety concerns and reductions in foot traffic from employees. Another major challenge is that many food service and personal services establishments have tended to be internal-facing within larger office buildings. A post-pandemic retail environment in the Northeast Pioneer Square area is likely to need more flexibility to attract patronage from more segments of demand and will need to be more externally facing to residents and visitors who come to, or pass through, the area. There is an opportunity for smaller format street facing retail to meet space needs for target business and to advance goals for a more vibrant public realm in the area.

 Activate Empty Storefronts. Long term retail vacancies often require organization and active marketing efforts to advertise spaces within an area. Activating these spaces often needs creative solutions like the resources that Seattle Restored offers. Other similar programs like PopUp Denver offer financial support and a package of resources for small businesses to set up shop. This program offers financial support to small businesses and entrepreneurs to set up shop in empty storefronts in an area of the city that is struggling to recover from the pandemic and provides interior design, streamlined permitting, setup and merchandising support. Given post COVID-19 market trends, property owners may need to lower their asking rents and shorten lease terms to fill their vacant spaces. In return, active storefronts will likely lead to a reduction in crime and more pedestrian activity.

 Support Employees Returning to In-Person Work. The current reduction of inperson employees in response to post-pandemic remote work and hybrid work trends has removed a large segment of demand for business. Some of the largest employers in the area are government employees and the Alliance and stakeholders should continue to collaborate with City and County leadership to support programming and activities that can help incent and support workers returning to the area consistent with City and County policies.