Pioneer Square District Market Study

March 2023

Final Report

Prepared for:

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As Seattle’s oldest neighborhood, Pioneer Square is rich in history and amenities. The area is home to a thriving arts, culture, and music scene, and also offers a broad range of social services for communities in need of support. The area boasts entertainment destinations, civic destinations, and major employers that make Pioneer Square a unique place to visit, shop, live, and work.

The COVID-19 pandemic had significant effects on Seattle’s Downtown and the Pioneer Square District, including a decline in foot traffic, an increase in remote and hybrid work, closure of retail and restaurant businesses, changes in consumer behavior, and changes in commute patterns. These disruptions to traditional patterns of work, commerce, and consumer behavior have had a significant and lasting impact on Pioneer Square.

The Alliance for Pioneer Square is taking action responding to the pandemic and making Pioneer Square resilient by advancing economic vitality and supporting new and existing businesses in the area. This is in response to changes in the neighborhood landscape caused by the pandemic.

This market study aims to provide a baseline understanding of current market conditions for commercial and residential real estate, shifts in employment trends, and visitor trends to inform strategic actions that could be implemented to support economic development opportunities in creating a more resilient Pioneer Square District.

Exhibit 1. Pioneer Square District Boundary Source: Alliance for Pioneer Square

Organization of this Report

This report is organized into the following sections:

§ Section 2. Market Analysis. Provides a summary of employment changes and more in-depth analysis of market conditions for commercial and residential real estate.

§ Section 3. Retail Demand Analysis. Summarizes the overall residential and employment demand for retail in Pioneer Square.

§ Section 4. Stakeholder Summary Takeaways. Summarizes key themes heard from conversations with Pioneer Square stakeholders.

§ Section 5. Conclusion and Recommendations. Presents strategies that the Alliance for Pioneer Square and partners could pursue toward supporting economic development and activation in the District.

2. Market Analysis

Employment Trends

According to the Puget Sound Regional Council (PSRC), in 2010, the Pioneer Square District had an estimated 14,729 jobs mostly concentrated in the services and government sectors. In 2022, the District had an estimated 14,612 jobs1 primarily concentrated in the services sector.

Between 2010 and 2022, The Pioneer Square District had relatively stable employment totals but saw a shift in the distribution of employment by industry. Most notably, this shift in employment saw an increase of jobs in the services sector, and a large decrease of employment in the government sector. These major shifts in employment are somewhat related to the COVID-19 pandemic, and other changes in the region.

Employment and Demand for Commercial Space

The services employment is a broad sector that includes a wide range of subindustries; these include healthcare and social assistance services, accommodation and food services, professional and business services, arts, entertainment, and recreation.

When the services employment sector grows, there is typically an increase in demand for commercial space as companies in healthcare and professional services often require office space to operate and have their employees work. Retail and food services fill retail space to support the increase in office-based employees. However, the COVID-19 pandemic has dampened this demand with a higher share of office-based employees working from home, a slow return to the office, and the impact of reduced demand for retail and food services.

Given these trends, it is certain that office vacancies will continue to rise as some current office leases expire through 2025 and employers shift their office needs in an environment where hybrid work is here to stay.

Recent conversations with stakeholders and real estate professionals indicate a shift in the preference of the type of office space that businesses are gravitating toward post-pandemic.

As more companies bring their employees back to work, the demand for highquality office space has become a key priority. Class A office spaces are in the highest demand as businesses want their employees to work in great office spaces with the latest amenities as a way to entice employees to return to the office. This trend is causing class B and C properties to struggle, and landlords may need to consider alternative property uses or make upgrades and renovations to meet the needs of potential tenants. Despite this trend, many Pioneer Square stakeholders anticipate continued demand for cost-conscious office tenants who seek more affordable Class C office space in older buildings in Pioneer Square.

These trends indicate that the Pioneer Square District could take advantage of these changing trends to help accommodate new and returning office tenants to the area as businesses start to get clarity around their office-space needs in a post-pandemic Seattle.

1 Estimate number of jobs based on census tract approximation to Pioneer Square and PSRC data

Exhibit 2. Pioneer Square Employment Estimates by Major Sector, 2010-2022

Source: ECONorthwest estimates derived from PSRC and Washington State Employment Security Department data.

Visitor and Employee Foot Traffic

Before the pandemic, over 200,0002 office workers commuted Downtown daily, resulting in a surge in daytime population that supported local businesses and retailers and creating a vibrant atmosphere that made Downtown feel safe and lively. The slow return to the office and decreased foot traffic in Downtown pose significant challenges to businesses and retailers who rely heavily on office workers as their main customer base.

The Pioneer Square District has acutely felt this problem as employee visits to the neighborhood are only at about 26 percent of what they were in January 2019. This is substantially lower than the 44 percent of workers that have returned to Seattle’s Downtown3 . Getting the City of Seattle and King County employees back to the office is critical for the success of the Pioneer Square District’s recovery.

Seattle’s oldest neighborhood, Pioneer Square District, boasts historic architecture, parks, art galleries, and underground tunnels, attracting visitors from all over the world to explore and shop. Foot traffic data from Placer.ai suggests that visitors have returned to visit Pioneer Square but at lower rates seen prior to the pandemic. However, challenges in attracting and retaining visitors to the area persist due to the closure of businesses and ongoing public safety issues.

The COVID-19 pandemic has brought significant changes to the Pioneer Square District, primarily in the office market which has had ripple effects on retailers, food services, and other businesses that rely on demand from office employees. Faced with a long-term future of hybrid work and uncertainty in what King County will do with its properties4 in Pioneer Square, the district will need to rely heavily on its assets, businesses, and partners to create a resilient district and neighborhood where people can live, play, and work.

2 https://www.commuteseattle.com/resource/2019-center-city-commuter-mode-splitsurvey-results/

3 https://downtownseattle.org/programs-services/research/economic-recovery/

4 https://kingcounty.gov/initiatives/civic-campus-master-plan.aspx

Exhibit 3.Pioneer Square District Visitor and Employee Foot Traffic Indexed to January 2019 Source: Placer.ai

Current Market Conditions for Commercial Real Estate

Office Space Distribution by Class

At the beginning of Q1 of 2023, the Pioneer Square District had a total inventory of approximately 5.5 million square feet of office space, while in the Downtown/DSA Service area, there was 84.6 million square feet. About half of the office space in the Pioneer Square District is classified as Class A, followed by Class B (32%), and C (19%). As the core office district of the region, the Downtown/ DSA Service Area has a higher share of Class A space and a smaller share of Class C office space compared to Pioneer Square. Office inventory in the Pioneer Square District is concentrated among a few large Class A office buildings, while Class B and Class C office space is distributed across multiple smaller buildings (Exhibit 6).

Below is a short summary of the characteristics of each office class type:

Class A: office space is considered the highest quality and typically has the newest, most modern construction and amenities, and is located in the most desirable areas.

Class B: office space is generally considered to be of good quality and in good condition but may be slightly older or not located in the most desirable areas.

Class C: office space is considered the lowest quality, typically older, and may be in need of repairs or upgrades. These spaces are typically located in less desirable areas.

Exhibit 4. Pioneer Square District Distribution of Office Space by Class Source: CoStar

Exhibit 6. Pioneer Square District Inventory of Office Building by Class Source: CoStar

Exhibit 5. Pioneer Square District and Downtown/DSA Service Area Distribution of Office Space by Class Source: CoStar

Office Market Trends

Average Rent Per Square Foot

The average per square foot rent for office space in the Pioneer Square District has increased 52 percent ($11.67) from $22.31 NNN in 2011 up to $33.98 NNN in 2023 Q1. Office rent growth peaked in 2021 in the Pioneer Square District and since then has declined to pre-pandemic rents. The onset of the COVID-19 pandemic has increased remote work and as a result, it has created a volatile environment for the office market. Office rents in the Pioneer Square District have remained competitive and are about 7 percent lower than the Downtown/DSA Service area.

Vacancy Rate

Between 2011 and 2018, the Pioneer Square District experienced declining vacancy rates due to increased demand from tenants and many of the programmatic and placemaking investments advanced by the Alliance. However, since the onset of the COVID-19 pandemic, vacancy rates have spiked across the Pioneer Square District and Downtown/DSA Service area. Vacancies are more pronounced in the Pioneer Square District than in the Downtown/DSA Service area, likely due to the lack of large corporate tenants and less available Class A office space. Given these trends, it is likely office vacancies will continue to rise as long-term leases end in the coming years and employers shift their office needs in an environment where hybrid work is here to stay.

Exhibit 7. Office Rent per Square Foot, Pioneer Square District and Downtown/DSA Service

Source: CoStar

Exhibit 8. Office Vacancy Rate, Pioneer Square District and Downtown/DSA Service

Source: CoStar

Retail Market Trends

Average Rent Per Square Foot

The average per square foot rent for retail space in the Pioneer Square District has increased 66 percent ($7.80) from $11.78 in 2011 up to $19.58 in 2023 Q1. Retail rents began to decrease slightly in 2017 corresponding with a 2017-2019 period that saw slight increases in vacancy rates. Compared to the Downtown/DSA Service area, The Pioneer Square District has experienced higher rent growth in the past decade due to increased demand, shrinking vacancy rates, and programmatic and placemaking investments led by the Alliance. However, retail rents in Pioneer Square are about 31 percent lower than in the Downtown/DSA Service area but that gap is smaller today than it was in 2012.

Vacancy Rate

Given the volatility of the retail market and closure of several businesses in Pioneer Square during the pandemic, vacancy rates according to CoStar have remained somewhat stable. However, on the ground realities paint a different picture. Retail vacancy rates in Pioneer Square are much higher than what data shows with several ground-floor retail stores sitting vacant for years now. One reason why the data is not capturing the entire reality of the retail environment is likely due to the lack of continuous marketing of these retail spaces on the commercial market by property owners.

According to CoStar, as of 2023 Q1, retail vacancy in the Pioneer Square District is 5.5 percent slightly higher than Downtown. Generally, vacancy rates between 5 and 7 percent indicate a well-performing retail market without excessive vacancies but enough slack in inventory to absorb potential tenants and business growth. Given that a large portion of ground-floor retail in the Pioneer Square District caters to office workers, the absence of that worker activity could put ongoing pressures and challenges on these businesses without a consumer substitution from additional residents or visitors.

Exhibit 9. Retail Rent per Square Foot, Pioneer Square District and Downtown/DSA Service Source: CoStar

Exhibit 10. Retail Vacancy Rate, Pioneer Square District and Downtown/DSA Service

Source: CoStar

Current Market Conditions for Multifamily Real Estate

Housing Inventory

According to CoStar, the Pioneer Square District has an inventory of 987 market-rate units across 16 multifamily buildings. A recent housing analysis conducted in March of 2022 by MIG, found that Pioneer Square has a much higher percentage of affordable and subsidized housing than the city as a whole. The high concentration of low-income housing in the area has created challenges for supporting desirable retailers and other uses in the area.

Market-Rate Multifamily Average Rent Per Square Foot

The average per square foot rent for multifamily in the Pioneer Square District has increased 16 percent ($0.43) from $2.61 per square foot in 2011 up to $3.04 in 2023 Q1. Since 2011, Multifamily rents have increased at similar rates for both the Pioneer Square District and the Downtown/DSA Service Area. Multifamily rents have increased around 20% in the Pioneer Square District, compared to the Downtown/DSA Service Area which saw a 24 percent increase in multifamily rents since 2011. In 2023 Q1, average multifamily rents were only 5 percent lower in Pioneer Square than in Downtown/DSA Service. Even in the face of changing tenant preferences in response to the pandemic, average multifamily rents in Pioneer Square have remained relatively stable.

Market-Rate Multifamily Vacancy Rate

Historically, vacancy rates in the Pioneer Square District have remained stable hovering at about 5 percent between 2011 and 2019. The Downtown/DSA Service experienced slightly higher vacancies during this time period. At the onset of the COVID-19 pandemic, vacancies spiked as resident housing location and amenity preferences shifted. Vacancy rates have since declined to 8.4 percent in the Pioneer Square District and are now lower than the vacancy rate in the Downtown/DSA Service area which is around 9.5 percent.

11. Multifamily Rent per Square Foot, Pioneer Square District and Downtown/DSA Service Source: CoStar

Exhibit 12. Multifamily Vacancy Rate, Pioneer Square District and Downtown/DSA Service Source: CoStar

3. Retail Demand Analysis

Retail demand within an area is generally driven by residents, employees, and visitors. Retail preferences for each of these consumer groups vary, however, they typically demand retail goods and services that are accessible to them.

To comprehend the demand for retail in the area, an analysis is performed to obtain insights into consumer spending, the overall supply of retail, and sales figures. These metrics are crucial for gauging the existing and future performance of retail stores across different categories.

This retail demand analysis is conducted for the Pioneer Square District Secondary Trade Area, which is where retail is likely to draw from residential and employee customers.

Below is an overview of the demographics within the Pioneer Square Secondary Trade Area. Population, household, and housing trends are documented to set the context for the retail demand analysis.

Community Snapshot

The Pioneer Square Secondary Trade Area had a population of 5,839 in 2022. The Secondary Trade Area experienced an increase in population from 2010 to 2022 with the addition of 753 new residents. These new residents have increased the area’s population by 15 percent since 2010.

The Secondary Trade Area had 2,566 households, as shown in Exhibit 12. Since 2010, the Secondary Trade Area has added 642 households increa the overall household count by 33 percent.

In 2022, the Secondary Trade Area had 2,979 housing units. Since 2010, the area added 885 housing units an increase of 42 percent. Although the Secondary Trade Area saw an increase in housing units, a 2022 housing analysis study found that there was a concentration of subsidized housing units in the area that has created challenges in creating an urban neighborhood that supports a range of housing types for families, seniors, and young adults.

Retail Leakage and Opportunities

Demand for retail in the Pioneer Square Secondary Trade 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 15 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. The exception to this is furniture and home furnishing stores where there exist a gap and as a result demand for this retail store type in the Secondary Trade Area. Analysis indicates that retail demand and retail market potential in the Secondary Trade Area are extremely sensitive to what future employment looks like because employees represent such a large segment of overall demand.

In the high return to work scenario (70 percent of pre-pandemic employees returning to work) there is a greater demand for more retail and services, specifically for food and beverage services. These services can help support street-level activation throughout the Secondary Trade Area. Adding additional new housing to the district also increases overall demand for retail and services throughout the Secondary Trade Area. This analysis suggests that in order to support new and existing retail and service businesses in Pioneer Square, district stakeholders will need to support a four-prong approach to increasing demand to support more ground-floor activity and services:

1) Encourage workers to return to in-person work, especially for larger employers in the district.

2) Support new business and employment growth to fill vacant spaces and add additional worker demand.

3) Add new market rate and workforce housing to add more residential population to support more demand.

4) Increase visitor traffic to support businesses.

Exhibit 15. Pioneer Square District Secondary Trade Area Retail Gap/Surplus Analysis Source: ECONorthwest Analysis of Claritas and PSRC Employment Data

4. Stakeholder Summary Takeaways

ECONorthwest organized a roundtable meeting at the beginning of 2023 with stakeholders from Pioneer Square. The purpose of the meeting was to gather feedback on commercial trends that stakeholders have observed and experienced first-hand; as well as, to identify opportunities in the real estate environment that can support the activation of the area, promoting economic development.

The following section summarizes common these discussed by multiple stakeholders:

The volatility of the office market has created challenges for property owners and managers:

§ Stakeholders have expressed that tenants still don’t know what their future footprint might be when office workers do return because some office-related businesses have implemented hybrid work schedules and others fully required employees back to the office.

§ Stakeholders have started to notice that office tenants are wanting smaller office footprints than what they had prior to the pandemic.

Some office space is still in demand, but only for select office class types:

§ Tenants downsizing office space are also wanting new and better office space such as that offered in Class A office buildings. Class A office buildings generally are newer, centrally located downtown, and offer amenities not found in Class B or C office buildings such as underground parking within the office building.

§ Stakeholders are also generally seeing that tenants are likely to move towards higher amenity Class A space while spending the same amount on rent as previous leases.

§ Class C office space is still in demand in Pioneer Square mostly due to the large presence of various small businesses, creative office users, and non-profit organizations in the area which are more costconscious and look for affordable office space close to amenities like transit and food services.

Public safety on the street is paramount to address:

§ Stakeholders have expressed that several population groups, including employees and visitors, feel unsafe traveling through Pioneer Square due to constant illicit activity and crime in the area.

§ Stakeholders identified safety priority for transit bus stops and light rail stations.

Conversion of office to multifamily can prove to be highly beneficial to Pioneer Square:

§ Stakeholders expressed that conversion of office to residential could be ideal for Class B and C office space which is the office type identified by stakeholders to experience increasing high vacancies in the coming years.

§ Office conversion to residential would add much needed residential units to Pioneer Square which can support local businesses and services in dire need of additional foot traffic.

Activation Opportunities

§ Extend public space and park programming and activation activities to other parts of Pioneer Square to draw visitors in but also enhance safety perceptions.

5. Conclusion & Recommendations

The focal point of this market study is to uncover the retail and office demand in the Pioneer Square District given the COVID-19 pandemic disruptions, and to recommend strategic actions that could be implemented to support economic development opportunities creating a more resilient district. Below are a set of strategies developed for Pioneer Square based on the market study findings and conversations with stakeholders.

It is important to note that these strategies outlined below cannot be implemented solely by the Alliance for Pioneer Square, but rather it will require a combination of strategic planning, partnership, and continued advocacy by several stakeholders to ensure that these strategies are implemented and are successful for the Pioneer Square District.

Strategies for supporting the office and retail market in the Pioneer Square District:

§ Class A office space in Pioneer Square will continue to perform well and be in demand more than the other office types. Focus on stabilizing and maintaining businesses and employees in the few large Class A office buildings to support broader Pioneer Square recovery goals.

§ As long-term leases expire in the coming years, Class B and C office space will struggle to retain and get new tenants to lease office space. This is mostly due to a “flight to quality” where office tenants are seeking newer office space with the latest amenities as a way to entice employees to return to the office. Engage with City and partners to remove red tape, expedite the permitting process, and make more affordable the ability to make seismic improvements and change of occupancy to these older, lower-class office types. These improvements would allow property owners and managers to upgrade their office space and get tenants to lease out the space especially for tenants that are cost sensitive and might be attracted to the historic buildings and design quality of brick and wood buildings in the district.

§ Market the opportunity in Class B and C office space for creative and flexible reuse of this underutilized inventory. opportunity exist to

market Class B and Class C space to cost-conscious tenants and startup businesses.

§ Likely, the Pioneer Square District might not experience the same number of employees that there were prior to the pandemic. Adding more residential market rate housing to the district can help support existing retail businesses and overall neighborhood resiliency and diversity of housing.

§ Recognizing Pioneer Square’s arts, music, and cultural assets and the marketing of them is an important element of economic development that can help create resiliency across the District. Leverage these assets with complimentary uses that can support existing businesses and as a way to attract more visitors to the area.

§ Continue to support visitor foot traffic by working with partners to market the district and highlight opportunities for visitors to patron businesses in Pioneer Square.

§ Given the changes that hybrid work has created to the office market, supporting ground floor activation of large projects to be outward facing to the street instead inward facing can help property owners lease up ground floor space more quickly and help activate ground floor retail space with more foot traffic.

§ Continuously encourage government sector employees to return to the office to support demand for retail and services.

§ Through the King County Campus Master planning process, advocate for right-sized retail and market rate housing to fill neighborhood gaps in retail and housing options.

Strategies to support public safety and existing businesses:

§ Advocate for rapid city response to illicit activity such as graffiti, crime, and public disturbances.

§ Partner with local transit agencies to improve transit facilities and overall safety.

§ Support additional park and public realm activation events around Pioneer Square to attract visitors and improve public safety.

§ Advocate to the Downtown Seattle Association for additional community safety & hospitality team members to assist visitors, residents, and workers in Pioneer Square.