With hybrid work here to stay, city leaders ask: Can the central business district become a residential neighborhood?
February 22, 2023
Pegasus Coffee has seen its share of Downtown Seattle’s ups and downs over the decades. It opened in the Dexter Horton Building on Third Avenue and Cherry Street in 1983, the year photojournalist Mary Ellen Mark shined a light on Seattle’s homeless street kids in Life magazine. Pegasus survived the dot-com bust of the early 2000s and the Great Recession of the 2010s. Then COVID-19 nearly did it in.
At the height of the pandemic, business was down 90%. The office workers, court staff and people reporting for jury duty who had frequented Pegasus were of course not coming in. The café laid a few people off. Hours were cut, down to one staffer working a few hours on a few mornings each week. Many employees took second jobs to make ends meet. And Pegasus’ grab-and-go kiosk in the Seattle Tower a few blocks north closed and still hasn’t reopened.
The Dexter Horton Pegasus remained open through it all, and slowly, as the world regained some sense of normalcy, business returned though there have been fits and starts along the way.
“We definitely survived the worst of it,” said owner Matt Grady. “Things are not back to where they were, but they’re a lot better.”
Pegasus is, in many ways, a mirror of greater Downtown Seattle.
The neighborhood is past its darkest days when streets were void of workers and customers, homeless Seattleites moved into numerous encampments in the wake of shelter closures and retail theft and property crime dominated the public narrative. Walk Downtown midday — if it’s not pouring rain — and you’ll see shoppers in and around Westlake, tourists at Pike Place Market and clusters of office workers heading out to lunch. It feels something akin to normal.
Still, the recovery is uneven and far from complete. On the plus side, summer tourism numbers were just shy of pre-pandemic levels. Residents have returned as well, with more people living in greater Downtown now than in 2019. But while some blocks are doing just fine, on others nearly every storefront is still boarded up or closed.
Downtown office workers are back to their desks at only 43% of pre-pandemic levels, by the Downtown Seattle Association’s count. An academic project to track how North American downtowns are recovering ranks Seattle 56th on a list of 62. (West Coast neighbors Portland and San Francisco are faring even worse, at 60th and 62nd respectively.)
And the great post-pandemic shakeout isn’t over. While new outposts of PCC Community Markets and Uniqlo opened during the pandemic, other big anchor retailers like Nike and Columbia Sportswear are gone. Restaurants are still going under. The tech industry is still laying off workers, and Amazon, Twitter and Meta are all downsizing their office footprint. Thanks to long leases that carried through the majority of the pandemic, the commercial real estate industry is just now seeing a rise in vacancies that’s likely to get worse before it gets better.
One thing that’s nearly certain: In-person office work is not going back to the way it was.
In the before times, daily commuting brought more than 200,000 people into Downtown — a population bump that filled the office towers, supported the coffee shops, salad bars and happy-hour spots, and provided the lively, occupied streetscape that makes a neighborhood feel welcoming and safe. Although there’s a push from City Hall and CEOs to get people to go to their offices more often, neither the mayor nor Chamber of Commerce nor real estate analysts are willing to bet on a future in which Seattle’s white-collar workforce comes Downtown five days a week.
Faced with a long-term future of hybrid work, Downtown’s boosters are rethinking what the neighborhood needs to be to remain a place where lots of people want to spend time.
One idea is to remake Downtown into an urban village with a better mix of residents, office workers and customers and amenities like parks, child care centers, schools, restaurants and grocery stores. It is a vision that city leaders, business interests and urban thinkers in Seattle and other American cities have coalesced around as they try to look past the pandemic.
To understand what it would take to make that vision reality, Crosscut spoke to elected officials, city department heads, business leaders, real estate professionals, academics, criminal justice reformers and Downtown business owners and workers.
Tallying the pandemic’s toll
The pandemic and subsequent office-worker exodus left scars on Downtown Seattle. Office vacancy in the central business district currently sits at 21.2% according to CoStar, a real estate data analytics firm. In 2019, Downtown vacancy was just 6.6%. CoStar defines the central business district boundaries as First Avenue to I-5 and Yesler Way to Denny Way.
CoStar analyst Elliott Krivenko said their forecasts show that vacancy rate mostly remaining level through 2025, potentially ticking up to 22%. But he admits that forecast could be optimistic given the growing amount of space available to lease and cooling demand right now.
According to the Downtown Seattle Association, more than 250 ground-floor businesses closed in 2021 alone, 40% of which were restaurants, though another 164 new businesses opened in their wake. The Downtown Association’s 2022 count of closures is not yet available, but City Councilmember Andrew Lewis, who represents Downtown, said in an interview that there have been roughly 500 closures and 300 new openings in the past few years.
Other office-adjacent businesses have mostly continued apace during the pandemic. Janitorial staff remained in high demand thanks to uncertainty about how the disease spread and an emphasis on disinfecting.
Vinh Tran is a janitor at a Downtown office building, working 6 p.m. to 2 a.m. every night. He started three years ago, not long before the world shut down. His work barely slowed at the height of the pandemic. Although he was personally scared about getting sick, Tran kept working because he needed to send money back to his family in Vietnam.
The hours were consistent, but the pandemic did make the work harder. Tran said many of his co-workers quit because of their own fears of getting sick and bringing COVID-19 home. So they dropped from a crew of 50 working to clean two buildings each night to 20 to 30 covering the same ground.
According to the city Office of Economic and Revenue Forecasts, the dearth of Downtown visitors and workers led to a 5% loss in sales-tax revenue and 10% loss of business and occupation tax revenue compared to 2019 and adjusted for inflation. Tax revenue from commercial parking lots was down about 35% or $20 million in 2022 compared to 2019.
In all, it’s a less significant impact than city officials feared, something Forecast Office director Ben Noble credits to the federal stimulus.
“Without that stimulus, there’s every reason to think the impacts would be huge,” Noble said. “We don’t have income tax [in Washington], so we need people out doing stuff. In the end it became a confidence thing. Thanks to the stimulus, people became confident enough to go buy stuff.”
How to reimagine Downtown
The Downtown Seattle Association is hopeful office-worker activity will tick up to at least 50% of pre-pandemic levels in the coming months, from its current 43%. But that still leaves the neighborhood with at least 100,000 fewer commuters every weekday, a void that’s certain to leave ground-floor businesses struggling. The empty sidewalks also make the neighborhood feel less welcome and “activated,” an urbanist concept that builds off the writer Jane Jacobs’ idea that cities need eyes on the street to feel safe and vibrant.
“Downtown runs on people,” said Seattle Office of Economic Development director Markham McIntyre. “If office workers aren’t going to return in pre-pandemic numbers, how do we get other people there? We’re thinking of Downtown as a neighborhood with more amenities, thinking of it as an arts and cultural district, as an incubator for new entrepreneurs and businesses, as a social space where people gather.”
Getting more people to live Downtown is a key piece of the puzzle in the eyes of Mayor Bruce Harrell, Councilmember Andrew Lewis and the Downtown Seattle Association among others.
Seattle can look to Salt Lake City for evidence of the power of downtown residency. The Utah city tops the list of 62 North American cities being tracked by the University of Toronto and University of California Berkeley’s Downtown Recovery project. Researchers use cell phone data to track office-worker, tourist and residential activity.
Several factors are at play in Salt Lake City, where downtown activity is at 135% of its pre-pandemic level, but project lead Karen Chapple said one of the most important factors is how many residents have moved there. Salt Lake City is on track to double its residential population in the greater downtown area after just a few years.
Seattle Councilmember Lewis points to an already decent-sized residential population at the edges of Downtown, including Belltown, South Lake Union, Pioneer Square and the Waterfront. After a mid-pandemic dip, there are now more than 55,000 occupied apartments in the greater Downtown area, 4,000 more than at the end of 2019.
But there are fewer than 25 apartment buildings in Downtown’s central business district. To get more people living there, Lewis wants developers to convert old office buildings into apartments and condos.
Turning offices into places to live
Office-to-residential conversion isn’t unheard of in North America. Los Angeles has had an adaptive-reuse ordinance in place since 1999 that has led to the creation of more than 12,000 apartments and condos. Washington, D.C. and Chicago have each added more than 1,000 units of apartments converted from offices since 2020. Calgary, Alberta, has committed $100 million in incentives for developers to help offset the cost of office-to-residential conversion. Closer to home, several office buildings in Tacoma have been or are in the process of being converted into apartment buildings in recent years, and Seattle has at least one example Downtown.
Office-to-residential conversion has its share of skeptics in the real estate world. It is expensive, in part because office interiors are so much deeper than apartment interiors, meaning it’s hard to get natural light. It’s also expensive to retrofit HVAC systems and other residential necessities that offices don’t need.
Lewis hasn’t proposed putting money on the table as incentives for developers doing conversions, though he said he can imagine affordable-housing developers applying for city housing funds for office-to-affordable-housing conversions. He wants to work with developers to streamline the permitting process and take other administrative steps to speed conversions. Exactly what that would look like is unclear. Lewis said he’s waiting for a developer or building owner to step forward with a conversion proposal.
Not all office buildings are created equal; Seattle’s biggest and best-located towers are never going to become apartments. Class A buildings are the largest, most centrally located buildings with the most amenities (there’s also a higher class of the most desirable properties, called Trophy Class A). Class B buildings are older, smaller, have fewer amenities and may be located on a side street. Class C buildings are the smallest, often just a few stories high, and scant on amenities.
It is that latter class that University of Washington planning and real estate professor Sofia Dermisi thinks will struggle the most in the coming years.
“I expect some buildings will be transitioning to new ownership,” she said, referring to the consequences of growing vacancies. “Owners will not be able to service existing loans. If they have a Class B or C building with a lot of issues, they’ll be forced to sell them.”
Smaller Class B buildings are likely the best candidates for conversion. Since they are old and small, downtown Seattle’s Class C buildings are more likely to be razed and redeveloped rather than converted, said CoStar’s Krivenko.
Seattle has at least one example of office-to-residential: The 11-story Cobb building on Fourth Avenue and University Street was built in 1910 to house medical and dental offices and later repurposed as commercial office spaces. In 2005, it was gutted and rebuilt as a 91-unit luxury apartment complex.
Mayor Harrell did not respond to requests for interview for this article, but during his 2023 State of the City speech he announced the city planning department is launching a design contest in March to solicit ideas for making office-to-residential conversions feasible.
Krivenko thinks a boom in office-to-residential conversion is probably wishful thinking, in part due to the cost and in part because there are still surface parking lots and other spaces Downtown on which a developer could build an apartment building from the ground up.
If conversions do happen, he thinks it won’t be anytime soon as Seattle’s existing office inventory works through its current churn of tenants and demand.
Some companies, like Amazon and Facebook, are pulling out of buildings as they downsize their workforces and grapple with hybrid work arrangements. Others, like Zillow, are trying to sublease significant space.
John Miller, a Seattle-based senior director for the commercial real estate firm CBRE, said many of his clients are downsizing, from, say, 50,000 square feet to 30,000, to account for work-from-home. In the immediate term, that increase in vacancy poses a challenge for the real estate industry. But longer-term, Miller is optimistic a lot of that space will get reoccupied by smaller companies currently located on the outskirts of the city or in the suburbs, which maybe couldn’t afford 50,000 square feet in the heart of Downtown pre-pandemic.
“Downtown Seattle has the highest-quality, best-located buildings in our market. People will gravitate towards it. If you have people on the outskirts of Downtown that want a better experience, they’re going to move into Class A office space,” said Miller.
The University of Toronto’s Chapple similarly sees the vacancies as opportunities for other industries to gain a foothold in the city core. “Maybe UW should rent some incubator space downtown. Or there could be health care clinics. Those are the types of uses that bring people everyday.”
Making a neighborhood a neighborhood
To make Downtown a true residential neighborhood, it needs all the same easily accessible businesses and amenities that any urban village in the city has. Downtown Seattle Association president Jon Scholes argues the neighborhood is already well-positioned to do that with its current mix of uses relative to other cities.
Office buildings account for only about half of Downtown Seattle building space, with the rest a mix of residential, retail, hotels and other uses. Compared to cities such as Boston and San Francisco where offices account for 83% and 74% of downtown space, respectively, Seattle doesn’t have as far to go.
Still, Scholes said, “We need to double down on the investments in the things that families need. … I do think there needs to be much more intentionality and focus on playgrounds, recreation, child care, schools, all of those things that we know people need in order to live and be in an urban place like this.”
Downtown is not bereft of the sorts of neighborhood businesses that people need week-to-week. A PCC grocery store opened a year ago. Salons, drugstores and department stores occupy many storefronts. But part of the equation will be filling empty windows with businesses that cater to evening and weekend residents.
To accomplish that, Chamber of Commerce CEO Rachel Smith wants Seattle to take a page from San Francisco, whose mayor just announced a new tax incentive for businesses opening downtown.
“I think City Hall absolutely plays a role in addressing that,” said Smith. “The best way to encourage a new business, especially a small business, to open in a retail space is to say what do you need and how can we help? … The city has a lot of levers they can pull.”
The Office of Economic Development is also focused on filling vacant storefronts with temporary uses. The Seattle Restored program — originally paid for by federal pandemic relief funds and now by the city general fund — gives small businesses, restaurants and artists low-cost access to vacant ground-floor spaces. There are currently 25 Restored sites. Half are selling goods and food and using space as artist studios and classrooms. The other half are displaying art in windows as an alternative to plywood coverings or a view into empty stores.
“There’s a need for a placemaking investment to make sure people feel like there’s life and activity Downtown. But it’s also an opportunity for new entrepreneurs to get access to the Downtown market,” said McIntyre.
In the longer term, McIntyre wants to use city money to get more small businesses operating Downtown. That could mean using the city budget to help smaller and lower-income business owners get access to capital to start or expand their businesses. Or it could mean having his office provide technical support to entrepreneurs to help them build a sustainable business that can survive Downtown.
The perception and reality of public safety
Filling empty offices with residents and vacant storefronts with new businesses is one key to recovery. Another is public safety. Nearly everyone who spoke to Crosscut for this article flagged the issue as key to Downtown’s recovery.
Crime, public disorder and homelessness get a lot of air time in Seattle these days (and are often conflated as synonymous issues). Whether safety issues are real or perceived, the end result is largely the same: If someone is fearful about going Downtown, they’re far less likely to.
Seattle as a whole saw an uptick of crime over the past few years, and there have been several high-profile homicides Downtown along with pervasive shoplifting and property crime. But incidents of crime in the Downtown core actually dropped during the pandemic from pre-pandemic levels, according to the Seattle Police Department. In 2019, there were 3,428 offenses in total Downtown, of which 2,865 were property crimes and 563 violent crimes. The total offenses dropped to 1,935 in 2020 before climbing back to 2,604 total in 2021 and 2,597 in 2022.
Downtown also had an upswell of encampments for unsheltered residents who had been pushed out onto the street when most of the city’s congregate shelters closed in the early days of the pandemic. There are still tents, but the encampments are gone thanks to a concerted outreach effort by a coalition of social-service organizations called JustCare and other groups helping people find homes.
“If you’re Downtown as much as I am, there’s no doubt things are better. You can see it,” said Smith. “And you know it’s not good enough. We have to continue working with our government partners across the board to address public safety and homelessness.”
Much of the finger-pointing around public safety is directed at Third Avenue near Pike, Pine and Union streets, where there’s an open-air economy of drug-dealing and the sale of stolen goods. The problems there have existed in some form for decades.
But now, with so many storefronts shuttered on Third and little reason to be there other than to get on and off the bus, “it’s more noticeable. … It’s more noticeable when there are fewer shoppers, fewer office workers and everything else,” Lewis said.
He wants to improve Third Avenue beyond what it was prior to the pandemic. “Historically we treated it as an extremely utilitarian corridor. We’re going to run rubber through it to get people to and from the Downtown core.”
Instead, Lewis wants to take a cue from Denver, which transformed its 16th Street transit corridor decades ago into a mixed-use, pedestrian-friendly outdoor mall with shops and restaurants that give people a reason to spend time there.
“That would go a long way,” said Lewis. “We’re not going to get there by just having a bunch of cops on an unactivated space. That would be an almost farcical endeavor in urban planning.”
More people on Third might ease the problems around Third and Pike or push them somewhere else downtown, but it won’t help the people selling and using drugs or reduce the problem significantly. Nor, say experts, will targeted policing, as the city has tried time and again over the decades.
In January, a group of service providers launched a new concerted outreach project on Third to help people exit the illicit economy. It is being run by many of the same groups behind JustCare, the coalition that helped remove 14 homeless encampments in Downtown, in Pioneer Square and in the Chinatown-International District during the pandemic and move people into shelter and housing. It includes REACH, the Public Defender Association, We Deliver Care and the Downtown Emergency Service Center, and has buy-in from city officials and the Downtown Seattle Association.
Their aim on Third Avenue is similar to what they did with the encampment work: spend time building relationships with people, understand what resources they need to exit their current situation and find a way to provide those resources. A lot of the work will focus on finding people alternative ways to make a living.
“We aren’t going to change people’s situation easily,” said Public Defender Association executive director Lisa Daugaard. “This is a long haul, and it involves not only housing or non-congregate shelter. We need really great sustained case management and a serious legal income strategy for people.”
Daugaard has no illusion that the work will be easy or fast or inexpensive. But she is confident it can be successful.
“We need to not go backwards on mass incarceration — we can’t go back to breaking people on purpose. We need better background systems of income support, housing availability, and really, really good trauma recovery and mental health care, broadly defined. If we put those pieces in place, we can have a consensus approach to public order and safety that works,” she said.
Downtown’s new equilibrium
The ebbs and flows of Downtown Seattle’s economy have reshaped the neighborhood time and again over the decades. Pacific Place Mall and the Nordstrom flagship store opened in 1998, part of an attempt to bring back shoppers who’d decamped for suburban malls. The South Lake Union streetcar was built in 2007 to help usher in the neighborhood’s tech-hub transformation.
The dust has not yet settled on Downtown’s post-pandemic reshaping. In February, Amazon announced that its employees will be required to come into the office three days a week beginning in May. At the same time, the full impact of Seattle’s tech layoffs remains to be seen.
Like Downtown itself, Pegasus’ Grady is still adapting to the new normal.
These days the café is making about 60% to 70% of its pre-pandemic sales. They’re selling a lot more beans and coffee-making supplies to customers who need coffee in their home offices. The weekly rhythm has changed. They do most of their business Tuesday through Thursday when hybrid office workers are coming downtown.
“Basically every week that goes by at this point is just a little bit better,” Grady said. “We’ll see where the new equilibrium is. I don’t think we’re quite there yet.”
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