Seattle could have the nation’s highest concentration of office space occupied by a single business if Amazon fills all the buildings it has lined up.
Amazon’s lease of a full city block in South Lake Union next to its global headquarters puts the firm on track to eventually occupy about 10 million square feet in downtown Seattle — or one-fourth of the market’s inventory of premium office space.
The company confirmed Tuesday it will move into 817,000 square feet at Troy Block, a two-building complex by Seattle-based developer Touchstone. One tower will open in mid-2016, the other a year later.
If the tech juggernaut fills all 10 million square feet, Seattle could have the nation’s highest concentration of office space occupied by a single business. Based on that footprint, Amazon could grow to nearly 50,000 employees, easily topping the University of Washington as the city’s largest employer.
“You’re putting a lot of eggs in one basket,” said Kip Spencer, a local real-estate expert who founded Officespace.com. “In the event of a retrenchment, it could have a fairly significant negative spiral effect.”
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Last year, when Amazon’s local real-estate empire already occupied about 8 percent of the downtown office market’s inventory, Seattle ranked fifth in the nation in market penetration by a single tenant, according to a report by commercial real-estate brokerage JLL.
With its Seattle office space slated to more than double, Amazon is likely to jump much higher in that ranking.
JLL said Charlotte, N.C. — home to Bank of America — had the highest single-tenant concentration, at 22.7 percent. The troubled bank has been selling buildings and renegotiating leases as it slashes costs.
The JLL report anticipates strong office-lease growth in Seattle over the next two years from other tech firms, both those growing here and new arrivals from Silicon Valley.
In Seattle, Amazon now occupies just over 4 million square feet, or about 13 percent of downtown Seattle’s “Class A” office inventory, according to Seattle Times research. (About two-thirds of downtown office space falls in the premium or Class A category, meaning modern, professional office space.)
To put that in perspective, consider this: Microsoft occupies an estimated 14.6 million square feet spread across Greater Seattle, including Redmond and Bellevue. In the San Francisco Bay Area, Google has just over 14 million square feet, much of it distributed around suburban Silicon Valley.
Amazon has already surpassed Washington Mutual as Seattle’s largest private tenant ever.
“We’ve agreed to lease the Troy Block and we’re really excited to continue growing our urban campus in the heart of Seattle,” John Schoettler, Amazon director of global real estate and facilities, said in a statement.
Amazon’s Troy Block leases, thought to be 15 years long, give the firm the right to buy the property later, records show.
The deal surprised some brokers. Some Amazon leases expire in six years, and some brokers have assumed Amazon would shrink its portfolio of leased office space.
“We’d been told they were going to focus on their own campus for their master plan and not be leasing [more space], but I think the location of this one made too much sense to pass up,” said Matt Christian, executive director of Cushman & Wakefield Commerce in Seattle.
Amazon’s rapid growth has put pressure on rents for offices and apartments in the area, even as it’s ignited an unprecedented boom in apartment construction.
“Every Seattle office tenant who has negotiated a lease in the last couple of years has felt the ‘Amazon Effect,’ ” said tenant broker Brian Hayden of Flinn Ferguson. “The rate at which Amazon has been absorbing space has had a significant effect on Seattle’s overall vacancy rate, which increases landlord confidence and puts upward pressure on rents.”
Though Amazon doesn’t divulge how many people it employs locally, real-estate experts estimate the company has about 20,000 employees in Seattle. This assumes an average 200 square feet per person, which allows for common areas like cafeterias, meeting rooms and lounges.
Amazon’s head count could more than double to about 50,000 employees if it occupies the 10 million square feet to which it has committed.
In May, Amazon starts a lease with Seattle Children’s for a 263,000-square-foot building at 1915 Terry Ave.
Later this year, it is to move into two 300,000-square-foot buildings developed by Vulcan, known as Phases 7 and 8, along Ninth Avenue North between Thomas and Republican streets.
By the end of this year, Amazon is expected to move into the first of the three 1 million-square-foot towers it’s building in Denny Triangle, known in the company as “Rufus 2.0.” It expects to open the second tower in late 2016 and the third in late 2017.
Amazon has also proposed more than 800,000 square feet on a block it bought last year from Clise Properties that’s next to the Rufus 2.0 campus.
But because it takes time to fill all that space, facility-management experts say these real-estate leasing costs are a drag on a company’s earnings and a big complaint among chief financial officers.
“They have to carry all this square footage as they’re trying to onboard everybody,” said David Gray, a senior vice president with Colliers International in Silicon Valley.
Based on a case study of one tech company, the costs of that commercial real estate can be initially as high as $24,000 per employee, Gray estimates, and eventually drop to just under $10,000 per employee.
Real-estate costs per employee have never been so high, he said, even during the dot-com boom of the late 1990s. Much of the space at large tech firms is amenity space — cafeterias, game rooms and lounges — all part of the “arms race” to recruit and retain the best tech talent.
“You can stack people in there like sardines,” Gray said, “but you’ve also got to give them terrific places to meet and unwind. We’re seeing that common space swell dramatically.”