Economic Analysis
The strength of the real estate market is directly affected by the overall economic vitality of the city or region in which the project is located. A region's economic health, in turn, is strongly tied to the underlying economic base. This section presents a general overview of the Seattle metropolitan area. The information presented in this section forms the basis of the assumptions used in the economic and financial analyses presented later in this report.
Area Analysis
Seattle, Washington is the economic and cultural capital of the northwestern United States. The Seattle metropolitan area/Puget Sound region is the largest concentration of population north of San Francisco and west of Chicago. Seattle is the leading financial center of the Pacific Northwest and several major corporations base their headquarters in or near the city. Seattle possesses a modern port located on an excellent deep-water harbor and has good transportation connections to the outside world. The growth of the Pacific Northwest helped propel Seattle to its current stature, and the economic expansion of the Pacific Rim is likely to sustain Seattle's growth well into the future.
This section describes the Seattle metropolitan area, its historical development and its future growth prospects. The section focuses upon general economic and population trends and emphasizes the relationship between these forces and real estate development in the Seattle market.
Location and Geography
The Seattle metropolitan area lies in the northwest corner of the continental U.S., on Puget Sound in western Washington state. Puget Sound is a saltwater arm of the Pacific Ocean, 110 miles to the west.
In 2003, the U.S. Census Bureau changed the definitions of metropolitan areas around the country. The Puget Sound region is now divided among three Census-defined metropolitan areas.
- The Seattle-Tacoma-Bellevue MSA (Metropolitan Statistical Area) which consists of King, Snohomish, and Pierce counties. This MSA is divided into two Metropolitan Divisions: Seattle-Bellevue-Everett (King and Snohomish counties) and Tacoma (Pierce County).
- The Bremerton=Silverdale MSA, which coincides with Kitsap County;
- The Olympia MSA, which corresponds to Thurston County;
These three metropolitan areas, along with Island and Mason counties, comprise the Seattle-Tacoma-Olympia Combined Statistical Area (CSA), which is shown in green on the following map.
The bulk of this chapter is concerned with the Seattle-Bellevue-Everett Metropolitan Division (King and Snohomish counties). When applicable, the larger MSA and CSA are discussed.
Because the Puget Sound basin was glaciated during the last Ice Age, the region's topography has a pronounced north-south orientation which has greatly affected the manner in which the Seattle area has developed. Hills, valleys, lakes, rivers, and Puget Sound generally trend in a north-south direction. As a result, the Seattle-Tacoma urban area is long and slender, extending 100 miles from north to south but little more than 15 miles wide in the east-west direction. The city of Seattle lies near the center of this ribbon of urban development.
The city of Seattle occupies a narrow isthmus that divides Puget Sound to the west from 17-mile-long Lake Washington to the east. The lake presents a barrier to east-west travel, which has allowed the Eastside suburbs (which occupy a second isthmus, between Lake Washington and Lake Sammamish) to develop an autonomous identity as a "miniature metropolis" in their own right. Similarly, distinct commercial and industrial centers have emerged elsewhere in Seattle's suburbs. Despite the growth of suburban residential and commercial areas, Seattle itself remains viable as a center of business, commerce, and industry. Seattle's residential and business districts have not experienced the blight and decay found in many other big cities around the United States.
Transportation
Seattle built its prosperity by taking advantage of its strategic location. The city is situated on an excellent deep-water harbor in the center of the Puget Sound basin. This location gave Seattle an advantage in the competition for regional and international trade. Seattle serves as the gateway to both the Pacific Northwest and Alaska. Trade with Asia has grown considerably in importance over the past 20 years, a trend that is expected to continue well into the future.
Today, the city's modern port facility handles approximately 1.75 million cargo containers a year. The highly automated container-handling system allows cargo to be quickly transferred between ships and trucks or trains. Two container terminals were recently expanded in the south harbor area and expansion of a third terminal is in planning. The port faces stiff competition from Tacoma and other West Coast ports (chiefly Los Angeles-Long Beach).
Seattle is situated at the junction of two Interstate highways: 5 and 90. Interstate 5 is the north-south route that connects the major cities of the Pacific coast. Interstate 90 is Seattle's link with the east; it extends to Spokane, Minneapolis-St. Paul, Chicago and, ultimately, Boston. Interstate 405 is the main beltway around Seattle and serves as the central artery for the Eastside suburbs. Two floating bridges connect Seattle with the Eastside. Additional freeways include the Valley Freeway (State Route 167) which serves the industrial areas of the Green River Valley; State Route 520, which connects Seattle, Bellevue, and Redmond via the Evergreen Point Floating Bridge; and State Routes 99/509, which provide a direct link between downtown Seattle and the airport.
Several ferry routes cross Puget Sound and connect Seattle and other cities on the east side of the Sound with the Kitsap Peninsula and the Olympic Peninsula on the west.
Seattle-Tacoma International Airport is located mid-way between the cities of Seattle and Tacoma. It serves as the principal air passenger hub for the region and is currently undergoing a billion-dollar expansion to accommodate future growth in traffic. Other major airports are located at Boeing Field in south Seattle and Paine Field south of Everett.
In 1996, voters approved a $3.9 billion regional mass-transit system to serve King, Snohomish, and Pierce counties. When fully built out by 2009, the Sound Transit system is to include a 14-mile light-rail transit system between the downtown Seattle and Seattle-Tacoma International Airport; a 1.6-mile light-rail line in downtown Tacoma; 81 miles of commuter rail service linking Everett, Seattle, Tacoma, and Lakewood; and bus/carpool ramps serving 100+ miles of HOV (high-occupancy vehicle) lanes on the region's freeway network.
In 2002, Seattle voters approved at 14-mile monorail line which will connect downtown Seattle with Ballard and West Seattle. This monorail system is currently in planning and is set to open in phases between late 2007 and the middle of 2009.
Seattle has excellent intercity rail connections to the outside world. Passenger rail service is provided at the King Street Station, which is situated on the south edge of downtown Seattle. Freight marshaling yards are located in the port area and in the Duwamish and Interbay industrial districts south and north of downtown, respectively. Because of frequent conflicts between vehicular and train traffic throughout the region, the FAST Corridor plan is being implemented. This plan involves constructing overpasses or underpasses at 11 major railroad grade crossings between Seattle and Tacoma, as well as truck access improvements at the ports of Seattle, Tacoma and Everett.
Economy
The Puget Sound region is the economic heartland of Washington State and the Pacific Northwest. Seattle dominates this region, which contains approximately two-thirds of the state's total employment.
The economic base of a city or region consists of those industries that bring income into the city/region by selling their products or services outside the area. Historically, the aerospace, forest products, and shipping industries, along with the military, have formed the economic base of the Puget Sound region, and these activities are still the most important. Emerging industries include software, retail, biotechnology, tourism, Internet services, and telecommunications.
Economic and employment growth drives the expansion of population, incomes, and the demand for real estate. This relationship applies to the Seattle metropolitan area, as shown in the following graph.
Sources: US Census; Washington Office of Financial Management; Washington Employment Security Department; Integra Realty Resources
As the graph shows, population changes tend to lag one to two years behind changes in employment. Total employment fell in metropolitan Seattle fell in 2001 and 2002 and stayed flat during 2003 before job growth resumed in 2004. Over the past 40 years, the Seattle region's economy has exhibited several notable characteristics:
- Above-average growth. The recent recession aside, the Seattle/Puget Sound economy has expanded faster than the national economy over the long run. Between 1980 and 2000, the Puget Sound region accounted for nearly 70 percent of the net new jobs gained in Washington State, with more than half going to the Seattle MSA alone. Seattle's economic growth has also exceeded that of most other West Coast cities. This faster-than-average growth is a long-run trend that transcends business cycles and is projected to continue throughout the foreseeable future.
Total employment in metropolitan Seattle more than doubled between 1960 and 1980, from 370,000 to 780,000. By 2000, total employment had increased to more than 1.4 million. The Puget Sound Regional Council (PSRC) projects that metropolitan Seattle will contain 1.6 million jobs by 2010, 1.81 million jobs by 2020, and more than 2 million jobs by 2030.
Historical and Projected Employment
Sources: Washington Employment Security Department; Integra Realty Resources-Seattle - Dominance of Boeing. Seattle has long had a reputation of being a one-industry town, and Boeing is still its most important single employer. In 2005, aerospace alone comprised 40.6 percent of all manufacturing jobs in the Seattle Metropolitan Division. However, this industry constituted only about 4.4 percent of total non-agricultural employment, down significantly from 18.8 percent in 1968.
In mid-1998, the aerospace industry reached the peak of its most recent expansion, and employment began to decline, as can be seen in the Aerospace Employment graph. This decline appeared to have bottomed out in late 2000; however the September 11 terrorist attacks and the national economic recession led to a protracted downturn in airline travel. By mid-2004, Boeing had shed 50,800 jobs in the region.
Aerospace Employment in Metropolitan Seattle
Sources: Washington Employment Security Department; Integra Realty Resources-Seattle
In September 2001, Boeing relocated its corporate headquarters from Seattle to Chicago, resulting in the loss of 1,000 top-level executive positions. While the blow is more psychological than economic, it could have serious implications for the company's long-run future in the Puget Sound region.
The commercial airplane division accounts for roughly two-thirds of Boeing's revenues, but it is a comparatively mature product line. While technological improvements have been made, commercial airliners have not changed substantially since the 1960s. Traditionally, manufacturers of products in the mature stage of their life-cycles seek low-cost locations for production. This appears to be happening with Boeing, which is shifting an increasing share of its airliner production (mainly parts and components) to non-Boeing producers and to other parts of the U.S. and overseas. In the meantime, the segments of Boeing's business with high future growth potential (chiefly space and military technology) are located in California and the southeastern United States.
Boeing stated that commercial airliner production will remain centered in the Puget Sound region, and in 2003 announced that its next-generation jetliner, the 787, will be assembled in Everett. Boeing has begun hiring again and, since the bottom of the most recent trough was hit in August 2004, the company has added 3,200 jobs locally.
Boeing has also been redeploying assets within the Puget Sound region. It is expected to cut back production operations in Renton and shift them to its Everett facility. In 2004, Boeing ceased producing its slow-selling 757 jetliner which was assembled in Renton. Boeing has also greatly reduced operations in south Seattle and Kent, and has divested itself of millions of square feet of company-owned space throughout the region, though the majority of these give-backs appear to have taken place. - Strongly cyclical. Because of Boeing, the Seattle area has grown in periodic surges associated with economic cycles which last roughly a decade. This pattern has repeated itself during each of the last four decades. Each decade began with a recession or comparatively slow growth, followed by economic booms and rapid expansion of employment and population in the closing years of each decade. This pattern appears to be repeating itself in the first decade of the 21st century. The current economic slowdown appears to have bottomed out as the regional economy is being pulled out of the doldrums by an expanding national economy.
Business cycles in the Puget Sound area tend to exhibit greater amplitude than the nation as a whole. This pattern is partly due to the fact that Seattle is a relatively young city that still retains vestiges of its frontier economy. The economy still is closely tied to resource industries, and large size of the volatile aerospace sector has also contributed to instability in the local economy. However, as the Seattle economy has expanded and diversified, fluctuations in employment and unemployment have tended to more closely follow the national economy, as is shown in the Unemployment Trends graph.
Unemployment Trends
Sources: Washington Employment Security Department; Integra Realty Resources-Seattle
Seattle usually has a lower unemployment rate than the state as a whole. This pattern occurs because the state's economy is even more dependent on a limited number of industries than Seattle's. During boom periods, Seattle's unemployment rate tends to be lower than the national rate. The recent period of Boeing layoffs represented a break with this long-run historical pattern (as it did during the so-called "Boeing Bust" of the early 1970s).
If Boeing does substantially reduce its presence in the region in the long run, the cyclicality of the Seattle economy should become less pronounced, since so much of the fluctuations were due to the ups and downs in Boeing employment. - Shift to Services. Like other cities nationwide, Seattle's economy is shifting from a manufacturing base to dominance by service and office industries. The graph below displays historical trends in regional employment by major industrial group.
Changing Employment Distribution
* For the 12 months ending 28 February 2005
FIRE = Finance, insurance and real estate; TCPU = Transportation, communications and public utilities
TWU = Transportation, warehousing and utilities
Sources: Washington Employment Security Department; Integra Realty Resources-Seattle
The traditional goods-producing activities are declining in relative importance while services, wholesale trade, and retail trade are growing. Tourism is another important component of the region's service sector and, unlike many service industries, brings money into the region from the outside world.
Seattle's Changing Economic Base
Non-Agricultural Wage and Salary Employment by IndustryYear: 1968 1971 1980 1982 1990 1992 1998 2005 Point in business cycle: Peak Trough Peak Trough Peak Trough Peak Estimate* Total Non-Ag Employment 551,200 487,700 779,900 766,100 1,112,300 1,138,600 1,351,200 1,340,442 Goods-Producing 202,000 126,500 214,200 195,700 284,300 274,200 301,300 223,833 Mining/Resources 300 200 400 400 600 600 700 1,283 Construction 29,900 21,700 40,600 33,800 61,600 61,400 72,200 76,600 Manufacturing 171,800 104,600 173,200 161,500 222,100 212,200 228,400 145,950 Durable 145,700 79,900 142,400 131,800 182,300 171,600 183,900 114,583 Aerospace 103,900 37,500 78,800 74,300 114,800 110,000 107,900 59,300 Non-durable 26,100 24,700 30,800 29,700 39,800 40,600 44,500 31,367 Services-Providing 349,200 361,200 565,700 570,400 828,000 864,400 1,049,900 1,116,608 Wholesale trade 30,300 32,000 53,000 53,900 75,200 76,100 90,700 69,575 Retail trade 86,400 81,000 134,100 136,400 189,600 191,500 225,900 141,883 T.W.U. 39,200 38,100 53,200 52,400 69,400 69,600 80,300 49,967 Information 72,250 F.I.R.E. 33,500 34,400 56,500 56,900 72,900 74,500 81,200 89,650 Services 74,600 79,400 148,800 155,100 273,400 290,000 389,400 494,542 Government 85,200 96,300 120,100 115,700 147,500 162,700 182,400 198,742 Labor Force 570,000 597,000 868,100 884,700 1,154,600 1,189,000 1,381,600 1,332,217 Unemployment Rate 4.2% 12.4% 6.4% 10.3% 3.6% 6.5% 3.1% 5.1% Category Total Change, 1968-2004 Change/Year, 1968-2004 Percentage Distribution Location Number Percent Number Percent 1968 2005 Change Quotient Total Non-Ag Employment 789,242 143.2% 21,331 2.4% 100.0% 100.0% 0.0% 1.000 Goods-Producing 21,833 10.8% 590 0.3% 36.6% 16.7% -19.9% 1.003 Mining/Resources 983 327.8% 27 4.0% 0.1% 0.1% 0.0% 0.213 Construction 46,700 156.2% 1,262 2.6% 5.4% 5.7% 0.3% 1.079 Manufacturing -25,850 -15.0% -699 -0.4% 31.2% 10.9% -20.3% 0.999 Durable -31,117 -21.4% -841 -0.6% 26.4% 8.5% -17.9% 1.260 Aerospace -44,600 -42.9% -1,205 -1.5% 18.8% 4.4% -14.4% 13.112 Non-durable 5,267 20.2% 142 0.5% 4.7% 2.3% -2.4% 0.569 Services-Providing 767,408 219.8% 20,741 3.2% 63.4% 83.3% 19.9% 0.999 Wholesale trade 39,275 129.6% 1,061 2.3% 5.5% 5.2% -0.3% 1.207 Retail trade 55,483 64.2% 1,500 1.3% 15.7% 10.6% -5.1% 0.926 T.W.U. 10,767 27.5% 291 0.7% 7.1% 3.7% -3.4% 1.153 Information 72,250 N/A 1,953 N/A 0.0% 5.4% 5.4% 2.258 Financial activities 56,150 167.6% 1,518 2.7% 6.1% 6.7% 0.6% 1.092 Services 419,942 562.9% 11,350 5.2% 13.5% 36.9% 23.4% 0.936 Government 113,542 133.3% 3,069 2.3% 15.5% 14.8% -0.6% 0.902 T.W.U. = Transportation, warehousing, utilities
Information sector added in 2003 when state switched from SIC codes to NAICS codes in assigning employment to industries
Location Quotient is a sector's share of Seattle employment divided by that same sector's share of U.S. employment
* For the 12 months ending 28 February 2005 ** In thousandsSources: Washington Employment Security Department; US Bureau of Labor Statistics; Integra Realty Resources-Seattle
The Location Quotient column in the lower-right hand portion of the table shows how the Seattle economy compares with the national economy in terms of employment. Values exceeding 1.0 indicate the Seattle area has proportionately more employment in a particular sector than the national economy, while values less than 1.0 indicate a sector is proportionately less well-represented locally.
The table shows the strong concentration of employment in the aerospace sector (and, as a result, durable manufacturing). Employment is also strongly concentrated in information (which includes the expanding computer software industry), wholesale trade and transportation/warehousing/utilities (because of the port), financial activities and construction. Retail, services, government, and mining/resource employment are under-represented in the local economy. - Growth of Advanced Technology. High technology activities are expanding their role in Seattle's economy. The area has developed into a leading center of software, telecommunications, biotechnology, and medical-technology industries. Microsoft, which is based in the Eastside suburb of Redmond, has grown to become the world's largest software maker and now employs approximately 28,000 workers locally, making it the second-largest private sector employer in the region. Biotechnology — which is centered around the University of Washington, the Fred Hutchinson Cancer Research Institute, and the large complex of medical facilities in Seattle — is another rapidly-expanding industry.
The technology sector was hurt in 2000 and 2001 because of the "dot-com crash," which cooled a white-hot office market and caused many developers to place their projects on hold. Seattle still contains a large number of Internet-related companies, though many are smaller and less ambitious in their growth plans that was the case in the late 1990s.
The slowdown in the Internet economy also affected traditional software makers such as Microsoft, which announced it would reduce its job-growth below the rates seen in the 1990s. Microsoft has also been adding jobs overseas, though it says the Seattle region will remain the center of its operations.
Despite the current slowdown, the central Puget Sound region remains attractive to high technology industries for several reasons. It possesses a highly trained and well-educated labor force. The presence of Boeing has created a large demand for skilled technical workers, while the University of Washington and other local higher education institutions have provided much of the supply. The aerospace and software industries have created numerous spin-off and support activities. The Puget Sound region enjoys excellent access to the high-tech industries in both California and Asia. Finally, the region's environmental and cultural amenities are attractive to entrepreneurs and workers alike. - Links to the Pacific Rim. Economic expansion around the Pacific Rim has had a strong influence on the growth of the Puget Sound region. With Boeing, Microsoft, agriculture, and the forest products industry, the Puget Sound economy is strongly export-oriented. The area's location gives it special advantages as a transshipment point between the U.S. economic heartland and Alaska, Japan, South Korea, Hong Kong, Taiwan, and other points around the Pacific. By ship, the Puget Sound ports are a full day closer to Asia than their competitors in California. Seattle's hosting of the first APEC (Asia-Pacific Economic Cooperation) Summit Conference in 1993 and the WTO (World Trade Organization) ministerial meeting in 1999 symbolize the area's growing importance in the Pacific Rim and global economies.
Seattle's port was one of the first in the nation to develop modern container-handling facilities. The nearby Port of Tacoma has an ample supply of inexpensive waterfront land on which additional container capacity is being developed. The Puget Sound "load center" (including both Seattle and Tacoma) is the second-busiest port on the West Coast after Los Angeles/Long Beach. The ports are facing strong competition from California and British Columbia ports and are attempting to cope with growing conflicts between truck and train traffic throughout the Puget Sound corridor. However, the southern California ports have become clogged and both Seattle and Tacoma handled record container volumes in 2004.
Within the Seattle Metropolitan Division, employment growth is occurring in several locations. Downtown Seattle remains the chief center of financial, administrative, and office activities in the state. An important secondary office center has developed on the Eastside, which also is the leading concentration of advanced technology activities in the region. Light industrial and distribution activities continue to congregate in the Green River Valley south of Seattle and in the Fife/Sumner/Puyallup area east of Tacoma. Other large employment centers are located along freeways, notably the Technology Corridor along Interstate 405 north of Bothell and the Interstate 90 Corridor extending east from Bellevue. Emerging concentrations of office, industrial, and high technology development also can be found in the Lake Union area of Seattle, in Federal Way, the South Everett/Mukilteo area, the corridor north of Marysville, Puyallup/South Hill, DuPont, and east Thurston County.
Wetland regulations have removed a sizable share of the region's commercial and industrial land from the inventory of developable sites. Rising land prices and a dwindling supply of sites is pushing industrial development out to successively more peripheral locations, notably the Interstate 5 corridor north of Marysville, the Interstate 90 corridor between Preston and North Bend, and the Frederickson area southeast of Tacoma.
In 1996, the U.S. Navy completed its new home port for an aircraft carrier battle group in Everett; this base has brought 18,000 new jobs to Snohomish County. Most of the other military installations in the region are holding their own in the face of cutbacks in defense spending. Higher defense spending is being pushed by the Bush administration and Congress in the wake of the 9/11 terrorist attacks. However, Congress is preparing another round of base closures nationwide which could affect some installations in the Puget Sound region.
Population Trends
The Employment Change vs. Population Change graph shows that population changes tend to lag one to two years behind changes in employment.
Sources: US Census; Washington Office of Financial Management; Washington Employment Security Department; Integra Realty Resources
The Seattle area's population has grown in periodic surges associated with economic cycles. This pattern has repeated itself during each of the last four decades. Each decade began with a recession and comparatively slow population growth, followed by economic booms and rapid expansion of employment and population in the closing years of the decade.
The boom of the 1990s differed from previous expansions in one notable respect. In the previous booms, population growth was of comparable magnitude to employment growth (subject to the one- to two-year lag). In the most recent boom, however, population growth fell well short of employment growth. The pool of new in-migrants shrank because of an aging population and relatively strong regional economies elsewhere in the U.S. (notably California). The shrinkage in total employment in 2001-2003 is caused a slowdown in the rate of population growth, but population did not decline in absolute terms. The resumption of employment growth is expected to trigger larger population increases as the decade progresses.
According to the Washington State Office of Financial Management, the city of Seattle contained 572,600 people in 2004, making it the largest member of the constellation of settlements that surrounds Puget Sound. The total population of the Puget Sound region numbers 3.635 million, which is divided among the three Census-defined metropolitan areas described above. Current and historic population data at the county and metro area level are summarized in the following table.
| Metropolitan Area | 1970 | 1980 | 1990 | 2000 | 2004 |
|---|---|---|---|---|---|
| Seattle-Bellevue-Everett MD | 1,424,611 | 1,607,618 | 1,972,933 | 2,343,070 | 2,433,100 |
| King County | 1,159,375 | 1,269,898 | 1,507,305 | 1,737,046 | 1,788,300 |
| Snohomish County | 265,236 | 337,720 | 465,628 | 606,024 | 644,800 |
| Tacoma MD (Pierce) | 412,344 | 485,667 | 586,203 | 700,818 | 744,000 |
| Seattle-Tacoma-Bellevue MSA | 1,836,955 | 2,093,285 | 2,559,136 | 3,043,888 | 3,177,100 |
| Bremerton MSA (Kitsap) | 101,732 | 147,152 | 189,731 | 231,969 | 239,500 |
| Olympia MSA (Thurston) | 76,894 | 124,264 | 161,238 | 207,355 | 218,500 |
| Seattle-Tacoma-Olympia CSA | 2,015,581 | 2,364,701 | 2,910,105 | 3,483,212 | 3,635,100 |
| MD = Metropolitan Division; MSA = Metropolitan Statistical Area; CSA = Combined Statistical Area Sources: Washington Office of Financial Management; Integra Realty Resources-Seattle |
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Nearly three-fourths of the Seattle Metropolitan Division's population lives within its 60 incorporated cities and towns. The following table lists the largest cities in the metro area.
| Rank | City | County | Population | Rank | City | County | Population |
|---|---|---|---|---|---|---|---|
| 1 | Seattle | King | 572,600 | 7 | Shoreline | King | 52,740 |
| 2 | Bellevue | King | 116,500 | 8 | Redmond | King | 46,900 |
| 3 | Everett | Snohomish | 96,840 | 9 | Auburn | King | 46,135 |
| 4 | Kent | King | 84,560 | 10 | Kirkland | King | 45,800 |
| 5 | Federal Way | King | 83,590 | 11 | Edmonds | Snohomish | 39,620 |
| 6 | Renton | King | 55,360 | 12 | Sammamish | King | 36,560 |
| Sources: Washington Office of Financial Management; Integra Realty Resources-Seattle | |||||||
The combined population of all cities and towns in the Seattle Metropolitan Division stood at 1,766,887 in 2004, while unincorporated areas contained 666,213 inhabitants.
Most of the region's growth is taking place in the suburbs. Like other large U.S. urban areas, the central cities (Seattle and Everett) had populations that were stable or declining prior to 1990. In the late 1980s, Seattle reversed a 30-year decline, and its population has since rebounded from 493,846 in 1980 to 572,600 by 2004, the highest ever recorded for the city. This growth came despite no significant annexation of territory by Seattle. Everett has grown considerably due to infill development of suburban territory annexed during the 1970s. In another reversal of historical trends, the downtown areas of Seattle, Bellevue, Tacoma and Everett are among the fastest-growing neighborhoods in the region.
The city of Seattle contained 23.5 percent of the Metropolitan Division's population in 2004. Among the suburban areas, the Eastside was the most populous with 467,212 inhabitants or 19.2 percent of the metro area's population.
South King County, which includes both the southeast and southwest suburban sub-regions, had a 2004 population of 647,746, while the North End suburbs, which extend from Seattle to Lynnwood, contained more than 348,000 people. The urban area around Everett had a population of nearly 232,500 (refer to the Historical Population Growth table below).
| Submarket | Population | Change/Year 1990-2004 | |||||
|---|---|---|---|---|---|---|---|
| 1970 | 1980 | 1990 | 2000 | 2004 | Number | Percent | |
| Seattle | 530,831 | 493,846 | 516,259 | 563,376 | 572,600 | 4,024 | 0.7% |
| Eastside suburbs | 202,022 | 287,212 | 379,262 | 450,646 | 467,212 | 6,282 | 1.5% |
| North End suburbs | 186,421 | 216,697 | 281,386 | 328,941 | 348,043 | 4,761 | 1.5% |
| Southwest suburbs | 189,638 | 198,714 | 244,365 | 282,690 | 288,226 | 3,133 | 1.2% |
| Southeast suburbs | 160,281 | 214,460 | 283,189 | 348,910 | 359,560 | 5,455 | 1.7% |
| Everett urban area | 103,210 | 120,092 | 158,803 | 216,402 | 232,468 | 5,262 | 2.8% |
| Rural fringe | 52,208 | 76,597 | 109,669 | 152,105 | 164,991 | 3,952 | 3.0% |
| Metro area total | 1,424,611 | 1,607,618 | 1,972,933 | 2,343,070 | 2,433,100 | 32,869 | 1.5% |
| Sources: US Census, Puget Sound Regional Council; Integra Realty Resources-Seattle | |||||||
In numerical terms, the Eastside, North End, and Southeast King County are the fastest-growing portions of the Metropolitan Division, mainly because they have the largest quantities of available land. Rural areas are experiencing the greatest percentage growth, but this expansion comes on top of a small population base; thus, numerical increases are more modest.
The Seattle Metropolitan Division is projected to contain more than 2.6 million people by the year 2010 and should approach 3 million by 2020.
| Submarket | Population | Change/Year 2004-2010 | ||||
|---|---|---|---|---|---|---|
| 2004 | 2010 | 2020 | 2030 | Number | Percent | |
| Seattle | 572,600 | 594,116 | 641,790 | 702,812 | 3,586 | 0.6% |
| Eastside suburbs | 467,212 | 498,128 | 550,106 | 591,243 | 5,153 | 1.1% |
| North End suburbs | 348,043 | 382,519 | 439,453 | 493,759 | 5,746 | 1.6% |
| Southwest suburbs | 288,226 | 299,369 | 322,927 | 342,257 | 1,857 | 0.6% |
| Southeast suburbs | 359,560 | 379,797 | 420,226 | 452,876 | 3,373 | 0.9% |
| Everett urban area | 232,468 | 261,095 | 302,382 | 346,352 | 4,771 | 2.0% |
| Rural fringe | 164,991 | 187,821 | 223,293 | 258,961 | 3,805 | 2.2% |
| Metro area total | 2,433,100 | 2,602,845 | 2,900,177 | 3,188,260 | 28,291 | 1.1% |
| Sources: US Census, Puget Sound Regional Council; Integra Realty Resources-Seattle | ||||||
The population of the entire Puget Sound region is expected to reach 4 million by 2010 and should exceed 4.4 million by 2020. By 2030, nearly 5 million people are expected to call the Puget Sound region home.
The most rapid growth is expected to be to the east, southeast, and north of Seattle. The Eastside, North End, and Everett urban area are expected to be the fastest-growing markets in absolute numerical terms through 2010. The fastest percentage growth rates are projected to occur around Everett, in the North End, and in the rural fringe.
Modest projected increases in the southwest suburbs are expected to result from a dwindling supply of vacant land and encroachment of commercial and industrial uses on older residential neighborhoods. The inner suburbs (Highline, Burien, Shoreline, Bellevue, Kirkland, and Renton) are expected to grow slowly, as increases in the number of new housing units are offset by declining household sizes. Most residential development in these areas will involve infill construction, renovation, and conversion of non-residential buildings to residential use. The population of Seattle is expected to grow at a steady rate.
Over the next ten years, the most rapid suburban population growth is expected to occur in the following areas:
- the area east of Interstate 405 in south Snohomish County;
- the area east of Silver Lake/Mill Creek and south of Everett;
- the corridor east of Interstate 5 between Marysville and Arlington;
- the Bear Creek area, east of the Sammamish River valley;
- Cougar Mountain and the Interstate 90 corridor from Issaquah to North Bend;
- the plateau to the east of Lake Sammamish;
- the plateau east of the Green River Valley and Maple Valley; and
- the master-planned communities of Trilogy/Redmond Ridge, Issaquah Highlands, Snoqualmie Ridge, and Lakeland Hills.
By 2030, Seattle's share of metro area population is projected to fall to around 22 percent, but Seattle is expected to remain the largest sub-region in the metro area in terms of population throughout the forecast period.
Incomes and Purchasing Power
Household incomes are higher in the Seattle area than elsewhere in Washington State and the U.S. The distributions of disposable household income for the Seattle Metropolitan Division, Washington State, and the U.S. appear in the Disposable Income table.
| 2004 Household | City of | Seattle | King | Seattle | Sea-Tac | State of | United |
|---|---|---|---|---|---|---|---|
| Disposable Income | Seattle | Suburbs | County | MD | CSA | Wash. | States |
| Less than $20,000 | 20.8% | 13.2% | 15.9% | 15.3% | 16.1% | 19.0% | 22.4% |
| $20,000 to $34,999 | 21.8% | 18.5% | 19.4% | 19.4% | 20.4% | 22.0% | 23.3% |
| $35,000 to $49,999 | 18.2% | 19.6% | 18.8% | 19.2% | 19.8% | 19.7% | 19.0% |
| $50,000 and over | 39.2% | 48.7% | 45.9% | 46.1% | 43.7% | 39.3% | 35.4% |
| Median household EBI | $40,921 | $49,143 | $46,666 | $46,906 | $45,177 | $41,862 | $38,201 |
| Average household EBI | $56,739 | $62,482 | $62,328 | $60,920 | $57,733 | $53,149 | $49,721 |
| Per capita EBI | $25,972 | $23,790 | $25,499 | $24,308 | $22,624 | $20,473 | $18,662 |
| Aggregate EBI ($million) | $14,996 | $44,181 | $45,506 | $59,177 | $85,352 | $126,580 | $5,466,880 |
| MD = Metropolitan Division (King and Snohomish counties) CSA = Combined Statistical Area (King, Snohomish, Pierce, Kitsap and Thurston counties) EBI = Effective Buying Income (Disposable Income) Source: Sales & Marketing Management, 2004 Survey of Buying Power |
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The table indicates that the Seattle Metropolitan Division has proportionately more households in the over-$50,000 income group and proportionately fewer households earning less than $50,000 per year than either Washington or the U.S. These discrepancies result from the high concentration of professional and technical workers in the Seattle area, and the fact that a greater proportion of the Seattle Metropolitan Division's population is in the economically active age groups (20 to 64 years).
Seattle's income advantage over Washington is somewhat less pronounced than for the U.S., but it must be remembered that the Seattle region contains roughly half of the state's population and economic activity and thus the statewide figures are strongly influenced by Seattle's contribution.
The median disposable income of Seattle Metropolitan Division households is 12 percent higher than the statewide median and 22.8 percent above the national median.
The distribution of incomes within the Metropolitan Division conforms to those of metro areas throughout the U.S.: suburban areas tend to be more affluent than the central city. Among suburban areas, the Eastside has a larger concentration of upper-income households than any other part of the metro area. However, the region's complex topography, combined with its patchwork of waterfront and view neighborhoods, means that high-income districts are scattered throughout the urban area, often in close proximity to low-income neighborhoods.
Regulatory Climate/Policy Issues
The strong economy and rapid growth of the late 1980s and 1990s touched off a series of land-use conflicts that continue to reverberate throughout the region. The Washington State Growth Management Act (GMA) was passed by the Legislature in 1990. The GMA obliged cities and counties to overhaul their comprehensive plans and zoning codes and mandated the delineation of urban growth boundaries. It also mandates concurrent funding of infrastructure and allows local governments to assess impact fees on new development.
Counties and municipalities adopted comprehensive plans to make them consistent with GMA in 1994. These comprehensive plans attempt to integrate land use and transportation planning by concentrating future growth in existing urban areas and restricting low-density "sprawl" on the fringes of the built-up area. In King County, a number of high-density urban centers were designated as part of the new Comprehensive Plan; these centers are to receive as much as 40 percent of future employment growth. The City of Seattle adopted a similar plan, in which the bulk of new growth will be directed into a hierarchy of "urban centers" and "urban villages." King County has begun implementing transferable development credits which allow higher density in urban centers in exchange for lower rural densities.
Land use issues played a major role in the incorporation of several new cities throughout the region: Federal Way and SeaTac (in 1990), Burien and Woodinville (1993), Newcastle (1994), Shoreline (1995), Covington and Maple Valley (1996), Kenmore (1998), and Sammamish (1999).
Land use issues generally become highly politicized during economic boom periods, when pressure is placed on local housing and transportation resources; the political controversies usually die down during recessions, when economic development and jobs become the priority.
The Sound Transit project has run well over budget, due mainly to cost overruns on the light-rail system, which have jeopardized federal matching funds and eroded local political support. The completion date for the project has been pushed back from 2006 to 2009 and Sound Transit has scaled back the light rail system to run from downtown Seattle to a point one mile north of the airport. Despite these setbacks, construction has begun and enough money has become available to extend the line to the airport terminal. Planning is under way to extend the line north to the University of Washington and Northgate.
In November 2002, voters in Seattle narrowly approved $1.7 billion to construct a 14-mile monorail system that will connect downtown Seattle with Ballard and West Seattle. Planning for the project is currently under way with completion set for mid-2009. However, tax revenues are running below projections, jeopardizing the project.
Several major public/private highway expansion projects are also under way, including a second Tacoma Narrows Bridge, widening of State Highways 18 and 522, and expansion of heavily used park-and-ride lots throughout the region. In 1999, however, state voters approved an initiative that reduced vehicle license fees, removing billions of dollars for badly-needed highway construction projects. In 2002, state voters resoundingly rejected a measure that would have raised $7 billion for major transportation projects throughout the region, forcing transportation planners back to the drawing board. The state legislature restored a portion of the funding in 2003, enabling a few critical projects to move forward.
Construction has begun on a third runway at Sea-Tac International Airport. The runway is one part of a billion-dollar-plus airport expansion that includes enlarged terminals and parking facilities, improved access and circulation roads, a rebuilt people-mover system, and a future connection to the regional light-rail network.
In recent years, water shortages in a number of suburban areas forced local water suppliers to implement moratoria on new development. In 1997, the cities of Seattle and Tacoma agreed to connect their water supply systems, in the hope of forestalling water shortages in King County. However, Seattle backed out of the plan in 2002 because of concerns about the quality of water that would be put into the expanded supply system. Tacoma and various jurisdictions in south and east King County continue to move forward with a scaled-back version of the plan.
Other major infrastructure projects in the region include new branch campuses of the University of Washington in Bothell and Tacoma, the reopening of the Stampede Pass rail line to provide additional freight capacity over the Cascade Mountains, a new baseball park (Safeco Field) for the Seattle Mariners, a new football stadium (Qwest Field) for the Seattle Seahawks, a new exhibition center for large "flat" trade shows, a major expansion of the Washington State Convention and Trade Center in downtown Seattle, a new Special Events Center in Everett, a new convention center in Tacoma, and a new sewage treatment plant to serve the fast-growing areas of north King and south Snohomish counties.
In 1999, the federal government listed the Puget Sound Chinook salmon as a threatened species under the Endangered Species Act (ESA). Later that year, the bull trout was added to the "threatened" list. The salmon/bull trout issue could have far-reaching effects on the development climate in the Puget Sound region because the urban and suburban areas are crisscrossed by a vast network of salmon-bearing waterways.
Chastened by the spotted owl fiasco, state and local governments, environmental groups, and representatives of the timber, agricultural, and development industries have put together a salmon recovery plan for the region. The resulting plan includes wider buffer zones along rivers, streams, lakes, and wetlands, and stricter limits on the amount of impermeable surface area allowed in new developments.
The 6.8-magnitude Nisqually Earthquake of February 2001 has accelerated work on strengthening and upgrading the region's infrastructure and buildings to cope with expected future large temblors.
Finally, recent actions by the Boeing Company have led the region to question how business-friendly it is. A wide range of issues are being examined, including taxation, business and development regulations, traffic congestion, the cost of land, labor, and permitting, and the tendency of local politicians and community groups to treat large employers (and agencies such as Sound Transit) like "milch cows" from which sizable amounts of money can be extracted (or extorted) whenever major projects are attempted in the region.
Outlook
As was discussed in the Economy section above, the Seattle economy increasingly parallels the national economy in terms of employment and unemployment trends.
National Economic Outlook
The Federal Office of Management and Budget announced that the U.S. economy went through a brief recession between March and November of 2001. The economy appears to be slowly emerging from this recession, but financial scandals, ballooning federal budget deficits, and concerns about the aftermath of the U.S. war on Iraq caused the recovery to be less vigorous than would normally be expected.
This conclusion is reflected in the following graph, which shows that the U.S. Index of Leading Economic Indicators has fluctuated over the past several months, not showing a trend up or down. The Index of Leading Indicators is designed to forecast changes in economic activity approximately six months in advance.
According to Blue Chip Economic Indicators, the U.S. economy is projected to grow by 3.5 percent in 2005 and 3.1 percent in 2006. The western portion of the country is expected to grow more rapidly than the nation as a whole.
Local Economic Outlook
Because Seattle is strongly influenced by Boeing, high technology industries, and tourism/travel, the local economy experienced a longer, deeper recession than the nation as a whole. While the national economy has staged a modest recovery, the regional economy has remained stagnant. There are, however, signs that the Seattle economy is finally emerging from the doldrums.
The outlook for the regional economy is supported by a survey of Puget Sound business executives and financial officers conducted by the Puget Sound Business Journal, as shown in the graph below. The index dipped to an all-time low in late 2002 following massive Boeing layoffs and fears of war in Iraq. Since then, the index has rebounded steadily and is approaching its all-time high.
Source: Puget Sound Business Journal
The Conway/Pedersen index of leading indicators for the Puget Sound region (shown in the following graph) fell by more than 10 percent since its most recent peak and bounced around at a low level for several quarters. Beginning in late 2003, however, the index staged a strong rebound which continued throughout 2004.
Their first quarter 2005 economic forecast showed a 1.9 percent increase in region-wide employment for all of 2004, compared with declines of 0.4 percent in 2003, 2.6 percent in 2002, and 1.0 percent in 2001. Employment is projected to rise by 2.6 percent in 2005 and 2.1 percent in 2006. Despite this rebound, total employment region-wide is not expected to surpass the most recent peak until 2006.
The Conway/Pedersen forecast expects population to rise by 1.1 percent in 2005 and 1.2 percent in 2006. Personal income (in current dollars) was estimated to rise by 4.9 percent for all of 2004 and is projected to increase 5.8 percent in 2005 and 5.6 percent in 2006. Housing construction (units permitted) was estimated to rise a whopping 11.7 percent for all of 2004, followed by increases of 2.8 percent in 2005 and 0.2 percent in 2006. Retail sales are expected to rise by 6.1 percent in 2005, and 6.1 percent in 2006.
Boeing has resumed hiring but Microsoft has scaled back its hiring projections, though it continues to add workers. Microsoft has been attempting to refocus its business in the face of growing competition from Linux on the operating-systems front.
Long-Term Outlook
The Seattle metropolitan area is expected to continue expanding more rapidly than the nation over the long run. The region's economy and population have grown unevenly, but the overall trend has been upward at a rate exceeding the national average. An increasingly diverse regional economy should promote a more stable growth pattern in the future.
Seattle is part of the fast-growing Pacific Rim as well as the expanding Pacific Coast region of the United States. The city is solidifying its economic linkages between Washington, Oregon, British Columbia, Alaska, and other parts of northwestern North America. Because of its dependence on international trade, Seattle has profited from the U.S./Canada Free Trade Agreement and the North American Free Trade Agreement (NAFTA). The large presence of cutting-edge technology industries in the region should also pay dividends in future years as these industries grow and mature.
Historical development trends should continue, with somewhat greater concentration of new growth within the cities than would have occurred if the state Growth Management Act had not been enacted. This, in turn, has generated upward pressure on land prices for both residential and commercial development. The growth of the region continues to place demands on its infrastructure, and the expansion and improvement of roads, utilities, airports, and other public facilities will play a prominent role in the region's development over the next 20 years.
Boeing's decision to move its headquarters out of state is not expected to have a significant near-term effect, but the long-range impacts are not expected to be beneficial to the region. The salmon issue will likely have a large impact on future development, depending on the types of regulations ultimately adopted at the federal, state, and local levels.
