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Crossroads Of Tacoma: Multifamily Developers Are Flocking To The City, But Office Space Demand Has Yet To Take Off

Cranes from multifamily developers soar over downtown Tacoma’s south end, and University of Washington Tacoma students crowd the city’s Brewery District streets. Midday traffic in the city’s central business district, on the other hand, is minimal.

The for-lease signs in the windows of the empty buildings support a Kidder Mathews analysis that estimates the vacancy rate in Tacoma’s core business district to be 11.9 percent in the fourth quarter of 2021.

City officials, investors, and Tacoma residents are all wondering what it will take to bring the city’s central business district back to life (CBD).

State Farm relocated 1,400 employees out of the Columbia Bank Center’s downtown headquarters in 2018, and the office district is still rebuilding. Russell Investments had relocated to Seattle from its 909 A St. offices just five years before. The former Russell Center, which spans 212,000 square feet, is currently 40% vacant.

The trend of remote work hasn’t helped, but Tacoma’s office vacancy rate was already high before the pandemic. Tacoma was impacted by the loss of significant employers, not by Covid-19.

“Vacancy was as low as 4% and rates were growing prior to State Farm leaving the market in 2018,” Drew Frame, broker for Kidder Mathews, recently told the Business Journal.

“State Farm left a void of around 300,000 square feet that needed to be filled. That accounted for about a quarter of the Class A market in Tacoma.”

Frame, on the other hand, believes the market will turn in 2022.

“Outside of the market, there is activity from well-known corporations wanting to locate offices in the (central business area),” he said.

Frame isn’t alone in expecting Tacoma’s CBD office vacancy rates to plummet into the single digits this year.

The Kirkland-based MJR Development recently purchased the 15-story Tacoma Financial Center at 1145 Broadway for $41.3 million, marking its first foray into the Tacoma region. Many of the large regional firms regard Tacoma as a viable satellite office location, according to MJR.

“Employers must compete for the top knowledge workers,” MJR partner Mike McClure stated. “Giving employees the option to work in numerous locations will be recognized as a significant benefit, and Covid is simply speeding up the process.”

However, with the office market in the region trailing, more has to be done to revitalize the CBD. Residential and retail are two options, according to Pat Beard, Tacoma’s business development manager.

“Unless you’re a destination with shops, restaurants, and housing,” she added, “downtowns close at 5 p.m. when office workers go home.”

Two old office buildings in Tacoma’s downtown core are being converted to residential multifamily complexes, according to Beard.

At 1019 Pacific Ave., the 18-story Washington Building, built in 1925, will include roughly 160 apartment apartments. InterUrban Development, located in Spokane, is also working on a plan to convert a 109-year-old 16-story office building at 1119 Pacific Ave. into a residential structure.

But, as Steve DeWalt, a partner at InterUrban, points out, it’s easier said than done.

“Office buildings were never meant to be used as residences,” DeWalt explained. “It’s more about the floor plates,” says the narrator. In a 20,000-square-foot floor plate, you can have all kinds of office space facilities, but people need to live near to the buildings’ exteriors.”

Municipalities will need to be flexible in order to make these transitions, he said.

InterUrban, according to DeWalt, has converted many sorts of commercial facilities, such as warehouses, into residential spaces. It all boils down to how devoted cities are to the development of residential space.

“You may have the exact same structure and the exact same style of downtown and have very different consequences,” he added. “It’s not only about the building, the developer, or the funding,” says the author. A lot of it boils down to the vision of the municipality.”

InterUrban felt confident moving forward after the pre-purchase discussion with Tacoma officials went well. However, the ideas are still in the early stages, and no permissions have been applied for.

DeWalt stated, “It’s going to take a lot of hard work to make this happen.” “We’re counting on Tacoma to be a partner, and they’ve been really helpful thus far.”

One of the reasons MJR bought the Tacoma Financial Center was Tacoma’s booming residential market, according to McClure.

He explained, “People are trying to get out of the Seattle rat race.” “This trend will attract future firms eager to hire from Tacoma’s growing pool of knowledge workers.”

Investors in secondary cities like Tacoma are anticipating for greater demand for coworking and smaller satellite office spaces when the pandemic dust settles.

“We’re already seeing Seattle firms migrating into Tacoma, using our coworking and small office spaces,” said Reid Fetters, owner of FC Group and founder of Tacoma Rising. “Landlords must expand their services to include economical turnkey office solutions with flexible terms if they want to position themselves for post-pandemic success.”

More coworking spaces are being built, as well as a focus on smaller-scale possibilities.

“Rather than waiting for a single-tentpole company like Russell or Amazon, I believe Tacoma’s office market would thrive if we recruit 1,000 little firms to the city,” Fetters said.

In Tacoma’s downtown sector, several construction offices, interior design firms, and banks have lately opened.

Beard explained, “We’re seeing all the ancillary things that come with the construction ecology.”

She added that the health-care business is another market to keep an eye on as it transitions to virtual care. “It’s not just about adding additional medical centers; it’s also about adding supportive offices.”

The ultimate goal for the city’s downtown core is to provide space that will attract businesses that will bring jobs to the area.

“We appreciate all employment,” Beard added, “but we’re focusing on the best-paying living-wage positions.”

“That’s where we’re concentrating our efforts.”

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