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Seattle office vacancy crisis: An opportunity for housing?
Seattle has the highest office vacancy rate in America. But it begs the question, could it be an opportunity in disguise?
SEATTLE - Inside a newly converted apartment at 1075 Lenora St. in South Lake Union, light streams through 10-foot windows framed by 13-foot ceilings.
For Ray Connell, managing director at Holland Partner Group, turning three floors of vacant office space inside the building into residential units was an opportunity to create something unique.
FOX 13 got a tour of a two-bedroom unit offering views of the Space Needle.
The building gives tenants access to two gyms, a doggie playground and spa, a pool and hot tub, massive, shared spaces and additional vistas extending to a rooftop.
The office to apartment conversion is rare. For the Holland Partner Group it wasn’t from desire, but desperation.
"This was available for five years," Connell said. "We tried marketing it…there was no action. You couldn’t lower the rents low enough."
Inside 1075 Lenora Street in South Lake Union. (FOX 13 Seattle)
Connell’s dilemma reflects a vacancy crisis across downtown Seattle, where the Downtown Seattle Association estimates roughly 20 million square feet of office space sits empty.
Wakefield & Cushman’s latest data says downtown has a nearly 37% vacancy rate. That’s given Seattle the distinction of the highest office vacancy rate in the country, begging the question: could the wasteland of vacant spaces be an opportunity in disguise?
The backstory:
While converting empty commercial towers into apartments has emerged as a popular talking point among some city leaders seeking solutions, real estate developers caution that office to apartment conversions are far from a silver bullet.
"You look at all the office space that's available for lease, most of that space would be so challenging to do a conversion in that it's not worth even looking at," Connell said, comparing the process to "turning a boat into a car."
The physical and structural hurdles are steep.
Office floor plates often lack the plumbing and mechanical infrastructure needed for residential living, leading to steep costs that does not add up for developers.
In the same 1075 Lenora building, a 3,000-square-foot commercial space will remain empty indefinitely because plumbing regulations prevent an apartment conversion in that space.
Connell says they managed to convert nearly 55,000 sq ft because his company owned the three floors of office spaces inside 1075 Lenora. The other floors already had residential units and shared spaces. Connell says without those amenities in place they would not have done the conversions.
Office buildings in downtown Seattle (FOX 13 Seattle)
By the numbers:
Even when conversion projects succeed, the financial returns can be slim.
Around 40% of the newly converted spaces have been leased out and Connell expects all of the apartments to get snatched up soon.
Even with tenants paying rent, Connell says the extra cost it took to convert the space still means a financial loss for the foreseeable future.
"Happy ending because we are no longer in the office business," Connell said, "but not necessarily a happy ending financially."
Supply constraints and high city fees
While office conversions offer niche inventory, Connell says a viable path to reducing rent prices across the Puget Sound is increasing the supply of new, ground-up construction.
The Holland Partner Group is building a 45 story apartment tower named Sloane at the intersection of 7th and Battery. That site held the Elephant Car Wash known for the pink elephant.
More than 400 units will be up for lease at Sloane next year.
Office buildings in downtown Seattle (FOX 13 Seattle)
What they're saying:
Connell’s company is also behind the construction and management of multiple high rise apartments in Seattle. The problem is not experience, it is investor interest.
"Investors are worried," Connell said. "They're sitting on the sideline waiting to see... That’s why you haven’t seen cranes hit the sky. And people wonder why costs are going up—it's because there's no new housing being built."
Construction cranes used to abundantly dot the Seattle Skyline but now they are not common. In fact, Sloane, which broke ground in 2024, is one of the last high rise apartment projects to start construction in Seattle. Connell says in the last two years there have been hardly any activity.
Among the barriers are Seattle’s Mandatory Housing Affordability (MHA) fees, which require developers to either build affordable housing on-site or pay millions into a municipal housing fund.
Connell says MHA fees can vary from $40,000 for a small project to millions for larger ones.
"You're taxing housing to build housing," Connell arguing that mandatory fees, combined with stringent local energy codes, directly escalate construction costs. "As the cost of housing goes up, so does the rent to pay for the construction."
The Holland Partner Group paid $5 million in MHA fees to get Sloane approved.
The cumulative expense has made building in Seattle considerably more expensive than in neighboring Eastside cities like Bellevue, Kirkland, or Redmond, where total development packages yield higher returns. As a result, institutional investors are increasingly looking outside Seattle, leaving project funding on the sidelines.
Developers contend that lowering barriers and fees could help attract investors and capital.
"The city can't control the Strait of Hormuz or concrete strikes," Connell said. "But they can control the fees that we pay."
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The Source: Information in this story came from Holland Partner Group, the Downtown Seattle Association, and original FOX 13 Seattle reporting and interviews.