Seattle office vacancy crisis shifts tax burden onto renters

SEATTLE - Seattle now leads the nation for the highest office vacancy rate in the downtown area. It marks the highest of any major U.S. city, following the loss of tens of thousands of jobs since 2020.

A business and economic report released by the Downtown Seattle Association blamed Seattle’s payroll tax or "Jumpstart" tax for shedding 30,000 jobs in the last several years, in part causing the high office vacancy rate of 36.5% according to Cushman & Wakefield.

The backstory:

The controversial payroll tax was approved in 2020 and went into effect in January 2021, taxing large employers on high earners.

In June, Mayor Katie Wilson said more taxes are on the table to plug what she calls a nearly half a billion-dollar budget shortfall over the next 3 years.

Wilson said a local capital gains tax as well as the expansion of the payroll tax are all on the table.

Spending cuts are also under consideration, and Wilson will roll out her budget proposal in September. 

Business leaders warn that doubling down on taxes will only worsen the city's economic stagnation.

What they're saying:

"Well, I think it's the wrong move for Seattle and it would continue, I think, to push jobs outside of our city," said Jon Scholes, president of the Downtown Seattle Association, in a television interview. "We don't need more business taxes in Seattle. We need more businesses located here paying taxes."

Scholes pushed back against the notion that the deficit is purely a revenue issue.

"I think it's important for the city to spend within their means. They haven't done that over the last five or six years," Scholes said. "They've spent beyond the revenues that they've collected and they've tried to make up the difference by putting a lot more taxes on Seattle employers, which have sent a lot of jobs elsewhere."

Cities like Bellevue are a prime example, according to Scholes. He says while Seattle has lost jobs and commercial property values have plummeted, Bellevue is doing the opposite on both fronts.

Out of the top 30 major U.S. metropolitan areas, Seattle ranks near the bottom for job growth over the last four years.

"Certainly COVID and shifts in how tech companies are hiring and investments in AI and layoffs and inflation and national and global turmoil... are factors," Scholes said. "But those are factors that other cities are facing as well and many of those cities are growing jobs and Seattle hasn't."

When asked what advice he would give Mayor Wilson to solve the nearly half-billion-dollar deficit she inherited, Scholes urged the administration to focus on expanding the private sector rather than squeezing it.

"You can get new revenue, you can grow the tax base by making Seattle just a fabulous place to do business and by filling spaces in downtown Seattle."

The economic fallout of the empty buildings is already beginning to impact everyday citizens. With nearly 20 million square feet of vacant office space, downtown building values have plummeted to about half of what they were four years ago. Because these commercial properties are generating fewer tax dollars, Scholes warned that the financial burden is shifting directly onto local homeowners and renters.

"That property tax burden really shifts to residents," Scholes said. "Those buildings were paying a lot more five years ago to contribute to city property taxes, but also school district property taxes and the county and state property taxes than they are today. So if you care about affordability, you ought to care about downtown Seattle having a high vacancy rate."

The other side:

Despite the friction over fiscal policy, Scholes offered praise for how the city handled its recent hosting of six World Cup matches, noting that the event proved what the city is capable of when it functions at its best.

"I think Seattle showed up and we were reminded of what a great city we have. What a great sports town we have, great soccer culture," Scholes said. "Our transit system was super helpful in moving a lot of people around. Our waterfront was jam packed. We have a lot of assets here. So this was a tremendous success."

He urged city leaders to use the global tournament as a baseline for everyday governance moving forward, rather than a temporary display.

"There's a lot we should keep going and we shouldn't go back to chapters necessarily the way it was. I think there's a lot of lessons to take from this," Scholes said. "People want safe and clean and delightful public spaces, and if you deliver that, they will show up." He added that the exceptional standard of quality seen at the new waterfront park "should be not the exception but the rule across downtown."

Scholes also evaluated Mayor Wilson’s overall performance, noting that she is still "finding her way as a new mayor of a big city." While he commended her ongoing efforts to create more indoor spaces for the unhoused population, he criticized a recent decision to deactivate CCTV cameras in the stadium district after Seattle hosted its last match this week.

"Cameras have been helpful to helping cops catch the bad guys. And I think we should be using all the tools we can to keep our community safe."

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