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story.lead_photo.caption Amazon’s new building in Rainier Square is at Fifth Avenue and Union Street in Seattle. It appears that Amazon will put its share of the building up for sublease.

Amazon is abandoning a prominent downtown Seattle office project 10 months after it threatened to do so if the city imposed a new business tax.

While the Seattle City Council ultimately reversed itself on the so-called head tax, Amazon confirmed last week that it will not occupy the 722,000 square feet of space it had leased in the Rainier Square tower under construction at Fifth Avenue and Union Street. The company did resume construction on another high-rise it had paused as part of last May's threat.

"We are always evaluating our space requirements and intend to sublease Rainier Square based on current plans," Amazon said in a statement, adding that the company has more than 9,000 open jobs and 2 million square feet of new space under construction in Seattle, and that "it will continue to evaluate future growth."

The Amazon executives doing those evaluations exit February with much more to consider than when they entered the month. Meanwhile, the company's growth in Seattle and its relationship with the city will likely figure prominently in the coming City Council election season.

On Valentine's Day, Amazon abandoned its plans for a major campus in New York City, which would have accommodated up to 25,000 employees as it was built over several years. It has upward of 2,000 people working in the city in areas including advertising, fashion and publishing.

The company said it would spread those jobs across several other North American tech hubs where it has offices, but indicated no immediate plans to accelerate growth in Seattle as a result of its false start in New York. Nor did it indicate it would restart its search for a second headquarters, dubbed HQ2, the yearlong sweepstakes it launched in 2017 that yielded in November a split decision with New York and Northern Virginia tapped for huge new offices.

Now, in addition to seats for 25,000 would-be New York employees, Amazon -- if its growth trajectory holds -- would need to find space for thousands more who would have worked in downtown Seattle.

At 722,000 square feet, the Rainier Square lease was one of the biggest in Seattle history. It provided room for at least 3,500 employees, and perhaps up to 5,000.

Amazon had previously secured two large spaces in downtown Bellevue, its original hometown, enough to accommodate 4,500 people. The Puget Sound Business Journal reported that the company is looking to expand even more in Bellevue, although Amazon has not commented on its Eastside plans. Other big tech companies in the region maintain locations on both sides of Lake Washington to tap talent in the city and its suburbs.

Scheduled to open next year, the $570 million Rainier Square tower project will be the second-tallest building in the Pacific Northwest, at 58 stories. It also will include luxury apartments and a hotel, as well as a PCC Community Markets on the ground floor.

Even by Amazon's standards, the office commitment was huge: Only a few companies -- Starbucks, Google and Facebook -- have more office space in Seattle altogether than Amazon was planning to occupy in Rainier Square.

In addition to its size, Rainier Square represented a bit of a departure for Amazon, which has about 40 buildings and 45,000 employees in South Lake Union and the Denny Triangle, to venture south toward downtown.

The impact the pullout will have on the local office market is mixed: On one hand, it's a ton of space to fill, and likely too big for any one company to take. But on the other hand, the office market -- unlike the cooling residential real-estate market -- is overheated with demand from companies.

Colliers International released a report recently showing the vacancy rate in downtown Seattle is 7.1 percent -- only Manhattan and the San Francisco Bay Area had tighter markets, among major metropolitan areas. Office rents for top-tier Class A properties downtown, like Rainier Square, have also been rising as companies like Google, Facebook and WeWork continue to snatch up large amounts of space.

Seattle's economic base is much broader than it was in 2007, the last time a similarly large chunk of top-tier space came on the market unexpectedly. When Washington Mutual -- then Seattle's biggest office tenant -- went under and vacated 1.2 million square feet in the city, it "kind of imploded our market," said David Gurry, senior vice president of Colliers in downtown Seattle.

"It's my opinion that 720,000 square feet of space will really have an insignificant impact on the market," Gurry said. "There's enough demand from companies in the city of Seattle and those moving in from places like Silicon Valley that I think it'll get gobbled up pretty quickly."

The stakes for Amazon to sublease the space are significant, even for a company that made an $11.2 billion profit last year. The company doesn't release its lease terms, but leases for new buildings in Seattle typically last 10 to 15 years. When Amazon signed its Rainier Square lease in the fall of 2017, rents in downtown were about $42 per square foot a year. Based on that, its total rent bill for the building would be in the neighborhood of $30 million a year, or $300 million over a typical 10-year lease.

Gurry said it's possible a sublease deal could even be slightly profitable for Amazon and Seattle-based Wright Runstad & Co., the tower's builder and owner. Office rents have risen about $5 per square foot in the year and a half since Amazon's original lease, so it could make a small profit -- likely split 50/50 between Amazon and Wright Runstad -- if it is able to sublease the full space.

Greg Johnson, president of Wright Runstad, said he couldn't say why Amazon pulled out of the building or if it's tied into any larger threads about the company's future here.

"It's a relatively small part of what they occupy in the region, so I wouldn't necessarily try to read that much into it," Johnson said, noting that subleasing goes on pretty frequently in Seattle.

While signing a single, noteworthy company before the project broke ground was a win for Wright Runstad, he said it will still be a success if another strong company or group of tenants ultimately fills the building, which he expects to be the case.

"We wish [Amazon] well and hope it's super successful" in subleasing the space, Johnson said. "I think the good news for Amazon is we're in a very robust market and there's other people and companies out looking for space, and there isn't much available. I think they're going to fill it up pretty quickly."

Information for this article was contributed by Daniel Beekman of the Seattle Times.

SundayMonday Business on 03/03/2019

Print Headline: Amazon rethinks Seattle plan

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