In a feat of economic alchemy only possible in a global pandemic, Pacific Place, the poster child for struggling downtown Seattle retailers, could become the face of an even tougher sector.
On Wednesday, the mall developer filed preliminary plans with the city to create office space in most retail spaces at the five-level mall and movie theater at Pine Street and Seventh Avenue.
Los Angeles-based Hudson Pacific Properties, which is listed in city permit applications as the owner of the project, is also considering “adding 1-3 towers above the existing, potentially residential, office structure. and/or hotel,” according to the filings.
The Seattle Daily Journal of Commerce, which first reported on the project, called Hudson Pacific a “potential buyer” of the nearly 340,000 square foot center, which would still be owned by Madison Marquette, a Washington-based real estate company. , DC.
The potential transformation from retail to office has come as a shock to some of the mall’s roughly two dozen tenants, who said they finally see business picking up after a tough few pandemic years and the recent renovation of several million dollars from the mall.
“We’re just starting to gain a foothold and bring our customer base together,” said Marlo Miyashiro, co-owner of two mall businesses, Bezel & Kiln and The Handmade Showroom, and mall tenant since 2015.
The retail-to-office transformation, which would cost around $260 million, is also raising eyebrows in Seattle’s real estate world — and not just because it comes less than two years after renovations.
For starters, it’s a quarter-billion-dollar bet on a downtown office market that’s still in the doldrums thanks to the mix of COVID-19 and new construction.
Office vacancy in Seattle’s central business district, where Pacific Place is located, reached 16.1% in March, well above the Eastside (5.5%) and the wider region ( 9.9%), according to commercial real estate agency Kidder Mathews.
“I’m not sure that [converting to office space] becomes a successful move for these guys,” says Jeff Rosen, commercial real estate broker with Seattle Pacific Realty, specializing in retail.
Hudson Pacific Properties, Madison Marquette and Seattle developer Pine Street Group, which originally developed the mall, did not respond to questions about the sale, redevelopment or how it might affect current tenants.
At the same time, any plan to downsize retail in Pacific Place is also a blow to hopes of a quick recovery for downtown retailers, especially in a mall that Pacific Place helped anchor. since 1998.
Even before COVID, downtown retailers were losing in-store shoppers to outlying malls like University Village and Bellevue Square, as well as to Amazon and other online retailers. Downtown Seattle “has been ‘overstocked’ for the past 10 to 15 years,” says Jeff Green, a retail analyst at Hoffman Strategy Group who tracks the Seattle market. Example: the February 2020 closure of downtown Macy’s. Pacific Place itself saw its tenants drop by more than 50 in 2017, according to contemporary media reportsfor 21 tenants by January 2020.
Overcapacity has been compounded by the pandemic, which has hurt in-person shopping and driven out many office workers and tourists on whom retailers have relied. Many businesses and business groups say shoppers have been spooked by concerns about street crime in the city centre.
About 10% of downtown retail space is now empty, the highest vacancy rate “anywhere in Puget Sound,” CoStar analyst Elliott Krivenko wrote in a recent report. .
Elsewhere in the rest of the region, and even in parts of Seattle, retail space was demolished or converted to other uses, which helped keep vacancy rates low.
In Seattle’s Northgate neighborhood, for example, 14% of commercial space was empty when development of the light rail station began. Today, only about 4% of commercial space is vacant there, according to Krivenko.
But Pacific Place faced its own unique challenges.
The “fortress nature” and multilevel design of the mall, which were more common in the 1980s and 1990s, were “never appealing to the consumer,” says Green.
It’s hard to say how much more inviting a revamped Pacific Place could be. The plans submitted to the city this week give only the finest structural or design details.
It’s unclear, for example, whether the mall’s open atrium would remain, what new structures would be needed to add more floors, or what would happen to the AMC multiplex theater that occupies the top floor. Also uncertain: the fate of the mall’s 1,164-space underground car park.
But Pacific Place also suffered from bad timing.
Many of the tenants lost by Pacific Place since 2017 left during a renovation by Madison Marquette, which paid $271 million for Pacific Place in 2014 and another $87 million for the underground garage in 2016.
Although Madison Marquette had hoped to replace departing tenants with more “upscale” stores, Rosen says, when renovations were completed in mid-2020, COVID made hiring them nearly impossible. In August 2020, the mall had only 16 businesses.
Madison Marquette’s strategy was “good,” Rosen says. “It’s just that their timing was horrible.”
Rosen fears that the proposed redevelopment may itself be inappropriate.
Seattle’s mall will rebound, Rosen says, raising questions about shrinking the retail footprint of a property that’s “mall bullseye.”
“I’m not sure it’s the right bet to make,” he adds.
Tenants like Miyashiro, who endured two years of renovations followed by two years of the pandemic, couldn’t agree more.
“If the owner of the place sees the point of having us here, I really hope they do,” says Miyashiro, who adds that she’s had to move four times due to renovations.
“I would really like to have something that we could call a permanent home.”
Seattle Times reporter Heidi Groover contributed to this report.