In a feat of economic alchemy possible only in a global pandemic, Pacific Place, the poster child for downtown Seattle’s struggling retailers, could become the face of an even more challenging sector.
On Wednesday, the mall’s developer filed preliminary plans to make most of the city’s offices out of the retail space in the five-level mall and movie theater at Pine Street and Seventh Avenue.
Los Angeles-based Hudson Pacific Properties, which is listed on city permit filings as the owner’s project, is also considering “adding 1 to 3 towers on top of the existing structure, potential residential, office and / or hotel,” according to the filings.
The Seattle Daily Journal of Commerce, which first reported the project, characterized Hudson Pacific as a “prospective buyer” of the nearly 340,000-square-foot center, which is reportedly still owned by Madison Marquette, a real estate company based in Washington, DC.
The prospective retail-to-office makeover came as a shock to some of the mall’s roughly two dozen tenants, who said they were finally seeing business improve after a tough few years of pandemic and the mall’s recent multimillion-dollar renovation.
“We’re just getting our foothold and our customer base together,” said Marlo Miyashiro, co-owner of two mall businesses, Bezel & Kiln and The Handmade Showroom, and a mall tenant since 2015.
The retail-to-office makeover, which would cost an estimated $ 260 million, is also raising eyebrows in the Seattle real estate world – and not just because it comes less than two years after the renovations.
For starters, it’s a quarter-billion-dollar bet on a downtown office market that is 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 sits, swelled to 16.1% in March, well above the Eastside (5.5%) and the broader region (9.9%), according to commercial real estate agency Kidder Mathews.
“I am not sure that [converting to office space] Becomes a successful move for these guys, “says Jeff Rosen, a commercial real estate broker at Seattle Pacific Realty who specializes 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 at Pacific Place is also a blow to expectations for a rapid recovery of downtown retailers, especially in a retail core that Pacific Place has helped anchor since 1998.
Even before COVID, downtown retailers were losing out-of-store shoppers to malls such as University Village and Bellevue Square, as well as to Amazon and other online retailers. Downtown Seattle “has been ‘overstored’ for the last 10 to 15 years,” says Jeff Green, a retail analyst with Hoffman Strategy Group who follows the Seattle market. Case in point: The February 2020 closing of the downtown Macy’s. Pacific Place saw its tenants fall more than 50 in 2017, according to the latest media reports, to 21 tenants by January 2020.
Overcapacity was compounded by the pandemic, which hurt in-person shopping and chased out many of the office workers and tourists that retailers depended on. Many businesses and business groups say shoppers have been scared off by street crime downtown.
Roughly 10% of the downtown retail space is now sits empty, the highest vacancy rate “anywhere in the Puget Sound,” CoStar analyst Elliott Krivenko posted in a recent report.
Elsewhere in the rest of the region, and even in some areas of Seattle, retail space has been demolished or converted into other uses, which has helped keep vacancy rates lower.
In Seattle’s Northgate neighborhood, for example, 14% of retail space was vacant as the light rail station began there. Now, only about 4% of retail space is vacant, according to Krivenko.
But Pacific Place has its own unique challenges.
The mall’s “fortress nature” and multilevel design, which were more standard in the 1980s and 1990s, were “never inviting for the consumer,” says Green.
How much more inviting a redeveloped Pacific Place might be is hard to say. Plans submitted to the city this week give only the barest structural or design details.
Unclear, for example, would be the mall’s open atrium, what would be the new structures required for adding more floors, or what would happen to the AMC multiplex theater that occupies the top floor. Also unclear: The fate of the mall’s 1,164-stall underground parking garage.
But Pacific Place has also suffered from bad timing.
Many of the tenants of the Pacific Place lost since 2017 left during a renovation by Madison Marquette, who paid $ 271 million for the Pacific Place in 2014 and an additional $ 87 million for the underground garage in 2016.
Although Madison Marquette had hoped to replace tenants with more “upscale” stores, Rosen says, by the time the renovations were finished, in mid-2020, COVID made it nearly impossible to recruit them. In August 2020, the mall had only 16 businesses.
Madison Marquette’s strategy was “fine,” Rosen says. “It’s just that their timing was horrible.”
Rosen worries that the proposed redevelopment may be itself ill-timed.
Seattle’s retail core will rebound, says Rosen, who raises questions about a property of retail footprint that is “in the bullseye of the retail core.”
“I’m not sure if that’s the right bet to make,” he adds.
Tenants like Miyashiro, who endured two years of renovations followed by two years of pandemic, couldn’t agree more.
“If whoever owns the place sees the value of having us here, I would really hope that would be the case,” says Miyashiro, who adds that she had to move spaces four times because of the renovation.
“I would definitely love to have something that we could call a permanent home.”
Seattle Times staff reporter Heidi Grover contributed to this report.