Is the Rain as Bad as They Say in Seattle?

Last week, in  Weathering the Rain, and the Property Storm, WSJ reporter Maura Webber Sadovi wrote that Seattle is better equipped to dodge the brunt of the economic storm than other parts of the country.

Like many markets, Seattle also has supply issues. The national economy is slowing even as developers are delivering a slew of buildings — including offices, stores and condominiums — started in better times.

But amid these pressures, the Seattle region’s office-, retail- and apartment-leasing markets still have outshined most major U.S. metropolitan areas by some key measures. While retail rents in most markets are falling, average Seattle-area retail rents are expected to rise 3% this year, the highest gain of 54 major markets tracked by Property & Portfolio Research, a real-estate research firm.

Office rents are expected to rise 4.5% this year, the second-biggest gain after Houston, though that will diminish next year as newly constructed space damps landlords’ leverage. Average metrowide warehouse rents already are falling.

In response, Seattle Bubble asks:

Sadly, the article is long on rosy talk and short on actual quantifiable facts. Why is Seattle “going to weather the recession a lot better than most markets”? Ms. Hession doesn’t say, and neither does the article. All we read is that Seattle has held up better so far, which is true thanks to our lagging housing market. If Seattle’s economy is based largely on software and airplanes, what specific arguments can be made that those two industries will hold up better than average in a recession?  [Read more here.]

Perhaps it’s true that Seattle is as vulnerable to a recession as other parts of the country are, and maybe it’s just that we tend to stay in denial longer than everybody else. (Just look at those rising King County property taxes!) House prices are in decline, principal employer WAMU is on shaky ground, and gas prices are all over the board. It’s hard to believe that software, cell phones, and the semi-annual women’s and children’s sales at Nordies are going to stay top of consumers’ priorities as their wallets get thinner and thinner.

However, I gotta believe that it’s all relative and that still in general our primary businesses will insulate us more than the car industry in Detroit, for example. Can’t we hang some hope on the fact that two anchor employers for the region, Microsoft and Boeing, are well poised for international growth? Nearly two thirds of Microsoft’s revenue currently originates from outside the United States.  In the case of Boeing, the numbers are even more dramatic with over 70% of their commercial airplane manufacturing revenue coming from international sources (http://www.boeing.com/companyoffices/aboutus/overview/powerpoint/boeing_overview.ppt).  No doubt, we’re in for tougher economic times ahead and major area employers such as Washington Mutual, Starbucks, Nordstroms and REI are vulnerable in this uncertain time. For real estate, this may very well mean that certain areas within the Seattle area perform better than others. All we have to do is look no further than the dominant local employer in each community to get the best sense for whether home prices will stay somewhat stable or be at serious risk of deflation. 

What’s your take on the situation? Will our high tech umbrella be strong enough to shield us from the storm, or do you think this it’s little more than a flimsy piece of fabric, wavering in the wind?