Seattle's Surge

When the dot-com market's over-caffeinated growth imploded in 2002, the Seattle economy was left with vacant office buildings and crowds of unemployed techies lounging around its famed coffee shops. That wasn't a pretty economic picture for the Emerald City's electrical distributors and reps.

It's a different scene today, as several Fortune 500 companies that call Seattle home have led the area's economy to a new era of prosperity. Blue-chip companies such as Starbucks, Amazon.com and Microsoft have been pouring millions of dollars into Seattle's economy. The lumber, pulp and paper industries are also some of the largest employers in the region, but they haven't enjoyed the same rate of growth as these other large companies. Led by Boeing, the aviation industry is also a large employer. According to local sources, it is still hiring now, but has scaled back manufacturing operations compared to years past. Seattle suffered from layoffs at Boeing a few years ago when the company moved its headquarters to Chicago, but the company still has production operations in the area. Boeing is busy right now with its new 787, dubbed the “Dreamliner.”

North Coast Electric Co., Seattle, is a major player in the Puget Sound region with 10 service centers and three lighting showrooms operating under the Alexander Lighting name. Pete Lemman, the company's CEO, says the city's large technology employers are hiring. “Microsoft, Google and Yahoo are also building data warehouses in the region to support their businesses,” he says. “Many small businesses support Boeing, but the new-generation jets are actually just being assembled here, so there isn't as much production and manufacturing on them as in the past with other models.”

Seattle is also home to Starbucks and Costco. Starbucks, which is located in Seattle's Sodo neighorhood, has 3,600 employees at its main headquarters and 400 more workers in Pioneer Square. Starbucks is reportedly looking to add 1 million square feet of office space over a number of years to support its aggressive growth plans — it wants to open 2,600 stores next year and to eventually pour coffee in 40,000 stores worldwide.

Seeing an opportunity to expand in the Seattle market, Crescent Electric Supply Co., East Dubuque, Iowa, decided to expand beyond its Everett, Wash., store 14 months ago. It opened a 16,000-square foot-location in Arlington, Wash., and this month will open another location in Mill Creek, Wash., north of Bellevue. The company plans to continue its expansion in the future, says Paul Francis, Crescent Electric Supply's district manager for the Pacific Northwest.

“We think there are good growth opportunities or we wouldn't be doing that,” he says. Francis is located in Portland, Crescent Electric Supply's district branch for the Pacific Northwest, which covers Idaho, Oregon and Washington.

Seattle is at the heart of the Puget Sound region, the 13th-largest metropolitan area in the country. The city is part of King County, home to the 1.7 million people that enjoy living in 39 cities and unincorporated areas from the shores of the Puget Sound and to the foothills of the Cascade Mountains. Manufacturers' reps covering the Seattle market describe the territory as extending as far south as Olympia, north to Bellingham and east to the Cascade Mountains.

“If you look between Seattle and Bellevue, there's a ton of construction going on here,” says Larry Wilson, senior communications manager, Fluke Corp., Everett, Wash. “And the housing market has been obscene here. That's just starting to slow down — the residential, anyway. The commercial is still pretty strong.”

Condo construction is cranking along big-time in Seattle's downtown, in dramatic contrast to the dearth of construction after the dot-com era. The city may be benefiting from a zoning change last year that allowed office, apartment and condo buildings to go as high as 500 feet in parts of downtown, up from an earlier maximum of 360 feet. New residents don't seem to mind the city's astronomical housing prices, and are drawn by million-dollar views of the Puget Sound and downtown Seattle's active nightlife, sports stadiums, nationally recognized restaurants, as well as relatively easy access outside the city to natural wonders such as Mount Rainier, the San Juan Islands and Olympia National Park.

“Downtown commercial construction is booming right now,” says North Coast Electric's Pete Lemman. “We went from a 3 percent vacancy rate in 2001 to around 25 percent in 2002, when the dot-com bust occurred in Seattle. There was virtually no downtown construction for a couple of years, but it's back in full swing now. Both downtown Seattle and Bellevue are building a lot of commercial buildings, as well as mixed-use with hotel and condo components.”

“Seattle probably has more construction going right now on the West Coast than anywhere,” agrees Kevin Adams, sole principal of Shaffer & Nelson Inc., a manufacturers' rep in Seattle. “There are probably 30 cranes in the area for commercial construction, multi-family (the condominium market and rental).

The condominium market is transitioning from an owner-occupied market to a rental market because of the constant relocation of white-collar executives in and out of the region, he says. “It's, ‘Go to Seattle for a couple years and manage this market and we'll move you somewhere else,’” he says. “Those people are renting now instead of necessarily buying.”

Richard Betts of Cascade Western Representatives Inc., Portland, Ore., which has a location in Seattle, agrees that the downtown is booming. “Downtown Seattle, as well as Bellevue, are in a condo boom right now. There are a combined 24 cranes in Seattle/Bellevue. Condos in downtown Seattle are ranging from $1.5 million to $4.5 million. Also, office developments seem to be on the rise.”

The downtown office market is also sizzling. There are now 13 office buildings, with 1.9 million square feet, under construction, according to a New York Times article. Vulcan Real Estate, a company owned by Paul Allen, Microsoft's co-founder, was the first to build. In November, the company began work on 2201 Westlake, two towers with offices, condominiums and ground-floor retailing.

Across nearby Lake Washington, companies are also opening new offices. The move appears to be fueled in part to accommodate employees who prefer not to deal with the arduous commute over the Evergreen Point and Interstate 90 bridges. Microsoft is one of several companies with offices on both sides of Lake Washington. The Redmond, Wash., company plans to expand its presence by putting more than 500 employees in South Lake Union and in Pioneer Square. Microsoft will lease four floors of a new South Lake Union office complex developed by Vulcan. Microsoft is already leasing large amounts of space in Bellevue and is significantly expanding its Redmond campus.

While the condo craze and office market may be of most interest to electrical distributors, independent manufacturers' reps and electrical manufacturers, right now the largest construction projects in Seattle are highway jobs managed by the Washington Department of Transportation. “Major highway renovations and additions are dominating the Seattle area landscape,” says Betts.

Herm Isenstein, president, DISC Corp., Orange, Conn., sees strong growth continuing for Seattle. Isenstein forecasts that electrical distributors in the Seattle area will sell approximately $860 million in electrical products this year — up 10 percent from last year. Isenstein said the second half of 2007 won't be as strong as the first six months.

The housing market

Although Seattle's residential market has slowed from last year, Adams of Shaffer & Nelson Inc. says the market has not gone flat like the rest of the country. “It's still very brisk. The resort retirement communities in the Northwest — South Bend, parts of Montana, parts of eastern Washington — are going through a correction. But the Seattle housing market, the Portland housing market, the Spokane housing market, are still very brisk and very sharp. There is a lot of activity.”

One big reason why the housing market has remained strong compared to other areas of the country is because of the large numbers of people employed by growing companies like Microsoft, several sources say. According to the National Association of Home Builders, Washington, D.C., total building permits year-to-date through August for Seattle-Tacoma-Bellevue, Wash., are up 2 percent. Single-family building permits year-to-date through August for single-family homes are down 13 percent.

According to a Sept. 26 article in The Seattle Post Intelligencer, Seattle-area home appreciation has been the hottest in the nation for 11 months in a row, despite steadily slowing the past year-and-a-half. The article said the August median home price was $439,000 in Seattle and $415,000 in King County, according to the Northwest Multiple Listing Service.

One local source says last year was an excellent year for the electrical industry, but that this year business conditions have been more difficult. “If you couldn't make money last year, you probably didn't belong in this business,” says Francis.

His concerns extend beyond the housing sector to the available amount of credit in the marketplace. Others in Seattle's electrical market are more optimistic. Adams says the Seattle market will be brisk through 2009. Lemman of North Coast Electric believes the rest of 2007 and 2008 should hold up to the current run rate. “I don't see a huge increase,” he says, “but things should stay fairly steady through that time frame.”

Seattle By The Numbers

2007 sales through electrical distributors. $860 million in electrical products this year, a 10 percent increase over 2006, according to forecast data provided by DISC Corp., Orange, Conn., for www.ewhotspots.com.

Building permits. Building permits year-to-date through August for Seattle-Tacoma-Bellevue, Wash., are up 2 percent. Building permits year-to-date through August for single-family homes are down 13 percent.

Major construction projects underway: The Bill & Melinda Gates Foundation, headquartered in Seattle, is planning for a new office campus in the heart of the city, at 500 Fifth Avenue North. This new campus will be the foundation's long-term home.

Vulcan Real Estate, a company owned by Paul Allen, Microsoft's co-founder, is working on 2201 Westlake, two towers with offices, condominiums and ground-floor retailing.