Amazon has raised the hopes of just about every city in the country, including Tacoma, when it said it’s looking for a suitable site for a second headquarters.
Don’t break out the champagne and balloons, Tacoma.
Tacoma likely won’t land the $5 billion building, and attracting even small tech firms can be a long shot.
The City of Destiny has things going for it — reasonable home prices and a well-educated workforce.
But those pluses are wiped out by the one thing that companies need if Tacoma wants to meet its aspirations of becoming an up-and-coming tech city.
CLASS A SPACE
Tech companies have similar wants: access to a tech-savvy workforce, public transit, a walkable and vibrant downtown and high-quality office space, said Joseph Williams, tech industry economic developmental director with the state Department of Commerce.
Companies — tech or otherwise — of any substantial size moving to Tacoma first would have to come up with a home, either by occupying existing office space or building their own headquarters.
As it stands now, Tacoma lacks what even medium-sized tech firms need — Class-A office space.
This top tier of office real estate is the “most prestigious buildings competing for premier office users with rents above average for the area,” according to Building Owners and Managers Association International. “Buildings have high-quality standard finishes, state-of-the-art systems, exceptional accessibility and a definite market presence.”
In downtown Tacoma, examples of Class A space include 1201 Pacific (formerly Wells Fargo Plaza), the State Farm building and Columbia Bank Center.
Class A space isn’t the same everywhere. In a large metro area such as Seattle, it usually would include buildings no more than 10 years old.
“Class A is the best buildings the market has to offer,” said John Bauder, a commercial broker with real estate firm CBRE. “In most cities, just because they have so much product they tend to think of Class A buildings as less than 10 years old.”
Though most Class A spaces in Tacoma are older than that, they are some of the nicer buildings in the city and command the highest rents, he said.
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Right now, Tacoma has just over 1 million square feet of Class A space. Downtown Seattle has about 33.5 million square feet, according to CBRE.
Seattle companies have had an insatiable appetite for office space. In the last year, Bauder said, they gobbled up nearly 2 million square feet — twice Tacoma’s existing inventory.
With these numbers it’s easy to see why Seattle is the crane capital of the United States — and why developers can build office space there without having a tenant’s lease in hand.
The picture is different in Tacoma, where the last Class A space built here without city assistance was the 68,500-square-foot Umpqua Bank building in 2004.
And the most contiguous Class A office space now on the market in the city in any one building tops out at 24,000 square feet — in the 17-story Tacoma Financial Center at Broadway and South 13th Street, Bauder said.
A tech company with 2,000 employees — something about double the size of Seattle-based supercomputing company Cray — would require at least 250,000 square feet of Class A space, according to Williams of the state Commerce Department.
As for adding Class A office space, if investors wanted to build a 250,000-plus-square-foot building, for instance, several property owners and developers would be ready to start immediately, said Dan Trimble of the Economic Development Board for Tacoma-Pierce County.
Office space in such a building would rent in Seattle and Bellevue for mid $40 to low $50 per square foot, Bauder said. A 250,000-square-foot building in Tacoma would require the same rent for it to be financially feasible, he said.
A company looking to build a new headquarters could consider the Haub superblock, the largest section of undeveloped land in Tacoma’s downtown core, at South 14th and A streets.
There, a developer could build as high as 400 feet — more than 60 feet higher than the city’s tallest building, 1201 Pacific. The structure could include from 404,000 square feet to 808,000 square feet, depending on whether a developer secures deals to increase density, said Jana Magoon, with the city’s development services department.
But to build, developers need investors and their money. One place to look is overseas.
The market for overseas investors in Tacoma is starting to pick up steam, said Michael Fowler, a consultant for World Trade Center Tacoma’s China trade and investment program.
Their entry into the Class A office market is likely a matter of time, he said.
Tacoma might have even more credibility from overseas investors since the groundbreaking of the $85 million, 300-room Marriott hotel in August. The 22-story tower is scheduled to open in 2020, and is expected to draw 102 investors from China.
Fowler said the skyline-defining project could be a bellwether for things to come.
“The opportunity is doing what nobody else is doing,” he said. “The guy who does it first is really going to make the money.”
In the last decade, Seattle added more than 14 million square feet of office space, according to Commercial Cafe, a commercial real estate website. Part of the boom was thanks to foreign investors.
Some projects are funded partially by a federal program called EB-5. The investor receives a green card under the program when they invest in a project that creates jobs.
Other overseas companies are bringing their money to Tacoma to take advantage of what they see as a good investment opportunity.
The city has seen some interest in foreign investment, including Tacoma Town Center, the Tacoma Convention Center hotel and a 160-unit apartment development next to the main branch of the Tacoma Public Library.
“The wave (of foreign investors) is just coming here,” Fowler said of Tacoma. “It’s gone from Vancouver, British Columbia, to Bellevue to Seattle, and now people are noticing the opportunity down here.”
Another source of money can be investors taking advantage of tax breaks. But that idea hasn’t gained traction.
An attempt to bring a suite of tax breaks for developers of Class A space outside of King County died in the state Legislature earlier this year.
The bill would have exempted Class A office developments outside of King County from property taxes for a decade. Such a tax break could save a property owner millions of dollars over that time.
It also would have exempted high-class office construction from sales and use taxes, as long as construction jobs paid at least $18 per hour.
Had the legislation passed, such tax breaks still would not overcome the cost of building in Tacoma compared with the low rents current Class A space currently draws, Michael Hickey, principal of Neil Walter Co. told The News Tribune in February.
“Will it help close the gap? It helps close the gap,” he said then. “Will it close the gap? No.”
But for Tacoma to entice investors to raise an office building downtown, developers would need a signed, long-term lease from a significant tenant before any ceremonial shovelful of dirt was turned.
Class A space in the city currently draws nearly $28 per square foot according to a recent CBRE report, meaning it’s cheaper for a company to lease existing space than to build anew.
“It would probably be challenging to get a lender on board to do that (build a new high rise) on a speculative basis because of the risk,” Bauder said.
It’s not whether the space would be leased, Bauder said — he is confident that it would: “It’s how long it would take.”
Even though Tacoma doesn’t have the Class A space needed to land a whale like Amazon, it’s had some success in landing satellite offices for workers who don’t want to commute to King County.
Infoblox, the Santa Clara, California-based cybersecurity firm, last year acquired Tacoma-grown Internet Identity and decided to keep an office in the city.
The company is growing. It hired the 100th employee at its Tacoma location on Pacific Avenue this year. Its nearly 25,000 square feet in the Horizon Pacific Center is filled with cubicles and offices.
The company wants to continue expanding but can’t. The problem? A lack of space, said CEO Jesper Andersen, who recently visited Tacoma.
“We are already facing a space crunch,” he said from a sixth-floor office. “I could see us doubling by employees here,” perhaps within a couple of years.
One reason the company decided to keep the Tacoma office is because competition for talent in Silicon Valley, where Infoblox is headquartered, is fierce and expensive.
By contrast, Tacoma has far fewer competitors, Andersen said. Seattle and Redmond aren’t far away, but the commute is becoming unbearable for many, he noted.
“I live in Silicon Valley and the commute is among the worst in the world,” Andersen said. “The Seattle-Tacoma area is not far behind.”
Working in Tacoma instead of in King County makes for a much better commute, he said.
“If I was living in Tacoma, I would not want to sit in that parking lot (Interstate 5),” Andersen said. “My commute can be half an hour rather than two hours each way.”
TACOMA’S SELLING POINTS
If the office space was here, what could Tacoma pitch to make businesses come?
In addition to bearable commutes — as long as you aren’t driving north to Seattle — Tacoma has the talent to sustain a company such as Infoblox with new college graduates, Andersen said.
UWT graduated 243 undergraduates and 85 graduate students from its institute of technology in the 2015-16 school year, a number that grows with each passing year, spokesman John Burkhardt said.
Students also are earning degrees in the masters of cybersecurity and leadership.
Beyond looking to UWT, Infoblox recruits veterans from Joint Base Lewis-McChord, a talent pool Tacoma Mayor Marilyn Strickland says other tech companies could draw from.
“They are very talented men and woman who work in sophisticated technology fields,” she said. “Tacoma has some really unique assets compared to many cities around the county and in our region.”
Tech companies are considering more than price when looking for a secondary campus or a home base, said Ricardo Noguera, economic development director for the city.
“If you want to be in a downtown that’s vibrant and has a mix of uses, that you can walk to shops and use public transit, then you want to consider Tacoma,” Noguera said.
Also, most tech companies have a compelling interest in public transportation, Williams said.
“There has to be pretty good light rail or the city has to be walkable,” he said.
With Tacoma’s light rail crossing the city’s downtown — and its upcoming expansion to the Stadium District and the Hilltop — techies who live in Tacoma might not need to have a car at all.
“If a user is looking for a place where workers can walk out of the building and grab a sandwich, or go to the cleaners and go on light rail and go somewhere else, downtown Tacoma has that,” Nogeura said.
Companies looking for a secondary office might consider locales off the beaten path, Williams said.
“They go to weird cities. Sometimes they go to North Dakota or Dallas or Charlotte,” he said. There’s no reason Tacoma cannot be on that list.”
Staff writer Debbie Cockrell contributed to this report.
Information from The News Tribune archives was included in this story.