Hot ‘Hoods

What does a gaming guru starting a new venture have in common with a CEO planning to move the companys headquarters? Rather than heading to the suburbs, both are now more likely to choose a city neighborhood for their new digs.

Commuting long distances is still the norm for many workers in the Puget Sound region. But the next few years may bring a shift in thinking about what the priorities are for both workers and employers when it comes to locating a business. The growing trend is to place offices where employees can work, live and playall within a short distance.

While technology has long allowed many offices and businesses to be just about anywhere, rising energy costs, a focus on environmental issues and the demands of todays workforce have business owners increasingly considering leasing office space in the regions major cities.

Thats why Seattle Business focused this years Best Locations for Business survey on urban neighborhoods. Within that framework, we used much of the same criteria that we have for our past reviews of the regions suburbs and cities.

Whether picking a city or a neighborhood, executives planning to relocate care about leasing costs, crime rates, the economic vitality of the surrounding neighborhoods and access to transportation. Also playing a role is the proximity to amenities, which include the number of restaurants, movie theaters, museums and, yes, Starbucks coffee shops.

Our research team, led by Sheila Mickool, initially examined more than 110 neighborhoods in Seattle, Bellevue, Everett and Tacoma. Subsequently, the list was narrowed down to 27 of the most promising places.

Four of the neighborhoods profiled are among the regions hottest locations to lease office space, offering a wide variety of choices and amenities. Our fifth profile is an up-and-coming neighborhood that may, in the future, be the next hot location to hang your shingle.

South Lake Union’s ‘Hip Factor’

In the last few years, this Seattle neighborhood has become one of the hottest places in the region to build a business.

• Population: 3,786
• Median home price: $369,950
• Crimes per thousand residents: 227
• Avg. office lease rates/sq. ft.: $26.61
• Amenities located in the area: 948

When Ted Steffen opened his chiropractic and massage clinic, he knew hed have some explaining to do for the first year.

The
clinics name, Lake Union Chiropractic, did not quite jibe with its
location, in the heart of the University District. But it was all part
of a grander plan.

In late 2007, Steffen, his business partner Amy
Vevoda and their small staff moved the business to the South Lake Union
neighborhood, renamed it Lake Union Wellness, and began living their
long-term dream.

It was a stepping stone, says Steffen of his
companys move to the corner of Westlake Avenue North and Thomas
Street. I always knew I wanted to be in the South Lake Union area.

The
neighborhood reminded Steffen of Portlands transforming Pearl
District, where a streetcar, vibrant businesses and a smart mix of
retail, housing and office space have made the area the poster child
for successful redevelopment. Moving to Seattle after finishing
chiropractic college in Portland, Steffen located his business in the
University District until he could lease space in South Lake Union.
Now, the streetcar runs right past his clinic.

Theres tremendous energy and buzz in the neighborhood, says Steffen.

The
boss at a somewhat larger health-care provider feels much the same way
as Steffen. Group Health Cooperative moved its headquarters to the
southeast corner of Westlake Avenue North and Harrison Street in South
Lake Union last fall. Group Health, which has partial ownership of the
building, is using about 150,000 square feet. It subleases another
30,000 square feet to Microsoft.

Group Health CEO Scott Armstrong
says he has been delighted with the decision to relocate to a
neighborhood thats becoming a business hub.

The South Lake Union
neighborhood makes sense, Armstrong says. It is being transformed
into a vibrant and exciting place to work in the same way that our
staff is transforming the way health care is experienced.

The
excitement surrounding South Lake Union is sure to continue, as
Amazon.com has announced plans to lease up to 1.6 million square feet
in as many as 11 planned buildings. The company expects to begin moving
into the area in mid-2010. In September, city officials unveiled plans
to raise height restrictions in the area to allow for the building of
taller condominium and office towers.

Even before the recent word of
new tenants arriving, the neighborhood had already garnered a
reputation as one of the citys hottest locations. South Lake Union,
which is generally bounded by Highway 99 and Interstate 5 to the west
and east, and Denny Way and Galer Street to the south and north, has
developed one of Seattles most eclectic mixes of retail, commercial
and housing properties anywhere in the city.

Some of its most
recognizable tenants are the Fred Hutchinson Cancer Research Center,
Jones Soda, NBBJ, Rosetta Inpharmatics, Skanska USA Building Inc.,
Tommy Bahama, University of Washington Medicine and Whole Foods.

According
to the South Lake Union Neighborhood Plan Priorities Summary
published in September 2007, there were approximately 20,000 jobs and
1,200 households here in 2004. The summary predicts that by 2024, about
16,000 new jobs and 8,000 households will be added to the total, nearly
doubling South Lake Unions employment and increasing areas residency
six-fold.

Even with the recent dip in the U.S. economy, the
neighborhood is still adding jobs and making room for small business.
The South Lake Union Chamber of Commerce has noticed that even more
properties are being cleaned up and placed on the lease market.
While
other neighborhoods lure new businesses with promotional programs or
glossy marketing materials, the South Lake Union region relies on its
hip factor to bring in new tenants and residents.

Were so new, we
dont have a campaign, admits Jason McKinney, executive director of
the South Lake Union Chamber of Commerce, which was officially launched
in April 2007. This area is not saturated yet. You can put more
restaurants here and be successful. You can put more office space down
here and be successful.
Existing office space is relatively easy to
obtain, according to McKinney, especially since the recent economic
downturn has compelled more property owners to lease space instead of
selling.

There are still some spaces available for around $20 a square
foot, says McKinney, although theyre likely to be quirky and in need
of some work. However, theres one caveat: even the unusual spaces are
going fast.

With developers gobbling up the older warehouses and
low-rise retail buildings to build new office space, biotech complexes
and condominiums, theres a degree of uncertainty in the air for area
businesses. Still, local merchants seem to accept some level of
apprehension in return for the area becoming a vibrant location.
Its the flavor of the unknown, McKinney says. You just know something really neat is going on down here.

SoDo: Seattles Steady Southern Migration

Despite moves to protect the areas blue-collar jobs, office space continues to develop in Seattles south end.

• Population: 1,535
• Median home price: N/A
• Crimes per thousand residents: 428
• Avg. office lease rates/sq. ft.: $21.35
• Amenities located in the area: 93

Seattle
Mariners CEO Howard Lincoln looks out his Safeco Field office window at
First Avenue South and says he is amazed by all the changes that are
going to hit the SoDo neighborhood in the next few years.

Bounded by
King Street to the north, Dawson Street to the south, theDuwamish
River (including Harbor Island) to the west and I-5 to the east, SoDo
(which used to mean south of the Dome but now means south of
downtown) will face a transportation transformation in the coming
years.

There are plans for better access to the freeways and a new
overpass on the stadiums east side, allowing sports fans to avoid the
railroad tracks and get in and out of the parking structures more
efficiently. But the biggest project will be rebuilding the south end
of the Alaskan Way Viaduct, with construction beginning in 2009.

Ive
seen a lot of changes in this area since we opened the ballpark in
1999, Lincoln says. But frankly, I thought there would be a lot more.
You see it all over the country when new facilities like this one are
built and development follows. It hasnt really happened yet around
Safeco.

Now, development may just be a matter of time. With its
close proximity to several highways, interstates and ample parking, as
well as its location just south of Seattles vibrant downtown, theres
no question that the SoDo neighborhood is a good place for business.
Just what type of business is up for debate.

The city passed a
resolution last December that imposes tight limits on office and retail
development on Seattles industrially zoned lands, with the intent of
preserving blue-collar businesses. The resolution drastically reduces
the amount of office space allowed on what is currently industrial land
from 100,000 square feet to just 15,000 square feet. It curbs retail
use, as well, to 10,000 square feet from the formerly allowed 75,000
square feet. With most of SoDo zoned as industrial, this change greatly
affects the future of the four-square-mile area, whose
commercial/industrial revenues from the wide range of manufactured
goods produced here account for about 20 percent of the city of
Seattles tax base.

City officials like the limitations because
they preserve the citys blue-collar industries. Many SoDo business
owners, however, oppose the regulations because the changes severely
limit property use throughout the neighborhood. The clash has resulted
in an uncertainty about SoDos future.

Im not against the
resolution 100 percent, but many of us think its flawed and needs some
tweaking, says Mike Peringer, president of the SoDo Business
Association and vice-president of marketing and sales for Process
Heating, a company that makes low-density electric heaters used in the
asphalt industry. The restrictions are unrealistic.

The limits
would prohibit redevelopment of an older warehouse into biotech space,
for example, or other office-type uses that could be incompatible with
the manufacturing and industrial businesses already there. Many
neighborhood residents are asking the city for a more specific
definition of what industrial use really means.

SoDo landowner
Henry Liebman owns nearly 30 properties in the area, many of which are
former manufacturing facilities that have been converted recently to
light industrial space. This slow transformation of the neighborhood
away from heavy industrial use is exactly what some area leaders, such
as the Port of Seattle, dont want to see.

Some fear Liebmans
investments are driving up rents in the area, but Liebman disagrees.
We have plenty of competitors, so we dont have the power to drive
rents, he says. The biggest factor causing higher rents is that the
current zoning precludes new development by making it economically
impossible to build something new, while at the same time existing
buildings get older and slowly go out of service. The result is less
space going forward, not more space.
If the goal is more industrial
space, he continues, zoning should encourage industrial development,
which, in this casedue to land values and proximity to downtownwould
be multistory industrial, including tech, which is what one finds in
close-in industrial areas in many parts of the world.

Despite the
controversy, SoDo is well positioned for success. The SoDo Business
Association estimates 2,000 businesses are located in the neighborhood,
employing 50,000 workers.

And even if the restrictive zoning remains
unchanged, theres arguably still plenty of room for small businesses
to thrive in the up-and-coming area. Of the 1.1 million square feet of
office space in SoDo, 200,000 square feet are available for lease,
according to John Vernon, associate with Colliers Internationals
Seattle office. Thats a 20 percent vacancy rate, compared to the
citys overall vacancy rate of approximately 8 percent. The result is
lower rents in SoDo.

Landlords may be willing to give more concessions [in SoDo] than they might downtown, says Vernon.

Chris
Migdol, manager of lighting and hardware store Rejuvenation, has seen a
number of older warehouses reborn as home-improvement and furniture
stores along First Avenue South during the past several years.
Rejuvenation came to Seattle from Portland almost five years ago,
making its home on the main floor of the 100-year-old Nisqually
Building, built originally for a manufacturer of specialty rail cars.

Its
still more affordable here than in other neighborhoods, says Migdol.
Although the slowing economy has resulted in a higher- than-typical
number of vacancies, Migdol expects the area to flourish.

Once the
economy picks up, were hoping to see the SoDo area pop pretty fast,
he predicts. Theres so much real estate ready to be snatched up.

The Blooming of South Bellevue

A
center for everything from technology startups to telecommunications
giants, Factoria/Eastgate is looking to raise its profile and embrace a
new name.

• Population: 5,492
• Median home price: $435,000
• Crimes per thousand residents: 149
• Avg. office lease rates/sq. ft.: $29.24
• Amenities located in the area: 147

Its difficult to think of the Factoria/Eastgate neighborhood without the 33-year-old Factoria Mall coming to mind.

But
in recent years, as the mall has declined, the areas vast available
office space and high-profile technology tenants have raised Factorias
prominence among businesses.

The Factoria/Eastgate neighborhood,
which may eventually be known as South Bellevue, can be generally
described as looking like a T, starting at the intersection of
interstates 90 and 405. The area extends east up the I-90 corridor to
the Eastgate business district, and a few miles north and south along
I-405. Area businesses include T-Mobile, Honda of Bellevue, Loehmanns
Plaza, several hotels and, soon, Microsofts Eastgate campus.

The
I-90 corridor submarket offers approximately 4.3 million square feet of
office space, says Grant Yerke, vice president of commercial real
estate brokerage Broderick Group in Bellevue. In September, the areas
vacancy rate was 7.5 percent, which translates to 320,000 square feet
of vacant space. While most of the office space on the corridors south
side is taken up by T-Mobile, the north side of the interstate includes
five separate office campuses that are home to many of the regions
future technology giants.

One former tenant was online travel
giant Expedia, which is vacating nearly 400,000 square feet of
contiguous office space in the area and moving to downtown Bellevue.

While
the corridors highest-end lease rates will be only slightly lower than
comparable space in downtown Bellevue, parking is much more affordable
along the I-90 corridor, Yerke maintains. Stalls typically rent for
about $200 a month downtown. In the Factoria area, though, parking is
either free in surface lots or about $50 to $75 a month for covered
space in office campuses.

Property manager Jason Horning, with
downtown Bellevue-based Sterling Realty Organization, oversees several
properties in the Factoria area. At press time, 10,000 square feet of
Class A office space was available on the fifth floor of Sterling Plaza
One; next spring, 78,000 square feet is expected to become available in
the nearby Sterling Plaza Two.

Low rent, freeway access and abundant parking are all reasons that businesses are attracted to the corridor.

Wayne
Ottum, economic development manager and COO of the Bellevue Chamber of
Commerce, says area tenants enjoy lower lease rates while getting the
prestigious Bellevue name. You can still get fairly good, A-quality
space a touch below what youd find in the downtown business core, he
says.

The location at a geographic crossroads has long provided
easy access along I-90 or I-405 by car or public transportation. For
businesses along the two major highways, visibility is high.Not enough
can be said about freeway signage, says Ottum. Where are you going to
get that kind of traffic going by with the opportunity to have your
business so prominently displayed?

The Factoria/Eastgate
neighborhood also may be on the verge of a name change. Downtown
Bellevues recent spike in popularity has not been lost on the citys
southern neighbors, who have created a subcommittee of the Bellevue
Chamber to focus on the needs of local businesses.

[The group is] toying with the idea of rebranding the area, says Ottum, and creating a new business district.

The
Factoria/Eastgate Business Groups tagline may be a harbinger of things
to come: A New Beginning for South Bellevue Businesses.

Defying the Odds

Tacomas North End bets big on a major new development.

• Population: 68,482
• Median home price: $297,250
• Crimes per thousand residents: 83
• Avg. office lease rates/sq. ft.: $21.46
• Amenities located in the area: 54

It
is fitting that one of Tacomas most ambitious new development projects
is being built within walking distance of Point Defiance.
After all,
the North Ends $1.2 billion Point Ruston development is certainly
defying the odds by announcing its construction at a time of real
estate hysteria and economic uncertainty.

Those difficulties
havent stopped developers from moving ahead with plans to break ground
on the waterfront project that calls for at least 125,000 square feet
of Class A office space, along with 120,000 square feet of retail
space. Also slated for development are 1,000 single-family homes,
condos and town homes, as well as a promenade and a 150-room waterfront
hotel. The Point Ruston project is scheduled for completion in early
2010.

We will have a mixture of small suites available for small
firms and satellite offices all the way to a large campus setting for
the right tenant, says Jeff Bare, sales associate with Colliers
Internationals Tacoma office. The majority of the offices will have
views of Commencement Bay.

Bare expects the high-end offices with a
view to attract professionals such as architects, accountants and
lawyers. He also expects the locations proximity to local hospitals to
draw medically oriented tenants.

Point Ruston isnt the only
location attracting attention from businesses in Tacomas North End.
The area is also home to the Old Town, Proctor, Sixth Avenue and Tacoma
Narrows neighborhoods.
The Proctor neighborhood, for one, is using
its friendly feel to entice new businesses. Attractions include dozens
of events sponsored by the Proctor Business District, such as the
Daffodil Festivals junior parade and the Puttin on the Pink breast
cancer research fundraiser in the spring, as well as the Proctor
Chocolate Fest in October.

The efforts of Proctors long-standing
business district have made the four-block, tree-lined,
pedestrian-friendly neighborhood a destination of sorts. Its limited
office space is usually occupied.
Another North End neighborhood,
the Sixth Avenue Business District, has become more popular in recent
years with new restaurants and nightspots. Its annual Art on the Ave
event in July featured live music and new public art, attracting 10,000
visitors.
The number of businesses located along Sixth Avenue is an
example of the areas vibrancy and ability to attract visitors, says
Christopher List, vice president of the Sixth Avenue Merchants
Association and a realtor with Connect Realty and Real Estate USA.

Like
all neighborhoods, Sixth Avenues success has brought higher rents and
more demand. But the folksy atmosphere and eclectic mix of businesses
make the area worth a visit.

Its really a hang out place, says
John Loesch, president of the Sixth Avenue Business District and owner
of the Neighborhood Market grocery store. On Friday and Saturday
nights, this area is just jammed.

Neighborhood to Watch: McKinley Hill

Tacoma
Eastsides McKinley Hill, with its views and accessibility, may be one
of the citys business neighborhoods of the future.

• Population: 67,530
• Median home price: $209,950
• Crimes per thousand residents: 83
• Avg. office lease rates/sq. ft.: $21.46
• Amenities located in the area: 30

With a
recent business district rezone and influx of development, McKinley
Hill is experiencing a transformation from a sleepy bedroom community
to an up-and-coming hot spot that is one of Tacomas hidden gems.

Of
course, that assessment has to be taken in context. Residents who have
called McKinley Hill home for a lifetime are watching as their business
district begins its inevitable makeover.

I wouldnt say were a
forgotten area, says Norma Owens, McKinley Hill resident, Tacoma
real-estate agent and former president of the McKinley Hill Business
District, but we are one of the last areas to be discovered.

Part
of Tacomas east side, which also includes the Fern Hill, Portland
Avenue and Lincoln neighborhoods, McKinley Hills perch above Tacoma
offers a jaw-dropping view of the citys downtown from turn-of-the
century houses at prices that would make Seattleites salivate. A
renovated two-story, four-bedroom, two-bath home built in 1910 can
still be bought here for a price in the low $200,000s.

While the
friendly close-knit neighborhood lacks any measurable office space,
that picture could soon change. Designation changes to allow mixed-use
development in McKinley Hills business district were approved by the
city last year, positioning the area for growth.

The new designation
means that residential units will now be allowed above businesses, and
building heightsthe specifications of which are still being
debatedare certain to increase. But not everyone is happy about it.

A
lot of people who have lived here all their lives are against it, said
Kala Dralle, program specialist with the city of Tacoma and coordinator
of the citys Neighborhood Business District Program.
Like it or
not, McKinley Hill seems on the verge of change. The neighborhood is
one of only a few in Tacoma thats just moments from the waterfront and
can also boast of easy access to I-5, affordable housing and a handful
of eclectic businesses.

The McKinley Hill area is also developing
its own nightlife with the opening of the Top of Tacoma Bar and Cafe.
The venue has been transformed from seedy tavern to trendy nightspot.
Other businesses draw a crowd representative of the evolving
neighborhood: artists, musicians and nearby neighbors. Many of these
local residents have recently identified the area as an affordable
neighborhood on the verge of something big.

During the day,
theres more of a middle-aged crowd, says Jamie Kay Newton, co-owner
of the Top of Tacoma Bar. At night, its more of a young crowd.