Economic Outlook: The Experts Speak

RESIDENTIAL REAL ESTATE
By Matthew Gardner
Chief Economist, Windermere Real Estate

SUMMARY
In 2016, the laws of supply and demand were turned upside down in markets throughout the Puget Sound region. Home sales and prices rose while listings remained anemic. In the coming year, there should be a modest increase in the number of homes for sale, which should relieve some of the pressure.

HIGHLIGHTS
The 2017 headlines will include the much-anticipated return of the first-time buyer, as well as the long-overdue rise in new-construction home starts. In the Seattle region, we are already seeing signs of their return, but upward price pressures will act as a headwind to those trying to get into the market for the first time.

CHALLENGES
My biggest fear revolves around housing affordability. Our unique topography in concert with a woefully inadequate mass-transit infrastructure has pushed the value of homes that are close to the major job centers to levels that are worrying. This is an issue that desperately needs to be addressed if the Puget Sound region wants to continue to remain competitive with other regions for new businesses.

AVIATION
By Ray Conner
Vice Chairman, The Boeing Company

SUMMARY
The first year of Boeings second century looks to bring great opportunities, heightened expectations and a growing field of increasingly capable competitors that want in on the action.

HIGHLIGHTS
In 2017, our investments in new airplanes really take off. Boeing spent more than $1 billion to construct a new facility to build the 777X wings in Everett. This year, production of the first 777X begins, which leads to large-scale production and first flight in 2018. In Renton, the success story around the 737 MAX continues with the first plane introduced into service. But this story is bigger than just a new airplane. Our efforts to transform the factory are also bearing fruit as we ramp up production to an astounding 47 planes a month.

CHALLENGES
We are starting to see areas of softness in the wide-body market, and we will need to match that to our production levels. The good news is we have a large and diverse order backlog and a healthy long-term marketplace expected to demand more than 39,000 commercial airplanes worth $6 trillion. We will focus on being competitive, winning those orders and capturing our share of the market.

RETAIL AND SERVICES
By Maria Royer
Principal, Real Retail

SUMMARY
Seattle is a world-class city with a world-class urban core. Its stunning natural beauty, its livable and vibrant neighborhoods, its deep and diverse employment base and its explosive growth make Seattle a top choice for local, regional, national and global retailers looking to expand.

HIGHLIGHTS
With a growing, highly educated and well-paid population, Seattle has become a magnet for new concepts seeking to test and expand. New, innovative and experiential retail concepts like Amazon Books, Starbucks Reserve Roastery & Tasting Room, Filson, Shinola, B8TA, Blue Nile and Warby Parker either call Seattle home or have selected Seattle as one of the places to launch their national expansion. Clicks to bricks and experiential retail are transforming our retail landscape.

CHALLENGES
Seattles challenge and opportunity is how to accommodate this tremendous demand for space in a compelling and thoughtful way. We have an unprecedented opportunity to expand our traditional retail core and connect Seattles micro districts to each other Pike/Pine to Pike Place Market, Belltown to Pioneer Square, South Lake Union to downtown filling in the gaps with extraordinary brand experiences at street level without losing our authenticity.

The Real Retail experts, from left: Maria Royer, Andrew Miller, Janel Charlton and Katie Parsons.

MERGERS & ACQUISITIONS
By Christian Schiller
Managing Director, Cascadia Capital LLC

SUMMARY
While many bulge bracket Wall Street firms have been challenged to close deals, we have closed 26 deals year to date (October 31, 2016), with a half dozen or more likely closing by year end.

HIGHLIGHTS
We are riding a peak market plateau that, from a valuation standpoint, favors sellers, given asset prices remaining high. This should continue to make private equity buyers more conservative, particularly as increasing fears of a cyclical downturn creep in. Strategic corporate buyers, however, should remain fairly active, especially international buyers. Chief among our expected highlights for the year ahead is cross-border transaction activity. Many foreign buyers view the United States as one of the few global growth markets and are willing to outbid their U.S. counterparts to gain access to the market, technological innovation and high growth potential.

CHALLENGES
We anticipate that companies looking to sell will receive fewer attractive bids as buyers increasingly fear a near-term cycle downturn. Companies will complete deals at attractive valuations, but it will likely take longer with wider bid-ask spreads between buyers and sellers and, thus, fewer final bidders at the high value point.

HIGHER EDUCATION
By Ana Mari Cauce
President, University of Washington

SUMMARY
In a number of important rankings, the University of Washington is considered to be among the worlds best universities, and this is directly attributable to the quality of our faculty. Maintaining this very high achieving community of teachers, researchers, scholars and mentors is essential.

HIGHLIGHTS
Were working hard on two important initiatives that are making great progress and becoming more fully realized: the Population Health Initiative, the vision for which just received a significant boost through the $210 million gift from the Bill & Melinda Gates Foundation, and the Global Innovation Exchange, whose home is under construction in Bellevue. Both are very exciting, with great promise for the future. Of course, playing for a national football championship wouldnt be bad, either.

CHALLENGES
Our key challenge is to maintain access and excellence. We need to continue to work with our partners in the Legislature to keep college affordable and provide financial aid, especially in fully funding the State Need Grant. We are also working to raise scholarship funds through our recently launched campaign. We need to work with these same partners to ensure that we continue to attract and retain the very best faculty.

SEA-TAC AIRPORT
By Lance Lyttle
Aviation Director, Sea-Tac International Airport

SUMMARY
Seattle-Tacoma International Airport, operated by the Port of Seattle, is a reflection of the Puget Sound regions booming economy as we continue to be one of the fastest growing airports in the United States potentially moving up three spots into the top 10 airports at the end of 2016, with more than 45 million total passengers.

HIGHLIGHTS
In 2017, the Port of Seattle will continue efforts to maintain the high quality of customer service at Sea-Tac as part of $2.9 billion in near-term capital projects, which will include groundbreaking on the modernization of the north satellite and a new international arrivals facility. Both projects will be dramatic, iconic additions to the passenger experience.

CHALLENGES
Challenges surround us as we continue to grow, yet we find ourselves in one of the smallest footprints for an airport that serves as many travelers as we do. I like to compare it to a person whos having heart surgery while running a marathon. We have to find sustainable, cost-efficient ways to grow by partnering with our neighbors to address impacts, all while maintaining high service for our travelers.

VENTURE CAPITAL INVESTMENTS
By Matt McIlwain
Managing Director, Madrona Venture Group

SUMMARY
Seattle is a growth market with great potential for 2017. Madrona expects to be very active in new seed and early stage rounds, as well as later stage rounds for our existing portfolio. We also expect the IPO market and both strategic and financial forms of M&A to grow for later-stage private companies.

HIGHLIGHTS
We believe Seattle and the Pacific Northwest are continuing to gain in momentum and funding and we expect it to outpace other regions in 2017. Categories including augmented reality/virtual reality, serverless and event-driven computing, and natural language understanding will see substantial funding and market awareness in 2017. Intelligent applications, powered by data and machine learning, will grow in breadth and quality.

CHALLENGES
Modest increases in interest rates will have a minor impact on startup growth and customer adoption of technology. It will modestly increase the overall cost of capital, but that does not tend to slow technology-driven growth.