Friday 5 May 2017 11:09 amSchroders Talk

Global Cities 30 index: Seattle's boom is about far more than Amazon

What is city talk? Info Info. Latest

The Schroders Global Cities Index ranks the fastest growing urban economies in the world, focusing on the potential for property investment. Read more on the Global Cities Blog. On this post, we examine Seattle's success and its future prospects .

Why Seattle?

Sitting at no.25 in the Global Cities Index, we rate Seattle as a top global city for a number of reasons. It offers:

  • A key tech hub
  • Affordable cost of living
  • Large and busy port

Few cities can offer both world class technology companies and an affordable cost of living. Seattle is one of them, even growing more rapidly than California’s iconic Silicon Valley.

On the Global Cities blog we focus on centres that people want to live and work in. Although it has its challenges, we believe Seattle is one of these.

A growing technology hub

Tech hubs such as San Francisco have seen slower job growth in recent years but Seattle has remained steady. It now boasts an unemployment rate of just 4%, one of the lowest in the country.

For years, the city has been regarded as a two-trick pony: namely Amazon and Microsoft. But the presence of these tech giants has attracted its competitors. Google and Facebook now have a substantial presence while Apple has a smaller footprint in the city. The effect on real estate is clear.

The chart below shows the total office space of Facebook, Google and Apple. Office vendors have clearly benefited, securing leases with companies with little credit risk.

The emergence of the Bill and Melinda Gates Foundation has also helped spur a life science presence.

But with all that said, the city’s success is still heavily linked to Amazon. It occupies six million square feet of office space, but it has committed to raising this to 10 million square feet over the next few years, including the construction of three stunning “biosphere” buildings. The company currently has more than 8,000 Seattle-based jobs listed on its website.

Seattle office space commitments

Source: Colliers International

Offering a lower cost of living

Silicon Valley remains America’s tech capital, but more workers are being put off by its rising cost of living.

Seattle, on the other hand, is offering a better balance of both. The below compares house prices for the property sub-markets of San Francisco (left) and Seattle (right) where the biggest firms are based. In many instances, prices in San Francisco are double that of Seattle.

Source: Colliers International

The challenges

The city is not without its challenges, which prevents Seattle from featuring higher up on our Schroders Global Cities Index. While the tech sector’s strength is a positive, it is also a weakness.

We prefer cities with well diversified economies so that one sector is able to pick up leases if there’s a downturn in another.

One potential growth driver for the metro area should be Seattle’s port which can offer alternative employment.

In 2015 the port merged operations with the port of Tacoma, Washington. It’s hoped that consolidation will keep both ports on the map of global trade routes and gain market share from the likes of Long Beach, the country’s largest port.

It’s also fair to say that some of Seattle’s companies are becoming more than just tech firms themselves, reducing the impact of a tech downturn.

Amazon for instance is piloting “AmazonGo” in downtown Seattle. This is a convenience store concept that allows shoppers to pick up goods from the shelf and walk out.

The cost is automatically billed to a shopper’s Amazon Prime account. It is part of Amazon’s expansion into the lucrative grocery store market.

  • Watch this video to learn more about “AmazonGo”

Seattle also has a serious traffic problem. Last year TomTom ranked the city as second worst in the US for rush hour congestion.

However, the city is making efforts to improve the situation. “SoundTransit”, a light rail line between metropolitan Seattle and Washington State, was opened last year.

Nearly $1bn has also been committed for investment in rail and road in the next decade to help the city alleviate congestion.

Our verdict

We often talk about wanting to own companies that have buildings in cities where people want to continue to work and play.

As the tech giants continue to add jobs, Seattle should continue to gain on markets with housing affordability issues like San Francisco. As ever, we keep a close eye on local Real Estate Investment Trusts and invest in opportunities that are appropriately priced.

Note: the regions and companies mentioned in this article are for illustrative purposes only and not a recommendation to buy or sell

Important Information: The views and opinions contained herein are those of Ryan Bennett, Equity Analyst, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The sectors and securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Registration No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.