Industry Trends
Winter 2023/2024
Introduction
by Brad Hayes & Randy Boettcher
It’s hard to believe the year is almost over — and what a tumultuous year it has been in the Puget Sound construction industry. Sellen will celebrate our 80th anniversary in 2024, and while neither of us have been here for quite that long (more on that later), we have seen our share of ups and downs through the decades. Even in the midst of a challenging year, however, we remain optimistic about the Puget Sound region’s long-term health because of the incredible owners, architects, and subcontractors we work with each day.
In 2023 alone, Sellen’s preconstruction team developed estimates for more than $3.2 billion in upcoming projects throughout the region. This is the data we draw upon to share the latest market insights with you. Whether you’ve been working with us for decades or today is your first encounter with Sellen: welcome and thank you for reading our Winter 2023/2024 Industry Trends Report. We take great pride in our role as one of the most trusted and relied upon builders and advisors in the Puget Sound construction market, and we are deeply invested in the long-term success of our partners.
Earlier this year, we shared several upcoming leadership team transitions. One of those announcements was that Randy Boettcher, a 24-year Sellen veteran, would be taking over leadership of our preconstruction team as Brad prepares to retire in 2024. That transition is now well underway, and we are grateful to work alongside one another and Chief Estimator Adam Lorenz to prepare the latest iteration of Sellen’s Industry Trends Report.
This report includes:
An introduction to Randy and the expertise he brings as the Senior Director of Preconstruction and Estimating
Our latest construction cost escalation projections and market insights from Executive Vice President - Business Development & Market Strategy Erin Hobson
A deeper dive into the healthcare market with COO Chris Martindale
An update on upcoming union labor negotiations in 2024
A look at Sellen’s in-progress 35 Stone project, which includes innovative mass timber elements and is pursuing ILFI’s Living Building Challenge certification
A Q&A with Travis Harth, Sellen’s Director of Special Projects
As always, we hope you find this report to be an insightful look at current market conditions and trends we are seeing in the Pacific Northwest construction industry.
Brad Hayes
Executive Vice President
Randy Boettcher
Sr. Director of Preconstruction & Estimating
Featured Topics
Escalation Projections & Market Updates
Our most up-to-date escalation projections, a look at labor negotiations in 2024, and a breakdown of trends we are seeing in the healthcare sector.
Mass Timber & the Living Building Challenge
Sellen’s crew is currently building 35 Stone, a new mixed-use office building in Fremont. We talked to the team for an update on the project’s unique mass timber elements and what it takes to pursue Living Building Challenge sustainability certification.
Q&A with Director of Special Projects Travis Harth
Travis Harth leads Sellen’s Special Projects team, a group focused on office, healthcare, and specialty tenant improvement work. We asked Travis about how client needs are shifting and what owners should know before starting a project.
Randy Boettcher
Sr. Director of Preconstruction & Estimating
Randy was recently promoted to Sellen’s Senior Director of Preconstruction and Estimating. We sat down with Randy to ask about his experience in the industry, why he wanted to take on this new challenge, and his vision for a more collaborative future.
Puget Sound Region Construction Cost Escalation Projections
We have lowered our cost escalation projections for 2024 - 2026 based on continued cooling in the local construction market. Many large projects — particularly in the office sector — remain on hold while the market adjusts to lower tenant demand and higher vacancy rates.
Erin Hobson
Executive Vice President - Business Development & Market Strategy
Market Insights by Sector
Slower tenant growth, record-high vacancy rates, and higher interest rates continue to stifle new construction in the Puget Sound region and leasing activity has slowed. However, while some sectors are dormant, others are quickly gaining momentum. A deeper dive into healthcare market trends is featured in the next section.
Private Education
Enrollment at private K-12 institutions in the Puget Sound region has increased by 17% over the past several years. With this rising enrollment, private schools are adding more space and refreshing the space they currently have. Along with this increased enrollment, private philanthropic contributions have also spiked. With many nonprofit endowments engaged in “spend down” strategies, projects that are contingent on private fundraising are moving forward at a high rate. We have seen an uptick in activity in this sector, which we expect will continue through 2024.
Commercial Office
The office vacancy rate increased to more than 25% in Q3 2023, and with many leases set to expire in the months ahead, tenants are reevaluating their needs and comparing a wide variety of available spaces throughout Seattle and Bellevue.
We are projecting more building repositioning (similar to Sellen’s recent 800 Fifth Avenue Repositioning project) as distressed properties are sold, with new owners adding unique amenities to draw office tenants in a competitive market.
Arts & Culture Nonprofits
A mix of public funding and private philanthropy are fueling the arts and culture sector in the Puget Sound region, including many organizations still reeling from the impacts of the pandemic. The recently approved “Doors Open” measure in King County will increase the sales tax by 0.1% to support local arts and culture organizations, and a portion of these funds will enable capital projects and facility improvements to move forward.
Multifamily Residential
More new apartments came onto the market in 2022 and 2023 than in any previous two-year period, and current vacancy rates are at a 15-year high. Despite the current climate, the Puget Sound region is still projected to experience significant population growth in the coming years, and housing in Seattle remains more than twice as costly as the national average. We are expecting this market to remain relatively cool over the next year.
Life Science
After several red-hot years, demand for life science space has slowed down in recent months. With several in-progress life science buildings scheduled to come online over the next few years, we expect to see some cooling, but unique product and projects built by larger users are heating up.
Market Update: Healthcare
Chris Martindale
COO & Healthcare Project Expert
Large-scale healthcare projects are ramping up throughout the Pacific Northwest. Here are some of the latest insights and trends our teams are seeing in the healthcare sector:
After a wave of cost control measures, stabilizing labor costs, and projected increases to reimbursements, some local healthcare organizations are on-track to be in better financial shape in the near future after years of budget deficits. This will help fund expansion projects on healthcare campuses throughout the region. With a growing — and aging — population, healthcare providers need more beds, surgery suites, and specialty spaces. Several large projects are on-track to break ground in 2025 and 2026, and we are projecting a large influx in regional bed availability in 2027 and 2028 as these spaces come online.
Healthcare facility staff were directly impacted by overhead reductions, and many now have smaller teams and fewer resources to manage large, complex hospital campuses. As a result, they are relying more upon general contractors and MEP subcontractors who understand their campus, budget constraints, and daily operations. Inviting builders to the table earlier in the process can provide critical support for facilities managers in the early stages of a project and leads to more accurate cost and schedule projections.
Providers are identifying opportunities to make their buildings more efficient by relocating outpatient services away from hospital campuses. Several local organizations are consolidating hospital resources to focus on acute care and overnight stays, pushing walk-ins, surgeries, and ambulatory care to outlying facilities and clinics.
Recent action in the Washington State Legislature has allocated much-needed resources for mental health services. Many patients experiencing mental health crises are being routed to emergency rooms instead of specialized facilities for mental health emergencies. This has been an area of need for many years, and the funds allocated to mental health services should lead to an increase in new or renovated spaces dedicated solely to mental health and well-being.
Upcoming Labor Negotiations
While only four labor agreements expired in 2023, more than 15 are up for negotiation in 2024. We closely monitor union negotiations and will share the latest insights with our clients as discussions proceed in 2024.
Rendering by Weber Thompson
Project Spotlight:
Mass Timber & Living Building Challenge at 35 Stone
Sellen is currently building 35 Stone, a new mixed-use office building in Seattle’s Fremont neighborhood. The project, which is being developed by evolution Projects and was designed by Weber Thompson, features a hybrid concrete/mass timber structure and is pursuing ILFI’s Living Building Challenge certification. With mass timber and Living Building Challenge gaining traction throughout the industry, it’s a great time to reflect on the work we have done to-date and the lessons we’ve learned along the way.
Mass Timber
Sellen has experience building projects that feature CLT, DLT, and glulam components, but 35 Stone marks the first time we have built a multi-story, mass timber structure. The lower levels feature a concrete structure, while the upper three levels feature a mix of mass timber materials and vertical concrete shear walls. We recently flew a drone over the site while the crew was erecting some of the building’s mass timber structure.
Materials: The floors for the top three levels are comprised of dowel-laminated timber (DLT) with a concrete topping slab. Interconnected glulam columns and beams provide support, and the project’s mass timber elements tie seamlessly into vertical concrete shear walls that extend all the way to the building’s roof.
Dowel-laminated Timber (DLT) vs. Cross-laminated Timber (CLT): For owners considering mass timber, it’s important to note that DLT and CLT should not be treated as interchangeable products, with each bringing unique structural advantages depending on the building’s footprint. On the 35 Stone project, it proved advantageous to use DLT due to the long, rectangular shape of the building. DLT’s structural properties allowed the design team to stretch columns out farther from one another on each floor plate.
Production, Lead Times, and Lumber Market Volatility: All of the project’s timber is sourced from Forest Stewardship Council (FSC) forests and fabricated by StructureCraft in Abbotsford, British Columbia. StructureCraft is currently the only manufacturer of DLT in North America, and with increasing interest in mass timber structures throughout the region, it is very important to secure time on the production line well in advance of construction. Sellen’s team worked closely with the manufacturer to secure production time eight months ahead of when the mass timber was needed on-site. In addition, lumber prices have been volatile in recent years. Owners considering mass timber should watch these prices carefully and work with their builder to procure materials when market conditions are advantageous.
Delivery & Installation: In the rainy Pacific Northwest, it is critically important to protect mass timber materials from the elements. Sellen’s team at 35 Stone began receiving and placing the project’s mass timber pieces in November 2023, and moisture protection was a point of emphasis from the very beginning. To ensure the most efficient installation process, the team split each floor into several zones. Each cycle includes three days for erecting glulam columns; three days for erecting glulam beams; and three days for erecting DLT panels. Sellen is self-performing the mass timber erection with hybrid crews of carpenters and ironworkers.
The 35 Stone project is part of the City of Seattle’s Living Building Challenge pilot program. It requires project teams to pursue three of the program’s six categories, which are referred to as “petals.” One of the petals the team is pursuing is the “Materials” petal, which requires selection, procurement, and installation of healthy materials. One imperative of the Living Building Challenge (LBC) Materials petal includes a “Red List,” which identifies toxic ingredients that pose immediate and/or long-term health risks. To achieve Materials petal certification, the team must avoid using Red List ingredients and disclose the ingredient composition for at least 90% of the project’s materials by cost.
Lessons Learned: Clients are increasingly curious about how to execute LBC on their project — particularly when it comes to the “Materials” petal, which includes stringent submittal requirements. Sellen has kept a running log of best practices and lessons learned, including the following:
Team Alignment: The team must be all-in and fully integrated from day one. Every material for every product (or at least 90% of the building’s products) must be submitted to ensure compliance — a herculean task for any one team member. All project stakeholders must play a role in facilitating the robust submittal process.
Define Expectations for All Stakeholders: Many suppliers, particularly MEP equipment manufacturers, are not accustomed to sharing the depth of material disclosures required by LBC. Thorough bid exhibits and early conversations with suppliers will establish alignment for what information is required for all submittals.
Account for Longer Submittal Processes: The project’s schedule must account for longer submittal timelines, particularly for long-lead items. Sellen’s team facilitated weekly submittal meetings with key stakeholders to solve for some of this added complexity. Through our experience on Campus Seattle, Sellen developed an in-house materials tracking method tailored to the LBC’s Materials petal requirements. Equipped with this tool — which was approved for use by ILFI — we have streamlined both the submittal and subsequent LBC documentation submission processes for this project and all future LBC projects we build.
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The Fall 2023 issue of Craft magazine was published in October. The feature story addresses a topic we are asked frequently in our Industry Trends Poll: the work Sellen and our peers are doing to build the next generation of craftspeople and leaders.
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Sellen celebrated the successful topping-out of our in-progress project for the Seattle Storm. Watch a video recap of the ceremony here.
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The Sellen + Mithun design-build team was selected for the upcoming ASUW Shell House Renovation at the University of Washington. The historic building served as the home for UW’s prolific rowing teams for many years, including the 1936 team made famous in the best-selling book “The Boys in the Boat.” A film based on the book is set to release this December. Watch the trailer here!
Company Updates
Meet the Expert:
Travis Harth
Director of Special Projects
Travis Harth joined Sellen in 2021 as the leader of Sellen Special Projects, a group of project managers, engineers, superintendents, and craftspeople who specialize in fast-paced tenant improvement work. We asked Travis about the market conditions he and his teams are seeing and his advice for owners.
How does the ongoing office market downturn compare previous cycles?
I’ve been in this industry for a while now and lived through a couple recessions. This time is different: the high interest rates coupled with uncertainty around the future of the office have led many tenants to pause and reflect on their long-term needs. As leases are running out, tenants are thinking long and hard about whether to stay, move, or downsize. With so much vacant office space throughout the region, tenants have a ton of options — and they’re taking the time needed to evaluate a wide array of spaces outside of their current building to see if there are better opportunities elsewhere.
We’ve seen a lot of exploration and architect-led space planning activities in 2023 without much work in the field. One interesting development we’ve been monitoring is the amount of space per employee outlined in those space planning exercises. There was talk during the pandemic and in the immediate aftermath that we would start to see a higher ratio of square feet per office employee, but the numbers we’re seeing today are remarkably similar to those we saw pre-pandemic.
“Today, [office tenants] just want the space immediately, and often in smaller chunks instead of full floorplates. Firms are more interested in smaller spaces — ranging from 5,000 to 10,000 square feet — as they gauge the needs of their workforce.”
What advice would you have for owners?
First, its a great time to make capital improvements for building owners — elevator lobbies, common spaces, and amenities. Investing in those areas can help activate existing assets and reinforce company culture to hopefully encourage more workers to return. Also, as a general contractor, lower occupant counts in a building help us reduce the impact of our activities on existing tenants.
Next, we’re hearing a lot of feedback from our brokers and owner’s representatives that clients are looking for turn-key, market-ready space. In the past, office tenants may have waited to do a more traditional tenant improvement job. Today, they just want the space immediately, and often in smaller chunks instead of full floorplates. Firms are more interested in smaller spaces — ranging from 5,000 to 10,000 square feet — as they gauge the needs of their workforce. If your organization is in a similar situation, know that you aren’t alone and that we can help with that evaluation as you consider a new or refreshed space.
Lastly, there’s an incredible amount of turnover in our industry right now — including staffing at the city level. Local jurisdictions are experiencing manpower issues when it comes to permitting and inspections and we’re seeing extended lead times across the board, so be sure to account for that in your schedule. In addition, market conditions have led many of our subcontractors and suppliers to adjust staffing and lower overhead costs. If it’s been a few years since your last project, don’t be surprised if some of your contacts have changed companies.
As the leader of our Special Projects team, you oversee a wide variety of fast-paced tenant improvement projects that are constantly starting and ending. What do you enjoy most about the work?
I’ve done every type of project in this industry, from a train wash station, to a dam on an island in Alaska, to high-rise office tower. What I like about my work now is the sheer speed — we get to go through the entire life cycle of a project in a matter of months or weeks. It’s such a great way to build relationships with people in the industry because you’re constantly working with new owners, architects, and subcontractors. I strongly encourage everyone in our industry to take a turn through this type of work at least once to expand your network and get a feel for what it takes to succeed in such a fast moving environment.
The other aspect I enjoy is the direct communication we have with tenants. On the big jobs, we’re often creating new buildings. In our world, we’re working within active, occupied spaces, and we need to factor in the needs and safety of the people we’re working around. It’s a great opportunity to build relationships with tenants and neighbors. When the project is complete, there’s no better feeling than seeing the people you built it for move in and begin using the space — especially when you’ve built a great rapport with them over the months.
The great thing about working with our team is that we have all the expertise of a small firm focused on tenant improvement work, but we’re backed by the full resources of a large company. We can scale up when needed; apply the trends we’re seeing on large projects; and deploy resources and technology that our smaller competitors simply do not have access to. The same level of quality that you’ve seen from Sellen for almost 80 years is present on every job we complete. Every day brings a new challenge in our world, but I wouldn’t change it for anything.
Sellen has two teams dedicated to small, fast-paced projects:
Sellen Special Projects: Led by Director Travis Harth, this team excels at completing tenant improvement projects for office clients, healthcare provides, private K-12 institutions, and arts and culture organizations. Ready to get started on your next project? Contact us today.
Sellen Service Group:
This team provides custom upgrades, fast-paced repairs, preventative maintenance, and more. Our crew operates out of fully equipped vans with the tools required to complete just about any job that comes our way. If you need a quick upgrade or facility maintenance support, contact us to learn more.
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