Last Tuesday, as Carol Gable Hare picked through the clearance bargains at the Macy’s in downtown Seattle, the longtime customer found herself wondering if she would keep shopping downtown after the store — one of her favorites — shuts down Sunday.
“You have that feeling of, ‘Well, why should I bother to come downtown?’” said the Queen Anne resident. “Which is sad.”
Gable Hare isn’t the only one asking that question. The closure of Macy’s downtown store — the latest of dozens the struggling retailer is shuttering nationally — has led to intense speculation about who will fill the large space at Third Avenue and Pine Street, and how much consumer appeal the newcomer will have.
Macy’s departure also highlights ongoing concerns about the future of the downtown shopping district at a time when brick-and-mortar shops face increasing pressure from e-commerce players such as Amazon — which, tellingly, has been leasing the top six floors of the Macy’s building since 2017.
Downtown Seattle “is at a tipping point,” said Jeff Green, a retail analyst with Hoffman Strategy Group who has studied the Seattle-area market for years. With so many alternatives online and at suburban shopping centers, Green said, downtown offers fewer retail opportunities that shoppers “can’t find in the areas where they live.”
Many other retailers have preceded Macy’s in vacating downtown Seattle in recent years, including Bed Bath & Beyond and Forever 21.
The exodus has been especially dramatic at Pacific Place, a five-level, 339,000 square-foot shopping center at Olive and Sixth, which as recently as 2017 had about 50 tenants, according to a Puget Sound Business Journal story that year. But the shopping center has lost a number of national retailers — including Barneys, Barnes & Noble, Eddie Bauer and Victoria’s Secret — hit hard by e-commerce and other industry disruptions, and as of last week had just 21 tenants. Other departures include Ann Taylor, J.Crew, Kate Spade, Coach, The Body Shop, Gymboree, J. Jill, Guess and Bose, according to a list of former tenants on Malls & Centers.
“I don’t think we realized how much [retail] was changing and how fast it was changing,” said Daniel Meyers of Madison Marquette, a Washington, D.C.-based real estate company that paid $271 million for Pacific Place in 2014 and an additional $87 million for the underground garage in 2016. Meyers made the comments during a recent Downtown Seattle Association panel about downtown retail. Madison Marquette declined to comment on the shopping center’s occupancy.
Some of Pacific Place’s departures are also likely related to a massive remodel by Madison Marquette that has stretched on for months, local retailers say. The remodel will be completed “within the next 30 days or so,” a spokesperson said Friday.
Lululemon, an existing tenant, has taken a larger space in the mall, while another current tenant, Tiffany & Co., will be relocating to another space in Pacific Place on the corner of Sixth and Pine, and Haidilao Hot Pot will open this spring, and other tenants will be announced soon, Madison Marquette said.
Downtown boosters like the Downtown Seattle Association point to the area’s strong brick-and-mortar retail sales ($2 billion in 2019, up from $1.6 billion in 2018) and low vacancy rates — just 1.6% at the end of 2019. And they’re optimistic about the future, with the city’s growing army of affluent tech workers, 88,000 downtown residents and a massive tourist trade: Pike Place Market alone draws 15 million visitors a year.
Yet even ardent downtown boosters acknowledge that challenges loom for retailers there.
The most visible may be homelessness and chronic street crime, which raise retailers’ costs (hourly rates for armed guards can be $80 or more) and make many shoppers want to “just stay home and order from Amazon,” said Craig Kinzer, a veteran of Seattle’s commercial real estate industry.
Critics say downtown also suffers from mounting congestion and the expense and scarcity of parking — irritations that shoppers can usually avoid at many regional malls and shopping centers.
The city of Seattle believed “the revenue opportunities of paid parking were more important to the city than the purpose of the parking,” said Kemper Freeman, developer and operator of Bellevue Square, which boasts 14,500 stalls of free parking for customers — and where retailers collectively have posted double-digit sales growth in each of the last two years.
Free parking — which is typically anathema to urbanists and transit advocates — is also a feature at University Village, which has a waiting list for would-be tenants and is already hosting some of the same national retailers that exited downtown.
Seattle’s booming economy also has pushed up rents so much that some downtown retailers must either downsize or decamp to less expensive digs.
Average retail rent in downtown’s Central Business District, which runs roughly from Cherry Street to Denny Way, jumped to $50 a square foot per year in the first quarter of 2020, up 5.4% from a year earlier, according to CoStar, a retail data provider. Newer properties can be twice as expensive, said Damian Sevilla, a commercial broker and vice president with the Seattle office of commercial real estate firm Kidder Mathews. Most retail tenants also pay utilities, taxes and other expenses, which combined can easily raise the total monthly outlay by an additional 30%, Sevilla said.
Such high rents may be feasible for national retailers, luxury stores, banks or cellphone companies, Sevilla said. But they’re likely “too aggressive” for many smaller, locally owned, “cool” retailers that can help turn a shopping district into a destination, he added.
Decades ago, a flagship department store had enough cachet as a destination in its own right to draw shoppers. Seattle was no exception.
In 1998, after Frederick & Nelson filed for bankruptcy, the downtown Seattle shopping district got a huge boost when Nordstrom turned its former rival’s building into a 383,000-square-foot flagship. That led to a “transformation of downtown Seattle,” recalled Susan Zimmerman, a senior vice president with Kidder Mathews and a veteran retail watcher.
Today, the large urban flagship store is becoming the exception, and retailers are trying different formulas.
Many stores are downsizing or are opening smaller stores, like Target did in 2012 at its Pike Plaza location, which is two-thirds the size of a traditional Target store.
Malls and retailers are also pushing more experiential offerings, like food, entertainment and personal services, instead of focusing so intently on apparel and other traditional products.
At Pacific Place, for example, Madison Marquette promises “more of an entertainment-based center [with] much more entertainment, much more food,” Meyers said during the Downtown Seattle Association panel. “There still will be some retailers, but it’ll be very different.”
Such considerations may come into play at the space Macy’s is vacating.
Connecticut-based Starwood Capital Group — which paid $183.7 million for the building, according to the Puget Sound Business Journal — declined to comment on prospective tenants.
Some industry insiders don’t expect a single store to fill the space.
Hoffman Strategy’s Green wonders whether the soaring value of real estate downtown dictates that more office space or even housing is the “highest and best use of the [Macy’s] building.” Some observers say they wouldn’t be surprised if Amazon eventually leases the space for offices or a retail outlet.
Another scenario, insiders say, would be a cluster of tenants with diverse, experiential offerings: retailers, eateries, brewpubs and even music venues, such as the one concert promoter Live Nation plans for a high-rise near Denny and Stewart.
Whether such retail diversity would be enough to attract a former Macy’s shopper like Gable Hare is far from guaranteed. But without it, she’s likely to shop elsewhere.
Downtown “should be a really cool experience,” she said. “A destination or a fun afternoon. And I don’t know that we have that.”
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