Here are the metrics these nine economists and analysts are paying attention to as 2024 gets underway.
By Neetish Basnet – Data reporter, Puget Sound Business Journal
What difference a year can make.
Fears of recession were widespread this time last year. But, while it’s still early days, the economy seems to have unstuck itself from the unrelenting inflationary pressures. The Fed’s long sought-after “soft landing” is in the play.
Locally, market conditions point to a moderately positive 2024.
We talked to seven economics experts who keep tabs on the Puget Sound region’s business environment and asked them to look into their crystal balls.
Brewed together, the forecasters’ outlooks are a blend of resilience and moderate growth, though as you’ll read, there’s disagreement among some analysts.
Buoyed by a thriving tech industry – which navigated various challenges last year – the local economy is poised to outperform most other U.S. metros. The overall employment and income growth in the Puget Sound region is forecasted to keep pace with or slightly outpace the national average. The region continues to attract new residents with jobs and quality of life.
Economic uncertainties persist, though.
The commercial real estate industry is trying to pull itself up from a slump as it battles higher vacancy rates. And, the rising home prices could drive renters and job-seekers to more affordable exurbs.
Here’s what to watch in five key markets.
Daryl Fairweather, Redfin Chief Economist
Office market
Hart Hodges: The office market is headed for some rough adjustments if interest rates stay high into summer. Commercial real estate developers and owners, like residential owners, took advantage of low rates back in 2021. Commercial owners and developers don’t have 30-year fixed mortgages, but did have loans structured that have let them escape the real pain of higher rates — so far. The story changes if rates stay higher into summer. So, place your bets on whether the Fed will act soon or we’ll see a bit of pain in commercial real estate later this year.
Elliott Krivenko: I expect vacancy to increase. There is a lot of availability in the market, with some submarket vacancies extremely high. We may see some large amounts of space taken off the market, whether through leasing, conversion, or demolition. That would provide some relief. However, that type of reset in the market takes years to play out.
As the market rents fall, companies could see an opportunity to lock in longer-term leases at lower rates. So far, however, that has mostly been coming from existing tenants within the market.
Chris Mefford: The office market overall appears to get worse on the net, before things settle down and the supply right sizes to meet the new lower demand. Small to medium-sized businesses are not wanting to risk the traditional five-year lease model that burdened so many, and larger employers are consolidating their footprint to match employees’ new ability to be productive from home and remote work
Mason Virant: The plain and simple of it is that most cities, including those within the Puget Sound, have more office space than companies need. With continued rises in vacancy and changes in how companies delegate where their employees can work, owners and property managers will have to recalibrate their offerings to attract more tenants or reposition their assets entirely for new, creative and adaptable uses.
Housing market
Orphe Divounguy: In 2024, we expect strong demand for rentals in “commutable” areas with easy access to office-laden neighborhoods. In Seattle, that’s downtown and South Lake Union.
Elliott Krivenko: Multifamily construction should slow somewhat, as there are few starts lately. Many would-be projects have been postponed or canceled due to issues securing financing. While rent growth was weak over the past year amid a wave of new supply competing for tenants, the slowdown in construction positions the region for rent growth to return by the end of the year. I do think the slowdown in construction will be short-lived. Both decreasing interest rates and stabilization of construction costs will likely improve the feasibility of getting projects off the ground by 2025, if not earlier
Daryl Fairweather: I don’t think changes in return-to-office policies are going to have an impact on housing in 2024, rather hiring patterns from the biggest employers will be the driver. For example, Amazon is already requiring its employees to come to the office regularly. If Amazon goes on a hiring spree that would bring lots of highly paid professionals to Seattle and drive up demand for housing.
Mason Virant: The biggest challenge for the residential real estate market in 2024 will be low supply levels for single-family homes as many potential sellers rethink listing their homes and buyers continue to face decreased buying power in a competitive market for prime locations in close proximity to city centers.
Retail market
Chris Mefford: The impact on retail and service demand is a distribution effect, not an overall demand effect. Daytime services will calibrate and locate to where people are. When major employers say workers “are back”, they really mean for just two to three days per week. That nets out to demand for daytime services (including restaurants and shopping) to be much less than before COVID. This means continued investments in neighborhood commercial centers and continued re-purposing of downtown centers.
Elliott Krivenko: Outside of downtown Seattle, retail space in the region has been extremely tight. I’ve been hearing a lot of buzz around downtown retail and am wondering if we will see the beginning of a turnaround for that area in the coming year. I don’t have any specific data behind this, but it would surprise me to not hear some major announcement(s) related to retail leasing or redevelopment downtown within the next 12 months.
Labor market
Orphe Divounguy: The labor market has cooled to a pace that is slightly below pre-pandemic trend and the Seattle metro has cooled faster than the rest of the country in the past 12 months. Employment growth in the region has historically outpaced the rest of the nation, but the gap is closing. Since the Fed began raising interest rates, the region seems to have lost some of its huge advantage.
Kyle Stanford: Seattle’s tech market has continued to show its strength over the past couple of years, so there should be reason for optimism in 2024. Venture capital has continued to pour into the city’s companies ($3.6 billion in 2023), which creates jobs and builds valuable companies to continue the development of Seattle.
Chris Mefford: The Puget Sound region’s most productive asset is its ability to attract talent, which overcomes the economic challenges we worry about locally. The region will continue to grow — not at peak levels we’ve come to expect from time to time, but net growth. As long-time residents bemoan the loss of what they perceive as better times, ambitious newcomers embrace the region and all its current challenges and step right in to redefine the region.
Anneliese Vance-Sherman: In order to hire and retain staff in this environment, we can expect wage growth and continuing quality of work issues such as flexibility, telecommuting or hybrid work to be influenced by worker preference.
Venture capital market
Kaidi Gao: We anticipate seeing large VC investors, in particular mega funds (funds with $500M size or above), start deploying capital in a more meaningful way likely in the second half of 2023. Dry powder has been sitting on these large funds — which have been taking a wait-and-see approach in 2023 as late — and growth-stage startups suffered significant valuation declines. Many companies that raised outsized rounds in 2021 or early 2022 will likely run out of cash runway and will have to return to the market for a following round.
Kyle Stanford: IPOs for Seattle-area companies have been low for the past couple years. I don’t think we should expect a major shift. The 2024 IPO market may end up a bit better than we’ve seen recently, but I don’t think it will be significant enough to create a major push from Seattle-area companies.
Things to watch
Orphe Divounguy: Inflation and progress on interest rates will stay top of mind.
Hart Hodges: Everyone is talking about a soft landing and consumer sentiment is up. However, consumer debt is also up. The economy has enjoyed a great run, based partly on strong consumer spending, which was based partly on Covid stimulus money. The effects of the stimulus money lasted a good bit longer than we anticipated. That said, it can’t last much longer. What comes next?
Anneliese Vance-Sherman: Assuming that job postings and voluntary quits continue to fall, we can expect to see a shift in influence that favors employers relative to the past couple years.
Chris Mefford: The region seeks its Next Big Thing to follow the historic milestones that came with Boeing’s growth in the late 70s and 80s, Microsoft’s emergence in the late 80s and early 90s, and Amazon’s historic rise from the mid-90s through the late 2010s. I don’t know that we need that single next big thing or any one economic hero. We have a sufficiently diverse industrial mix, along with an exceptional and ever-growing talent base, and plenty of entrepreneurial energy. Rather we will continue to evolve as an economy to meet the world’s challenges. —
Elliott Krivenko: Are we at peak Pickleball yet?