Layoffs at Amazon and Microsoft deal big blow to second-largest US tech hub Seattle

Seattle landlords are watching vacancies mount, with leases of new office space in the region down by more than one third from pre-pandemic levels

A nearly deserted Amazon campus outside the company's headquarters in Seattle. AP

Job cuts at Amazon and Microsoft are the latest blow for the Seattle region in the US state of Washington, which is still struggling to recover from the pandemic-era destruction of the commuter economy that, as in many cities, is the lifeblood of America’s second-largest tech hub.

The number of jobs lost — at least 28,000 globally between the two companies — may seem minor for a region that employs more than 2.1 million. But it is a psychological blow that will make investors hesitant to start new projects and businesses even more reluctant to reopen or expand.

Before the Covid-19 pandemic, cranes building new office towers dotted the skyline, and Seattle’s biggest problem was finding enough room for all the tech industry transplants. The city consistently ranked among the fastest growing in the country, adding more than 128,000 people from 2010 to 2020.

Now a growing glut of empty office space in the city centre suggests things are likely to get worse before they get better.

In a potentially ominous sign, Amazon plans to vacate a 28-storey office tower on 8th Avenue when the lease expires in April and relocate 2,000 employees.

“This downturn in tech is going to be devastating for Washington, and the long-term effects will be quite profound,” said Jeff Schulman, a marketing professor at the University of Washington.

“Tech companies have fuelled so much growth and change that when they tap on the brakes and go in reverse, it puts everything else in peril.”

After 2010, Amazon single-handedly transformed Seattle’s South Lake Union neighbourhood from a hodgepodge of warehouses and garages into a district of bars, burger shops, apartments and salons.

The company quickly filled the available space and marched closer to the city centre with new office towers and an architectural statement: biospheres that resemble massive Christmas baubles, filled with plants and trees where employees can relax.

The campus was central to Amazon’s recruitment of young techies seeking an urban lifestyle.

And recruit Amazon did. Since 2010, the company’s Seattle headcount has grown 10-fold to top 50,000, generating economic growth but also pushing up home and rent prices.

Meta Platforms, Alphabet and Salesforce, eager to poach Amazon employees, set up shops nearby.

For its part, Microsoft built a suburban enclave in Redmond and gradually spilt into adjacent Bellevue, so its retrenching presents less of a blow for the region’s urban core.

Bellevue, once home to strip malls and a couple of modest office buildings, has been refashioned into an outpost for tech companies, anchored by Microsoft, which swooped in during the 2000s to lease a handful of huge office buildings, including some at the core of a growing city centre.

Amazon’s Seattle campus is a quieter place these days, with echoes of a similarly afflicted San Francisco in California. Pavements and restaurants are empty. The first Amazon Go, a cashier-less store that opened in 2018 with lines stretching up the block, is now resorting to tired convenience-store marketing tactics, including 79-cent sodas and $1 coffee Mondays.

Even before starting to lay off workers late last year, Amazon throttled back some construction, The Seattle Times reported at the time, citing uncertain office demand amid the pandemic’s shift to hybrid work.

Microsoft has said it will let some major leases lapse in the coming years, while Meta is seeking to sublease an office building, the newspaper reported.

Meanwhile, Seattle landlords are watching vacancies mount. Leases of new office space in the region were down by more than one third from pre-pandemic levels.

And the share of offices available to rent rose to 22.3 per cent at the end of last year, nearly double what they were at the end of 2019, according to a report by office real estate broker Savills.

The industry’s presumption is that, with fewer people trekking into the city each weekday, companies will need a lot less space. For Amazon, that change would be sufficient to empty entire buildings, a process that will play out over the next several years as leases expire.

Even before the pandemic, Amazon was looking beyond Seattle to grow, partly due to rocky relations with the city and partly to make it easier to recruit. The company expanded into Bellevue, built satellite office hubs in cities such as Austin, New York and Boston and picked Arlington, Virginia, for its second headquarters following a much-hyped bake-off that pitted cities against one another.

For now, Seattle’s best hope for displaced workers and office brokers could be start-ups, including many launched by entrepreneurs who previously worked at Amazon and Microsoft.

“We haven’t seen a slowdown in the rate at which start-ups are forming and hiring,” said S Somasegar, managing director at Madrona, a Seattle venture capital firm.

“It’s going to be a tough year, but hopefully we start to see things bounce back in 2024 or 2025.”

The Microsoft headquarters in Redmond, Washington. Reuters