News

Sunny forecast for economy in south King County area

By ERICA HALL

The Mirror

A gradual rise in retail sales, a jump in employment and a still-hot housing market seem to be keeping King County’s economy buoyant, and the county’s south end specifically appears to be on the brink of a boom.

A recent survey of business CEOs around the region conducted by Bellevue-based Hebert Research Inc. shows a growing interest in locating industrial and manufacturing plants in south King County, thanks to affordable housing and proximity to the ports of Seattle and Tacoma.

“Boy, am I glad to hear that,” said Mark Clirehugh, vice president at GVA Kidder Mathews, a commercial real estate firm with offices in Washington and Oregon. Clirehugh has brokered the sale of several properties in the Federal Way area, including the new City Hall last year.

But Federal Way isn’t likely to be where those light industrial and manufacturing businesses clamor to be.

“The industrial segment is now stronger than office, and office is what we do in Federal Way,” Clirehugh said.

That’s not necessarily a gloomy prediction.

“What’s important to see about Federal Way is its proximity between Seattle and Tacoma. It allows the market flexibility of either working in Tacoma, or Seattle, or in the Kent valley,” said Hebert, who as a child lived in Redondo and attended Panther Lake Elementary School in Federal Way. “From a residential standpoint, it provides a lot of options, and that has always been its strength.”

As the south King County-area’s industrial economy grows, Federal Way’s ace in the hole could be affordable housing, which is still in short supply across the county. Even though the housing market is starting to cool off, the county’s median housing price of $336,000 is still more than many people can afford.

The men and women who find jobs in the Kent valley’s burgeoning industrial market will probably look for a decent, affordable place to live in Federal Way, experts say.

In addition, Federal Way’s bay-view properties, like those in Marine Hills, would make fine homes for senior management, Hebert added.

“Strategically, (Federal Way) is a strong residential market for manufacturing firms,” Hebert said.

Patrick Doherty, Federal Way’s director of economic development, said it’s likely the city also will see more office development in the coming year. He noted Federal Way seems to be a haven for association and agency headquarters, as well as medical offices. “The valley is still not as prime an office space as Federal Way,” he said.

While much of the city’s recent focus has been on attracting retail, particularly downtown, Doherty said city officials have sent unsolicited marketing materials to hundreds of businesses that might not know they want to come here yet.

An increase in office development here could help diversify the city’s retail-heavy tax base. Still, retail will remain Federal Way’s economic engine, which officials believe will be more powerful next year once retail development that’s been under construction this year opens to customers.

Sales tax revenue from construction activity gave retail sales tax a run for its money this year, but retail continues to be the city’s strongest performer.

Sales tax revenue came in last September at a year-to-date total of $8.2 million — 4.3 percent, or $338,000, more than September 2004, according to city data. Retail sales was 53 percent of that total and, at $4.4 million, was 1.3 percent over the same period last year.

Sales tax on services brought in $1.6 million this year, up 4.6 percent from last year, and construction, this year’s dark horse, brought in $954,000, up 35 percent over last year.

The South 348th Street commercial district’s retail sales tax collection slumped slightly ($8,000), but The Commons at Federal Way showed a rebound, thanks to Target’s move to the mall, officials said. Sales tax generated at the mall was up $179,000, or 31 percent, as of last September. Without Target, sales tax at the mall would have dropped by $23,000, according to city finance officials.

In addition, Target’s sales tax revenue increased $50,000 after the store moved into the mall, indicating the store is performing better now than it was at its former location on South 317th Street and 23rd Avenue South.

But the unpredictability of sales tax can make it hard to come up with a budget each year — or, in Federal Way’s case, every two years. Hebert, the Eastside analyst whose firm conducts the survey of CEOs, said it’s unfortunate some cities have to rely so heavily on sales tax.

“Every community is trying to capture these dollars. The problem is, you can quickly get over-retailed,” he said. “That’s the problem with the Federal Way area.”

Hebert confirmed what city officials here have known for some time: It’s hard for Federal Way to compete with super-powered retailers, like SuperMall in Auburn, Tacoma Mall, Bell Square in Bellevue or Westfield at Southcenter.

Still, analysts are expecting fourth-quarter 2005 retail sales will be up as much as 7 percent over 2004. If that holds true here, it’ll translate to sales tax and operating budget revenue for Federal Way.

“It should be a good holiday season,” said Dick Conway, co-publisher of Puget Sound Economic Forecaster.

Gary Martindale, general manager of The Commons at Federal Way, said “black Friday” — the biggest shopping day of the year, which refers to the post-Thanksgiving consumer flurry when retailers pull their budgets out of the red and into the black — was good this year. Anchor tenants had good sales, he said, as did the smaller shops.

““We don’t expect a huge increase, but we do expect some increase,” Martindale said.

Some analysts have offered an obvious explanation for the strong consumer turnout: More people are employed and wages are strong regionally, with pay raises beating inflation.

Last month, Goernor. Christine Gregoire said Washington added 85,000 jobs over 2005 — a clip better than the national rate. The Seattle-Bellevue-Everett area saw a 3.6 percent increase, according to state economists, while Tacoma’s employment grew 2.2 percent.

Other analysts say people have cast caution to the wind and are simply charging it.

“If you look at average annual wages, they’re going up about 4 percent a year. Inflation is between 2.5 and 3 percent. There are real wage gains,” Conway said. “But income growth was very weak during the first quarter of this decade. What was strange about this was consumption was strong. It was kind of a devil-may-care attitude.”

In general, the regional economy is strong and economic growth is “pretty much across the board,” Conway said. Even the specter of this winter’s energy prices, expected to hamper the growing economy, hasn’t materialized the way some analysts predicted — at least not for fully employed, middle- to upper-income families.

Staff writer Erica Hall: 925-5565, ehall@fedwaymirror.com

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