From Aerospace to the Tech Race

By Greg Lamm

From its humble beginnings as a rainy waterfront outpost on the fringes of America's frontier in the mid-19th century, Seattle rapidly emerged as an important trading center. At first, growth was fueled by the seemingly endless bounty of Northwest firs and gold from Alaska. But that changed after a Yale-educated timberman named William E. Boeing moved into a red barn on Seattle's Lake Union and started designing and building seaplanes a century ago.

Seattle quickly became the epicenter of commercial airplane manufacturing. And by the end of World War II, Boeing dominated the local economy. But a seemingly endless cycle of boom and bust in the airplane business took its toll.

A brutal recession in the late 1960s forced Boeing to make deep cuts in its workforce, which went from more than 80,000 workers to less than 40,000 in a four-year stretch. The Boeing Bust prompted local real estate agents to put up a local highway billboard asking: "Will the last person leaving SEATTLE — turn out the lights."

No one is making such pessimistic quips today. The Emerald City has emerged as a Pacific Rim economic jewel, fueled by a diverse economy that includes tech, aerospace, trade, and health care employers. Nine Fortune 500 companies — Costco, Microsoft, Amazon, truck maker Paccar, Starbucks, Nordstrom, Weyerhaeuser, logistics giant Expeditors International, and Alaska Air Group — are headquartered here.

Amazon stands out. The online retailer's insatiable need for office space has helped transform Seattle's once-neglected South Lake Union neighborhood into a gleaming corporate campus stocked with condos and restaurants, thanks to collaborations with city planners and Microsoft billionaire Paul Allen's development company.

Amazon, Boeing, and an economy supported by diverse industries allowed the Seattle region to bounce back from the Great Recession, says Anneliese Vance-Sherman, a labor economist with the Washington State Employment Security Department. Vance-Sherman said in an interview that an increase in aerospace-related manufacturing jobs helped lift the region's job prospects. So too did computer system design and web design jobs. The tech boom, especially the hyper development under way in South Lake Union, also helped boost jobs in the hard-hit construction industry, which bled jobs when the recession hit.

"It's that combination of specialization and diversity that has really helped this recovery move forward," says Vance-Sherman.

Growth mode

Seattle was one of the nation's fastest growing big cities in 2013, according to the U.S. Census Bureau. And today the metro region has a population of about 3.6 million people, ranking it the 15th largest in the U.S.

Seattle is ranked by Forbes as one of the best places for business and careers. Many newcomers are lured here to work for fast-growing employers such as Amazon. They also are attracted to a hip, urban lifestyle on the edge of open waters and rugged mountains that offer outdoor enthusiasts opportunities to hike, ski, and mountaineer.

"This is one of the rare places on the planet where we have all the assets to get it right. We have economic prosperity with a very solid job base with multiple industry clusters that are thriving," says Gary Kaplan, chairman and CEO of Seattle's Virginia Mason Health Care System.

Tech and aerospace remain important. But Seattle also has thriving health care, research, and biosciences facilities. The city is also a center for philanthropy, thanks to the Bill & Melinda Gates Foundation, one of the world's largest private charitable organizations. The Gates Foundation has helped Seattle become a magnet for companies and organizations focused on global health and medical research.

Kaplan, a physician who also is chairman of the Seattle Metro Chamber of Commerce, says the Gates Foundation anchors local institutions focused on health. That includes PATH, another nonprofit that concentrates on global health. It also includes health care heavyweights such as the Fred Hutchinson Cancer Research Center and medical research at the University of Washington.

Health care aside, Seattle still remains true to its coffee-fueled heritage as the world's Jet City. New 777s and 737s continue to roll out of Boeing's two giant assembly plants. Boeing's Everett plant is a center for production of the next-generation 787 Dreamliner.

Tech and trade

Boeing continues to be a key to the region's success. But the city's latest boom has been a tech affair. In addition to Microsoft and Amazon, tech companies include newcomers like the online real estate site Zillow, which raised $69 million in an initial public offering in 2011. The region has spawned many start-ups and has a coveted workforce of highly trained software engineers.

So it comes as no surprise that Silicon Valley companies have come knocking. Facebook and Twitter have set up development centers in the Seattle area to poach some of the region's coveted tech talent. Google employs more than 1,000 tech workers in the region and recently broke ground on a 180,000-square-foot addition to the tech giant's campus in nearby Kirkland.

The jobs site Monster lists Seattle as the number one mecca for young workers, because so many major corporations and startups are looking for tech-savvy workers.

Seattle also continues to be a busy hub for trade and travel. In 2013, the seaports of Tacoma and Seattle handled imports and exports worth $77 billion. If the two ports were counted as one, the Puget Sound region would be in the top five in the U.S. ranked by value of trade. Meanwhile, in 2013, nearly five million passengers traveled through Seattle-Tacoma International Airport, making it the 15th busiest in the U.S.

The region saw hotel occupancy reach a record 78 percent that same year, according to Visit Seattle. Its 18.6 million overnight visitors spent nearly $6 billion locally in 2013, up seven percent over the previous year.

Airplanes and higher ed

Most of those travelers flew into town on airplanes built there. Boeing's long-time presence has helped the Puget Sound region grow into one of the world's most robust aerospace clusters. More than 130,000 employees in the state work at about 1,300 aerospace-related companies, many of them in the ecosystem of Boeing suppliers, according to the state Department of Commerce. The industry paid 11 percent of all wages earned in the state in 2012.

Alex Pietsch, who directs the state's Office of Aerospace for Gov. Jay Inslee, says it is impossible to overstate aerospace's importance to the region's economy.

So when South Carolina and other states started courting Boeing in hopes of landing some of the aircraft maker's future airplane manufacturing and assembly work, state officials didn't sit back. In 2013, the legislature approved $8.7 billion in tax breaks to ensure that Boeing would keep production of the next generation of the twin-engine Boeing 777 in the Seattle region. (Boeing moved its corporate headquarters to Chicago in 2001, but its commercial airplane division remains headquartered in Seattle.)

Politicians were accused of providing Boeing with billions in corporate welfare. But Pietsch notes that the incentives were necessary to help maintain the viability of an aerospace industry that in 2012 poured $76 billion into the state's economy.

"Boeing's decision to build the Triple-7 in the Seattle area really solidifies our position as the leader of commercial airplane production in the world," Pietsch says.

Before Microsoft, Amazon, and other tech companies even existed, Boeing paved the way as a leading technological innovator. The legacy dates back to 1917, when Bill Boeing gave the University of Washington $6,000 to build a wind tunnel to test the aerodynamic characteristics of model airplanes. The university agreed to train engineers to work for Boeing's startup company, beginning a long history of the school's collaboration with local industries.

Today, UW is the flagship university in a region that has become a center for higher education and research, anchored by public and private colleges and universities including Seattle University, Seattle Pacific University, and Tacoma's Pacific Lutheran University.

The University of Washington is a world-renowned leader of research and development. In 2013, the university received $1.2 billion in research funding, mostly from the federal government. Scientists study a broad range of areas, including neuroscience, education, technology, and climate. Since 1988, six faculty members have been named Nobel laureates, including five for medical breakthroughs.

In 2013, UW researchers launched 17 companies, and in the last decade 93 tech startups have bubbled up from its research.

The Amazon effect

One of the region's biggest success stories — the rapid growth of Amazon — has had a ripple effect beyond innovation and jobs.

Microsoft cofounder Paul Allen's Vulcan Inc. real estate development company and Amazon have been the catalysts behind the rejuvenation of a Seattle neighborhood once written off as an urban desert of old warehouses, car lots, and poorly planned streets. Today, South Lake Union is in the midst of a transformation, with new office buildings and condominium towers. Brightly colored streetcars roll along newly laid tracks, and new shops and restaurants cater to thousands of new workers and residents.

The city's 2004 designation and plan for South Lake Union as an urban center is expected to provide office space for 22,000 workers and 12,000 new apartments and condos over the next 20 years.

South Lake Union's reawakening was bolstered by Amazon's desire to build a world-class corporate campus to house its rapidly expanding workforce. Amazon was interested in keeping its headquarters in Seattle. But it had grown out of its office space and wanted to take advantage of an urban environment that would help the company attract and retain the young tech workers who like to walk or bike to work or hop on a bus or trolley. These sought-after employees also demand coffee shops, restaurants, and nightlife in the neighborhood, as well as big-city amenities not far away.

Allen's Vulcan had already assembled a lot of the property and, with the city, had done much of the rezoning and infrastructure upgrades to make development in South Lake Union possible. Those factors made South Lake Union a perfect fit for Amazon's needs, says John Schoettler, Amazon's director of global real estate.

In 2001, Amazon had 640,000 square feet of corporate office space. By 2018, Amazon's headquarters will top nine million square feet, comprising a cluster of 34 buildings and a four-block section of South Lake Union that Amazon is currently developing. (Some three million square feet will be in Denny Triangle, just to the south.)

Other companies have followed Amazon's lead, both in South Lake Union and elsewhere. In the summer of 2014 timber giant Weyerhaeuser announced it was moving its 800 corporate employees from its suburban headquarters to Seattle's historic Pioneer Square section because the urban setting would help the company hire young employees eager to live and work in the city.

Schoettler, who lives in South Lake Union and walks to work, says Amazon thought all along that the urban setting had a lot of untapped soul. "We thought the area was cool and could become even cooler."

Ada Healey, vice president of real estate for Vulcan, says before Amazon emerged as an interested party, the University of Washington Medicine was an early proponent of the city's plan for the area because this district seemed an ideal location for the UW's medical research hub. Healey says that Allen also deserves a lot of credit. The Microsoft cofounder invested early in what was a historically neglected area of the city.

It was Allen's early vision, the support of early adopters, and the city's efforts that made it all happen. The city invested more than $300 million to upgrade streets, enhance utilities, and improve parks. And just as important, planners created more than 10 public-private partnerships that smoothed the way for the needed rezoning and infrastructure improvements.

"We essentially set the table and we got the redevelopment ball rolling by partnering with the city, and Amazon showed up for dinner," Healey says.

Greg Lamm is a Seattle-based journalist who specializes in the economy, technology, finance, and the law.

Resources

Images: Top — Amazon's new downtown Denny Triangle campus will encompass more than three million square feet on three city blocks. NBBJ's design also includes a public dog park, a two-way cycle track, and ground-level retail. Rendering BY NBBJ, courtesy Amazon. Bottom — Once home to sawmills and shipbuilders, South Lake Union will soon be the site of Amazon's Seattle headquarters. South Lake Union Park and its acclaimed Museum of History and Art are just visible at the lower right. Photo by Jay Dotson.