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Major Western Region Leasing Markets Predictions and Updates

A panel of commercial real estate leasing experts shared their predictions and updates for major Western region markets at the 14th Annual View From the Top. Panelists included Jeffrey Welch, Executive Vice President of CBRE; Christopher T. Roeder, Executive Managing Director of JLL; David Sternberg, Executive Vice President of Northern California & Mountain Regions of Brookfield Properties; and David Abbot, Executive Vice President of Colliers. The panel was moderated by Allen Matkins partner Tony Natsis.

The panelists agreed that the number one priority at the moment is getting people back to work in the office—a sentiment also shared by tenants and property owners. Overall, the outlook remains positive in the leasing market.

LOS ANGELES

Los Angeles saw the second-lowest occupancy in the country during the COVID-19 pandemic. The massive 235 million square foot market has seen rents increase in five of the last six quarters despite the fact that the city has been shut down for the last 18 months and vacancy rates are as high as 40%. Driving the rent increases are 12 million square feet of new space scooped up by the tech industry.

There have been pockets of activity in Culver City, Burbank, and Hollywood mostly related to the booming techtainment industry in the area. Demand for entertainment has remained high, increasing the need for soundstages and the like.

In contrast, the downtown Los Angeles market has been stagnant, as the companies that traditionally occupy those spaces have stayed home. These finance, real estate, and insurance companies continue to perform well, but there is some speculation that they will need less space after the pandemic ends.

Across all markets in the Los Angeles area, concessions are at all-time highs. There is no indication that these concessions will fall or rental rates will drop in some of the less popular areas. Moving forward, landlords and tenants are looking for flexibility and efficiency. Flexibility is key, as tenants may not know exactly what they need until they get everyone back in the office and are able to see how they want to use their space.

SAN FRANCISCO

San Francisco was significantly impacted by the COVID-19 pandemic as the city shut down. Occupancy rates and public transportation ridership were the lowest in the country. Vacancies reached 20%. With a high density of office space in the downtown area, commercial activity in the city appeared flat. Behind the scenes, business continued from home offices and living rooms. A tremendous amount of wealth generation continued, unemployment rates remained low, and companies in the region continued to hire employees.

The best subleases in the area are moving again, and many of the current subleases will expire in the next three years. Priorities in the city include getting people back to work in the office, and that requires making workers feel safe and comfortable outside their homes. As tech companies begin to return to work, the abundant supply of sublease space should dissipate.

Highlights in the Bay Area include 5M, a mixed-use development in downtown San Francisco. The building will be 100% leased before the end of 2021, and tours have significantly picked up now that people have the ability to physically walk through the facility and see the health and wellness attributes. Progress on Pier 70 continues, and a lot of the infrastructure has been completed, making it possible for people to walk the grounds.

SEATTLE

The leasing market in Seattle has seen an uptick in demand for sublease and new-to-market tenants in the last two to three months. Notably, some sublease space is coming off the market as landlords anticipate companies returning to work in the coming months. Key players in the area include tech companies, as well as life sciences companies gaining momentum.

Bellevue was a bright spot during the pandemic due to Amazon’s expansion in the area. However, the company has been a disruptor in the space. Much of the current construction work downtown is related to Amazon projects, and the company also had incentivized tenants to move before their leases ended, with plans to take over those spaces.

In the South Lake Union area, projects originally constructed as office space have been pivoted to the life sciences. This includes Cascadian and Dexter Yard, which are now targeting tech and life science companies. This trend may continue and lower the amount of office space in the area.

The Puget Sound area should see a robust end-of-the-year. Executive transitions at Amazon and the potential election of a business-savvy mayor are factors that could affect growth in the region.

Article By

Anton N. Natsis
Allen Matkins Leck Gamble Mallory & Natsis LLP

James W. Semple joins Leaders in Law as the exclusive Dispute Resolution Law member in Delaware, USA

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Washington Joins Chorus of States with Major Environmental Justice Laws

Washington State has joined a growing number of states that have adopted keystone environmental justice laws. On May 17, 2021, Governor Jay Inslee signed the Healthy Environment for All (HEAL) Act, E2SSB 5141, into law.

The new law recognizes that many communities experience disproportionately greater environmental health impacts as a result of multiple social, economic, and environmental stressors. Its principal objectives are to reduce and eliminate these disparities and to “remedy the effects of past disparate treatment of overburdened communities and vulnerable populations.” The law builds on recommendations in a 2020 report prepared by a state-funded environmental justice task force.[1] Over the next several years, the legislation will inject environmental justice considerations into state administrative agency actions. These considerations are likely to affect a range of agency activities and initiatives from grant programs and rulemaking to project approvals and enforcement cases.[2] 

Key Takeaways

Several state agencies, including the Department of Ecology, will be required by the law to:

  • Adopt environmental justice principles into their strategic planning and budgeting and funding decisions.
  • Develop and implement a community engagement plan with a focus on empowering overburdened communities and vulnerable populations, and on considering them in agency decision-making.
  • Consult with Indian tribes on decisions affecting tribal rights and lands and when carrying out certain agency environmental justice obligations.
  • Develop metrics and reports for tracking progress toward environmental justice goals.[3] 

For members of the regulated community, the most salient aspect of the law likely will be environmental justice assessment requirements. By July 1, 2023, covered state agencies must develop a process for conducting environmental justice assessments for “significant agency actions.” Based on these assessments, the agencies must seek “to reduce or eliminate the environmental harms and maximize the environmental benefits created by the significant agency action on overburdened communities and vulnerable populations” to the extent “feasible and consistent with the underlying statute being implemented.” Even if the law does not expand agency authority, these assessments are likely to influence regulatory requirements and, ultimately, how the agencies administer and enforce their programs.

Environmental Justice, Overburdened Communities, and Other Critical Concepts

At the heart of the law are several foundational concepts with which environmental attorneys and their clients should become familiar. The first, naturally, is “environmental justice,” defined as:

the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, rules, and policies. Environmental justice includes addressing disproportionate environmental and health impacts in all laws, rules, and policies with environmental impacts by prioritizing vulnerable populations and overburdened communities, the equitable distribution of resources and benefits, and eliminating harm.

Although derived in part from an EPA definition that addresses the procedural aspects of environmental regulation, the state’s definition incorporates outcome-based components.

The law also includes other definitions to assist with identifying relevant environmental benefits and harms, as well as the communities experiencing the disproportionate environmental and health burdens that the law seeks to remedy. For example, “overburdened communities” are “a geographic area where vulnerable populations face combined, multiple environmental harms and health impacts, and includes, but is not limited to, highly impacted communities ….”

A critical piece of the state’s environmental justice program will be an “environmental health disparities map,” which the Department of Health is charged with maintaining.[4] The map must use up-to-date information and data to identify “cumulative environmental health impacts and overburdened communities.” The map is likely to play a primary role in efforts to implement the state’s environmental justice initiatives by identifying relevant communities and impacts.[5]

Environmental Justice Assessments

The scope, methods, and applicability of agency environmental justice assessments for significant agency actions will be shaped over the next several years by each agency, an interagency workgroup, and a soon-to-be established environmental justice council.[6] A “significant agency action” is defined broadly as an “action that may cause environmental harm or may affect the equitable distribution of environmental benefits to an overburdened community or a vulnerable population.” As a starting point, the law identifies certain rulemaking, large capital and transportation projects, and agency legislation requests as significant agency actions. But, after considering guidance from the environmental justice council and interagency workgroup, agencies can define additional agency actions that would trigger environmental justice assessments.

Similarly, the content of the environmental justice assessments will be clarified through agency action over the next couple of years. As a baseline, the law requires the assessments to:

  • “Where applicable, utilize cumulative environmental health impact analysis … that considers the effects of the proposed action.”
  • Identify “overburdened communities and vulnerable populations who are expected to be affected … and the potential environmental and health impacts.”
  • Identify impacts to tribal rights and resources.
  • Consider community input and describe how environmental justice communities may become involved in the development of the action.
  • Identify “options … to reduce, mitigate, or eliminate identified probable impacts on overburdened communities and vulnerable populations, or provide a justification” for not addressing those impacts.

The law reigns in the potential scope of environmental justice assessments by specifying that they should resemble the familiar State Environmental Policy Act checklists that agencies use to evaluate environmental impacts for countless projects. The law also states that the checklist is not intended to be “a comprehensive or an exhaustive examination of all potential impacts” and does not require “novel quantitative or economic analysis” of the proposed agency action.

Pending the outcome of the assessments, agencies then must attempt to minimize or avoid “environmental harm” and “maximize the environmental benefits” for “overburdened communities and vulnerable populations.” The law specifies several “methods” that the agencies must consider “consistent with agency authority, mission, and mandates,” including, among others:

  • Eliminating “disparate impact of environmental harms.”
  • Reducing cumulative health impacts.
  • Providing for “equitable participation and meaningful engagement” of impacted communities in the development of the agency action.
  • “Prioritizing equitable distribution of resources and benefits.”
  • Providing “positive workforce and job outcomes.”
  • “Modifying substantive regulatory or policy requirements.”

The law contemplates that “other mitigation techniques” will be developed by the agencies as well based on input from a range of sources, such as the environmental justice council and “representatives of overburdened communities and vulnerable populations.”

The environmental justice assessment process also will provide grounds for challenging agency actions.  Future agency determinations about what constitutes a significant agency action will be particularly important in determining the extent to which these challenges are premised on environmental justice issues.

Conclusion

The Healthy Environment for All Act will spur additional action to address environmental justice issues in Washington. To date, state agencies have incorporated some environmental justice principles into programmatic planning and funding decisions. The new law will shape agency actions across a spectrum of areas. During the legislative process, the potentially more far-reaching mandates of earlier bill versions were watered down. However, as agencies take steps to implement the law over the next several years, members of the regulated community – particularly, those that interact with the Department of Ecology – should anticipate that environmental justice principles will increasingly affect general regulatory requirements and are likely to play a more substantial role in facility-specific enforcement, permitting, and compliance issues. Businesses located in overburdened communities and/or vulnerable populations, in particular, should be prepared to track implementation efforts to determine proactively how environmental justice factors could affect their operations.


[1] The Environmental Justice Task Force was required to provide a report to the Governor and the legislature by October 31, 2020, with recommendations for incorporating environmental justice principles into state agency actions. The task force was funded through a budget proviso for the Department of Health in ESB 1109.

[2] In addition to the HEAL Act, the Washington State legislature recently passed E2SSB 5126, a greenhouse gas “cap and invest” law, which includes significant environmental justice provisions. The environmental justice provisions in that legislation will be evaluated in a separate news alert.

[3] State agencies that are not required to comply with the environmental justice law may choose to do so.

[4] The Department of Health has already developed an initial version of the map. It incorporates measures such as diesel emissions, ozone, and proximity to hazardous waste sites and their relationship to communities experiencing higher rates of poverty and certain health issues, like cardiovascular disease.

[5] By November 2022, the Washington State Institute for Public Policy, a non-partisan public research group, must evaluate the “measures and methods” in the environmental health disparities map and issue a report on its findings.

[6] The environmental justice council will have several non-binding functions: providing a public forum for hearing and learning about environmental justice concerns; and developing guidance on agency environmental justice implementation, environmental justice assessments, and health disparities mapping; evaluating agency progress in applying guidance from the council; and developing recommendations for additional legislative action to address environmental justice issues. The advisory council will include 14 members appointed by the Governor. The interagency workgroup will offer technical assistance and information-sharing services to advance agency implementation and evaluation of the environmental justice requirements and will share information about specific agency functions and activities to support the council’s guidance and assessment responsibilities.

Article by

Stacey Sublett Halliday
Julius M. Redd
Allyn L. Stern
Augustus E. Winkes
Beveridge & Diamond PC