Portland Retail

Submitted by J. J. Unger and Debi Rosenbaum, brokers with NAI Norris Beggs and Simpson in Portland, Oregon. 

Posted 04/24/08

What trends do you see presently in retail development in your area?
Developers continue to move forward on projects in which they have an anchor tenant and financing.  Land and construction costs have risen to a point where the rents developers need aren’t feasible to tenants, thus putting the project on hold.

What type of retail product is doing well in your area?
Regional malls and our two lifestyle centers continue to perform very well. 

What retailers are new to your area?
Dick’s Sporting Goods, Famous Dave’s, LA Boxing, and over a dozen new tenants to our area that are currently in negotiations with landlords.

Who are the active retail developers in your area?
Center Cal, CE John Co., Gramor Development and Opus NW are the most prominent players right now.

Please name one or two significant retail developments in your area. What impact will these projects have on the market?

> Cascade Station was recently completed located next to Portland International Airport, on the east side of Portland near the border of Oregon and Washington.  This project’s success was banked on the fact that customers who don’t want to pay a Washington State sales tax will cross the Columbia River into Oregon’s sales tax free state to purchase products from tenants like IKEA, Best Buy, Golf Smith and Sports Authority.  The project was developed by Center Cal Properties and has a total gross leaseable area of 375,000 square feet.  It accommodates both large and smaller tenants. 

> C.E. John Co. is moving forward on the much-anticipated Cedar Hills Crossing Phase II, which is slated to begin construction this year in Beaverton. C.E. John plans to demolish about 110,000 square feet of buildings on the 12.2-acre property and replace them with roughly 128,500 square feet.  Information on new tenants hasn’t yet been released, but the development will be loaded with retail and restaurant space.  This developer has already enjoyed success with Cedar Hills Shopping Center, Beaverton's hottest spot for shopping, eating and movie-watching.

Where is the majority of development taking place? Why is this area doing well?
Downtown Portland is seeing a lot of activity, from NW 23rd through the Pearl District and the South Waterfront.  This area is doing well because of Urban Renewal assistance from Portland Development Commission and the private sector’s commitment to downtown Portland.  Portland’s pedestrian mall is receiving a multimillion dollar facelift, along with the addition of two light rail lines connecting the downtown core to two significant suburbs.  This transit construction is slated for completion in the fall of 2009.

What area do you expect to be the next big retail development market? Why?
Downtown Vancouver has huge potential for major retail development.  Gramor Development recently completed a $19 million purchase of a former industrial site along the Vancouver waterfront.  The 32-acre site is slated to be developed into a mix of retail, housing, office space, shopping and restaurants.  New access 1,900 feet of the Columbia River waterfront is planned.  This development will provide for a waterfront experience hitherto unavailable in downtown Vancouver.

Please describe the retail leasing activity in your area.
Rents have leveled off, and landlords are offering more concessions to secure tenants.   I’ve seen an increase in sublease space on the market and decreased new tenant activity.  Few tenants are looking for space right now, and ones that are don’t plan to make a move until fourth quarter of this year or later.

What major leases have been closed recently?
PetSmart leased 20,926 square feet at Cascade Station, while JC Penney leased 104,175 square feet at Columbia Tech Center in Vancouver.

Please give a measure of retail vacancy rates and a measure of available sublease space.
Overall retail vacancy was at 4.9 percent in first quarter 2008 — this includes Portland, OR and Vancouver, WA.  We do not track sublease space.

What types of retailers should look into your market in the coming year? What type of retail is needed?
High-end tenants.  We are one of the most under-retailed markets in the nation and the fact that we don’t have a sales tax excites tourists to spend money on luxury items. 

Would you like to make any additional observations about the retail market in your area?
Portland was rated a Top Travel Destination by Frommer’s Guidebooks, number six Best Places to Live and Launch by CNN Money’s Fortune Small Business and a Best Place for Business and Careers by Forbes. It is known for its high quality of life and in the past decade has become quirky and smart with heart and soul.

Portland Industrial

Portland Multifamily

Black

Submitted by Robert Black, associate vice president with the Portland, Oregon office of NAI Norris, Beggs & Simpson.  Posted Online 05/02/08.

What area is your expertise?
Apartment brokerage in Portland

What trends do you see presently in multifamily development in your area?
Downtown development is strong.  Large, high-end transactions from late 2007 continued into first quarter 2008.  The high level of acquisition activity on the institutional front will continue in 2008. By the end of 2007, activity of smaller (below $5,000,000) properties was down 20 percent from 2006.  This will be the trend for 2008.

Who are the active multifamily developers in your area?
 Opus Development, Trammell Crow, Unico and Gerding Edlen.

Please name one or two significant multifamily developments in your area. What impact will these projects have on the market?

The Wyatt — Northwest submarket — just completed — Bob Ball and Evergreen Signature, LLC, developers.  It was converted from condos to high-end apartments – will fit growing demand for luxury apartments.

The Lovejoy — Northwest submarket — under construction — Unico, developer.  Mixed-use with Safeway grocery store, 231 units of multifamily space and office.  Supplying grocery to an area of Northwest/downtown neighborhood that has not had a grocery store. 

Where is the majority of development taking place? Why is this area doing well?
 Downtown core – close-in (to the Willamette River) East side and Interstate 5 corridor. 

What area do you expect to be the next big development market? Why?
 I-5 corridor due to the growth of new retail and housing demand.

What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
 The downtown core, North/Northeast and Wilsonville submarkets have seen vacancy declines.  The Gresham & Troutdale submarket, as well as the Lake Oswego & West Linn area, saw vacancy rates rise slightly First Quarter 2008.

Please give a measure of apartment vacancy rates.
Vacancy rate for Portland Metro was 3.8 percent in First Quarter 2008.  This is for Portland and Vancouver, WA. 

What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year?
 Multifamily lending is still very available.  Still cautious, lenders are now underwriting more aggressively, requiring more and more detailed reports.  As a result, borrowers are under more scrutiny than ever.  However, investor interest in the Portland market is high, and multifamily is the product type of the moment within the housing market crisis.  Capitalization rates still aren’t under too much pressure to increase.  Rates should stay stable in the short-term. 

What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market?
 Manufacturing employment is sound, while unemployment is flat.  We’re also strong in distribution, wholesale and retail trade, regional government and business services.  Population growth is still strong in Portland.  With the state’s population rising by 1.6 percent in 2007, the majority of it to Portland, demand for rental housing will remain healthy even if employment is lackluster. 

Would you like to make any additional observations about the multifamily market in your area?
 Strong fundamentals and growth.  Portland’s diversified economy is broad-based, with the trade, transport and utilities sector as the state’s largest employer.  But Portland’s manufacturing strength is its secret weapon.  With the dollar weak, exports are strong – keeping our manufacturing and trade markets afloat.

Portland Office

Marcy

Submitted by Steven E. Marcy, principal with Integrated Corporate Property Services/CORFAC International. Posted 08/17/07.

Click here for charts

What area is your expertise?
• I will be discussing Portland office leasing and investment sales.

What trends do you see presently in office development in your area?
• While office development has been on hold for the better part of the past 5 years, it is coming back strong now. Increasing rent, continued low vacancy and continued job growth have led many developers to once again put on their hard hats.  Primarily new development has been in the better performing suburban markets including the Tigard Triangle and the Kruse Way markets where vacancy rates continue in the low single digits. In our Central Business District (CBD) developers are positioning to capture large tenants to kickoff a new high rise. However, TMT Development has successfully used the strategy of “build it and they will come” in the past and will likely move forward with or without a signed tenant.

Who are the active office developers in your area?
• We have several developers who are active in our market many of which are small local companies. However, we also have the usual national suspects like Opus NW who just broke ground on Fanno Creek Place, a 125,000-square-foot three building Class A office park in Tigard. They have a signed lease in Building A for over 55,000 square feet to the Oregon State Bar. Opus is offering the other two buildings on a lease or buy scenario. In our CBD several developers are planning new high-rise office towers including TMT Development, Louis Dreyfus and Shorenstein.

Please name one or two significant office developments in your area. What impact will these projects have on the market?
• The afore mentioned new developments will lead to more upward pressure on rental rates. Other landlords will follow suit by raising rental rates both in our CBD and our southwest suburban market.

Where is the majority of development taking place? Why is this area doing well?
• Over the past few years the only place able to construct new office buildings on a speculative basis has been the Kruse Way and Tigard Triangle market. These markets are close to being built out. New developments such as the afore mentioned Fanno Creek Place, which are essentially infill projects, will continue. Forecasted new construction will be primarily office high-rise in our CBD due to continued demand and low vacancy combined with higher rents.

What area do you expect to be the next big development market? Why?
• The next big development market will be the CBD. This market is prime for a new office tower. The CBD has experienced single digit vacancy coupled with steady growth of rental rates climbing at 12 percent per year. We are in a wait and see between developers TMT and Shorenstein who recently purchased the EOP portfolio, which included a developable site for an office tower in our CBD.

What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
• As mentioned previously, our CBD continues to perform well. In the suburbs it is clearly Kruse Way submarket. Sunset corridor continues to improve with vacancy rates of flex has gone from 40 percent to now only 20 percent and Class A office is in the single digits. However, that said, it is still where the best opportunity lies for tenants seeking large blocks of space.

What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in the next year?
• Interest rates remain favorable for those seeking financing. While there continues to be some upward pressure they remain at historical lows. This continues to spur small owner user sales as well as large opportunity funds to seek property to purchase.

What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
• Portland’s overall economy was slow to ramp up in 2007, but that is normal for our first quarter. Job growth raised an annualized rate of 2.1 percent. Unemployment stands at 5.1 percent, one of the lowest in the nation.

Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected?
• The health care  and government industries continue to grow. Our sporting and apparel industry, which includes Nike, Columbia Sportswear, Adidas, Keen and many others, just got a new competitor with the addition of Le Coq Sportif from France. The newest industry is the Clean Tech industry. Recently we have seen SolarWorld Group from Germany begin conversion of a former semi-conductor plant in Silicon Forest into a solar-cell facility. Genentech just closed on 100 acres also in Silicon Forest, and California based Soaicx just announced it will be opening a major manufacturing facility in Portland. This all bodes well for Oregon’s future growth.