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

Submitted by Tom Dechenne, associate vice president with the Portland, Oregon office of NAI Norris, Beggs & Simpson.  Published Online 05-23-08.

What area is your expertise?
Sales and leasing of industrial and commercial property in Portland, Oregon.

What trends do you see presently in industrial development in your area?
Industrial development continues to be fairly strong, provided land can be found to be developed.  Overall, within the Portland Metropolitan Area industrial land supply is short on top-quality sites.  Consequently, secondary and redevelopment sites, though limited in supply, continue to be the choices available to development firms.

What type of industrial product is doing well in your area?
There are two types that seem to be doing fairly well.  One is 40,000 to 50,000 square foot and larger spaces for warehouse/distribution use in newer developments that are located along major freeways with easy access.  The others are 5,000 to 20,000 square foot spaces for local or semi-regional companies with a need for corporate headquarters, assembly manufacturing and/or warehousing.

Who are the active industrial developers in your area?
Locally, firms such as Specht Development, Pacific NW Properties, PacTrust Development; national companies such as Opus, Prologis, Birtcher and Trammel Crow continue to be very active in our area.

Please name one or two significant industrial developments in your area. What impact will these projects have on the market?
Probably the two largest industrial corridors are the North/Northeast submarket, encompassing the Rivergate area, and the Northeast Columbia Corridor/Airport Way area.  There are currently about 1 to 1.5 million square feet of newly constructed, big-box industrial/warehouse space for distribution users needing 50,000 square feet and larger near the Portland International Airport.  The market has been a bit softer in the last few months, but overall it continues to show reasonable activity in light of the weakness of the national economy. 

Where is the majority of development taking place? Why is this area doing well?
The North/Northeast corridor.  This area is doing well because there has been industrial land available to develop.

What area do you expect to be the next big industrial development market? Why?
North and South of the Portland Metropolitan area along the I-5 corridor.  Within the Metropolitan area, we will be seeing primarily in-fill development.  It is very difficult to find a developable site that is five acres or larger. 

Please describe the industrial leasing activity in your area.
Industrial leasing activity is fairly steady, and rental rates have crept up steadily throughout 2007.  Demand has eased off slightly over the past few months, however, tenant concessions and the push to raise rental rates continues.  Vacancies have reduced slightly during this time, excepting the big box user – new development where over 1.5 million square feet of new construction has increased the vacancy rate on that particular submarket.   

Please describe the industrial sales activity in your area.
Rising interest rates haven’t dampened demand, which continues to exceed supply.  In our market there are two distinct factors that drive the sale price of industrial property: owner-user versus investor/acquisition purchases.  Owner-user purchases tend to purchase at a five to 15 percent higher value over investor-purchased property. 

Please give a measure of industrial vacancy rates and a measure of available sublease space.
Vacancy rate for First Quarter 2008 was 11.2 percent for Portland and Vancouver, WA.  Approximately 1.5 million square feet of industrial property came online in the last two to three quarters but again, a good share of that is larger distribution warehouse complexes. 

What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year?
Like every real estate market, interest rates have a huge effect on purchases and overall returns.  However, relative to the value of the property and historical interest rates, these rates are still extremely low. 

What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected?
We expect demand to continue for big box distribution space, which right now includes food distribution and other staple items.  Likewise, consolidation and revamping of existing warehouse space where some companies are consolidating or downsizing locations, but not necessarily changing their square footage, should continue.  The push is to reduce costs in light of slimmer profit margins.  Perhaps the larger change to come will be by submarket more than industry type.

Would you like to make any additional observations about the industrial market in your area?
Overall, demand continues to be fairly steady, but the supply is extremely short.  With the shortage of available land, prices have continued to increase as vacancy has dropped over the last two years.  We will continue to see a relatively tight market as far as new construction, tempered by available space that has come online with reasonable demand for those users of 50,000 square feet and more.  Overall outlook for the Portland industrial market is steady to slightly improving over the remainder of 2008.

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

Floberg

Submitted by  Charlie Floberg, broker with NAI Norris, Beggs & Simpson in Portland, Oregon.  Posted Online 05-13-08.

What area is your expertise?
Central Business District, Portland

What trends do you see presently in office development in your area?
 We see a lot of new class A properties coming out of the ground, delivering approximately 2010, with a lot of rehab in the Class B market.

Who are the active office developers in your area?
 Shorenstein, based out of San Francisco; TMT, a local developer; Winkler; and Unico are a few of the most active companies right now.

First & Main Downtown Portland, 2010

Please name one or two significant office developments in your area. What impact will these projects have on the market?
First & Main will be the next new construction out of the ground in the downtown core.  It is a 13-story Class A office building with a completion date set for First Quarter 2010.  Construction on TMT Development’s Park Avenue West has recently begun, also in the downtown core.  This will be an office/retail/condo mixed-use building that delivers approximately late 2010 or early 2011.  These projects will have a huge impact on the market, where the Class A supply is very tight. 

Where is the majority of development taking place? Why is this area doing well?
There is a lot of development and rehab taking place in the downtown core (Southwest) and in the Pearl District to the Northwest, close to the Willamette River.  Unico’s mixed-use retail/office/residential project, The Lovejoy, is under construction in the Pearl District.  One Waterfront Place is being developed by Jim Winkler and Bill Naito, also in the Northwest neighborhood.  Shorenstein’s First & Main project is going up at the mouth of the Hawthorne Bridge on the river’s Western side in the heart of the Central Business District.  Tenant demand to be there has not slackened — Class A CBD vacancy is under 7 percent.

What area do you expect to be the next big development market? Why?
Vancouver, just over the Washington state line, is a growing market and a 15-minute drive from downtown Portland.  With as much migration to Vancouver as we are seeing, it will be an active development market soon.  Portland’s suburban market is also experiencing a lot of development.  Our East/West commuter rail is already one of the most-used mass transit systems in America, and expansion plans are in the works.  There will be increased development to Southern suburbs like Wilsonville and the area surrounding the 217 freeway.

What areas are doing well in terms of office leasing? Which areas are struggling with office leasing?
As mentioned, the downtown core is doing well.  The 217 and Kruse Way submarkets are struggling somewhat, partially due to the credit crunch.  Many mortgage and related companies were located there and took a heavy hit.  A lot of sublease space come available.  Historically, those submarkets have been some of our best performers.

Please give a measure of office vacancy rates.  Please give a measure of available sublease space.
In First Quarter 2008, Central City vacancy for direct available space was at 10.19 percent vacancy, total availability including sublease space was 11.08 percent.  Suburban office for direct available space was at 15.22 percent, total availability including sublease space was 17.13 percent.  These are both for Portland. Vancouver suburban vacancy was at 15.48 percent direct, 17.88 percent total, including sublease 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?
The climate has become a lot tighter for owner/users, especially smaller owner/users, to purchase buildings due to tightening credit standards and the challenge of obtaining a favorable rate.  It’s becoming a lot harder to get approved for loans.  For the leasing side this means tenant improvement dollars are being stretched thin, and it’s becoming a lot harder to get the dollars to put into the space.  A lot of companies are having to borrow money to build out the space.  I think interest rates will come down, but I see a big problem with the loan approval application process.  I think we will see a lot of mid-sized developers struggling to get buildings out of the ground if they don’t want to take on extra risk to get a loan.

What is the status of job growth/(un)employment rates and what bearing will it have on the office market?
Job growth in the Portland metro area is down slightly, but unemployment is essentially flat.  We haven’t been hit as hard as some parts of the country, but we are struggling a bit in the office market.  A lot of sublease space becoming available, as well as a lot of companies having to downsize in their office needs.  So movement is still taking place, but its movement from a large scale to a smaller scale, while trying to absorb existing space.

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?
 Law tenants in the downtown core, and alternative energy companies in suburban submarkets.