Even with expensive land, entitlement and construction costs, retail growth continues to dominate the area’s commercial real estate market.
Recent retail developments are doing well, and more are set to come.
Businesses continue to wait for larger office spaces to come on to the market, and industrial spaces are becoming scarce with low vacancy – which may lead to new construction within the next year.
Hot, hot, hot
Retail development in Clark County is certainly not showing any signs of slowing.
Several large-scale projects have been announced and the vacancy rate is at a healthy 6 percent, said Brett Irons, real estate investment manager for office and retail at Coldwell Banker Commercial Jenkins-Bernhardt Assoc.
In east Vancouver, work on the first phase of the $30 million Eastside Spectrum retail development next to Big Al’s is expected to be complete by January.
The development, by Big Al’s developers Kirkwood & Kirkwood, will have 70,000 square feet of retail space in five buildings and will lease for $30 to $35 per square foot. Just north of the site, the 45,000-square-foot Fisher’s Landing Plaza retail development is also in the works.
A nine-building retail complex is planned for six acres on the northeast corner of Andresen Road and 18th Street, next to the site of the soon-to-be-built WinCo store. Plans for the space include restaurants and a bank.
John Thrift, doing business as Thrift-Andresen Investment LLC, is developing the project.
Elsewhere in the county, commercial growth continues to be strong.
Washougal Town Square is underway with 22,500 square feet of first-floor commercial and retail space, and each of the three additional planned buildings will have retail components.
Killian Pacific projects The Crossing and Grand Central are in the first stages of breaking ground.
Battle Ground’s first hotel, a Best Western, has 11,000-square-feet of retail space, and the Gardner Center retail complex – which has seen great success, Irons said – is expanding by 12,000 square feet.
Plus, the two-building, $2.1 million Kristi Plaza commercial project was recently unveiled in Battle Ground and has filled quickly.
Irons said retail growth will likely continue in outlying areas, following the residential boom of the last few years.
Developments that have come online in the last year, such as Hazel Dell Square and Hazel Dell Town Center have had much success and are generating the highest demand for chain stores locating in Vancouver, Irons said.
The interest is warranting lease rates between $30 and $35 per square foot. Last year, Class A retail space averaged between $25 and $28 per square foot.
There also has been considerable downpressure on tenant improvement allowances, which helps offset construction costs.
“The demand and population growth is significant enough to warrant the growth in retail here,” Irons said.
New offices on the way
Landlords with existing office buildings control their own destiny at the moment, as they have flexibility in negotiating terms with tenants, said Byron Roselli, vice president of Eric Fuller & Assoc.
In contrast, those who recently bought or are constructing office new buildings are stuck charging tenants about $24 per square foot to make projects pencil.
The county average is $21 per square foot.
The office market in East Vancouver is still hot, with 11 percent vacancy, Roselli said.
By July, a 52,000-square-foot Class A office building at Columbia Tech Center there should be complete. It was originally intended to be used solely for medical offices, but now is being marketed as medical and general office for about $24.50 per square foot.
In the two existing three-story Class A office buildings there, vacancy is minimal and the largest space available is 2,800 square feet, Roselli said.
A 50,000-square-foot flex building – single-story, multi-use with office in the front and warehouse in the rear – was recently completed at Columbia Tech Center.
Vancouvercenter continues to be slow in attracting tenants at 35 percent vacancy, with 37,000 square feet of the 105,000 square feet remaining vacant. The space goes for $24 per square foot, and Roselli said it’s not likely the second office building in the four-building development will be built until vacancy hits 10 percent to 15 percent in the existing space.
He credits the slow interest to a design flaw – the east side of the office building looks directly into two buildings of apartments (soon to be condominiums), and its view to the south will be obstructed when the next office building is built.
There is about 18,000 square feet of office space left at the new six-story Columbian building, and 6,000 square feet of first-floor retail will likely come online in October.
Much of the 16,000 square feet occupied by iRiver at Tidewater Cove is up for sublease, as the company has downsized its Vancouver operation. Waterside space there is being marketed for $21.50 per square foot.
And several projects are in the hopper that could add needed square footage to the market.
Prestige Development recently bought Vancouver’s old police headquarters for Prestige Plaza, a six-story building with five floors of office space and condominiums on the top floor.
Riverwest will have 120,000 square feet of office space, Killian Pacific is looking at doing an office building on the Frontier Block, and the Al Angelo Co. has announced plans for a multi-story office building at the old Denny’s site downtown.
Plus, iQ Credit Union recently bought the city’s four-story Citizens Service Center and the Eberle Building next door to use as its headquarters.
On the contrary, the market in the area of Westfield Vancouver Mall is not so hot, with a 33 percent vacancy rate.
The Bonneville Power Administration vacating 85,000 square feet in the Greenwood Buildings has made for a slow recovery.
The Timbers, on the northeast side of the mall, has been the real victim, Roselli said. The five buildings are about 20,000 square feet and are sitting about 80 percent vacant – a victim of price, Roselli said. They lease for about $24 per square foot.
Salmon Creek is tied up in moratorium with an 8 percent vacancy rate.
Roselli said there isn’t much need for office space there because of the difficulty with traffic, and the bulk of growth is happening east of Vancouver rather than to the north.
Outside of Vancouver, Roselli said Camas and Washougal are growing fast, but most of the growth is in service retail and not requiring much office space.
In health care, the new $43.5 million Vancouver Clinic will come online at 87th Avenue in the fall of 2008.
Industrial lease rates are climbing
Vacancy rates are low and land prices are high, which makes for strong lease rates in the industrial market. Rates for larger spaces – 20,000 square feet and up – are more than 40 cents per square foot, said Garret Harper, real estate salesperson for NAI Norris, Beggs & Simpson.
And the smaller the space, the higher the price – many less than 20,000 square feet are going for 45 cents to 50 cents per square foot.
The vacancy rate in the Vancouver market is 4.4 percent. New construction typically arises when vacancy dips to 5 percent.
Although not many, there are a few new industrial projects in the works.
Sifton Industrial Park, 85,000 square feet in two buildings off of 131st Avenue in Orchards, is scheduled for construction this year, and a 158,000-square-foot warehouse at Barberton Industrial Park is being built by Portland-based Andersen Construction. Two light industrial buildings are also planned for the project.
Public comment recently ended on a proposed nine-building light industrial complex on 18.18 acres on N.E. 88th Street.
The new Parr Lumber Facility just opened in May. The project includes two structures – a 17,000-square-foot retail/warehouse building and a 9,600-square-foot storage/office building.
“There’s not much new construction,” Harper said. “Lease rates have risen to the point where it makes sense for development. A few years ago, vacancy rates were higher and lease rates were down – there is a tipping point.”
Harper said there is strong demand for users who want to own their space, but there isn’t a strong supply of the size and type of building that fits what Clark County users are looking for.
For instance, Vancouver Business Park was sold to Bennett Family Trust II LLC at the end of November for $7.3 million, EastRidge Business Park sold in September to Scanlan Kemper Bard and Columbia Business Center was sold to Killian Pacific last year.
Harper predicts the next 12 months are going to bring new speculative construction for lease.
