Coming off of several years of gangbusters retail development, Clark County’s retail market has slowed slightly, but is the only county in the Vancouver-Portland metro area whose vacancy dropped in the fourth quarter.
The office market remains relatively soft, but office developers have big plans for downtown Vancouver, and the industrial market is gasping for new space – which may be on its way.
Retail development is strong
Clark County’s retail development market is still going strong, but leasing has slowed compared to a year ago.
Projected estimates for the fourth quarter show a vacancy of 6.4 percent – a sound market, said Pam Lindloff, associate vice president of NAI Norris, Beggs and Simpson.
“This is good news considering how much retail we’ve added,” she said.
Estimated vacancy for the overall Vancouver-Portland metro area went up in the fourth quarter with the exception of Vancouver.
There is 417,000 square feet of retail under construction, with 1.8 million square feet of proposed construction in Clark County – the largest figures for both categories in the entire Vancouver-Portland metro area, Lindloff said.
Projects completed this year include Hazel Dell Square, new product at Hazel Dell Towne Center, Center Square in Salmon Creek and Zeigler Center in Hazel Dell.
New spaces are putting pressure on the vacancy rate, Lindloff said.
Grand Central is now well under way, as is another Killian Pacific project, The Crossing in Washougal.
Columbia Credit Union has plans to build a free-standing branch at Grand Central and a number of leases are signed and pending for full-service and specialty food vendors and traditional retailers.
Columbia Credit Union is also building a branch at The Crossing, where both Starbucks and Quiznos have signed leases.
Other projects include an 8,000-square-foot build-to-suit restaurant space at Gateway Center in Salmon Creek, The Palms Plaza – a 62,000-square-foot retail center at 13001 N.E. Fourth Plain Blvd. to be anchored by 24 Hour Fitness – and Van Mall Court, a 10,700-square-foot center at the northeast corner of Van Mall Drive and Northeast Fourth Plain Boulevard.
Hot areas include Fishers Landing and Orchards, where there are several proposed housing projects up SR 503 from Fourth Plain Boulevard, sparking interest among commercial developers.
On the other hand, there may be a surplus of development in East County, said Brett Irons of Coldwell Banker Commercial Jenkins-Bernhardt Assoc.
And there hasn’t been as much leasing action as anticipated this year, Lindloff added.
In other retail news, a new developer has taken on what was formerly known as the Landing at Evergreen at the former Evergreen Airport site on Mill Plain Boulevard. Portland developers Tom Kemper and Bruce Wood are included in Evergreen Landing Development LLC, and are in negotiations with national retailers for what is to be called The Village at Evergreen.
Construction is expected to begin in 2008, completing in spring of 2009.
Irons expects to see more – but slower – growth in the coming year, despite some loss of momentum in deals with national retailers.
“As fuel prices increase, the time it takes to get to Portland to shop becomes more lengthy and as more retail opportunities are here, we’re going to continue to see more and more Clark County residents willing and able to shop at home, not in Portland,” Lindloff said.
National retailers have been attracted by the county’s growth, and Clark County shoppers have demonstrated that they’re willing to shop here – as seen by the addition of a second Best Buy store this year and most recently, a proposed Home Depot in Battleground.
“Previously, there was a mindset that the sales tax would push people to travel to Portland for those big-ticket items,” she said. “That has become less of an issue.”
Industrial space is tight
Clark County’s industrial market has started to see some speculative construction and 2008 will likely bring more, said Garret Harper of NAI Norris, Beggs & Simpson.
The projected fourth quarter vacancy for the Vancouver market rate is 3 percent, and there has been upward pressure on lease rates with the low vacancy rates and high cost of new construction.
In the Vancouver-Portland metro area as a whole, industrial vacancy is projected to be 7.8 percent, due to some new product added in Portland.
There has been plenty of activity at Union Ridge in Ridgefield, but almost all of industrial building in the county has been for owner-users.
Construction is wrapping up on the Barberton Industrial Park, a more than 150,000-square-foot warehouse with two smaller light industrial buildings near Northeast 72nd Avenue and Northeast St. Johns Road.
The 85,000-square-foot Sifton Industrial Park at 9717 N.E. 131st Ave. in Vancouver is also in the works, and more than 30,000-square-feet is being added to the Salmon Creek Industrial Park at the intersection of Northeast 10th Avenue and Northeast 144th Street in Vancouver.
Plus, there is a proposed speculative project at Union Ridge that would be the first for-lease building there.
“We’re seeing more speculative now because there has been a steady decline over the last several years and lease rates are increasing,” Harper said. “There is still a disconnect between the cost of development and what lease rates will be supported.”
But lease rates have hit a new level that is starting to support new development, he added.
Larger new light industrial space is leasing for 42 cents to 45 cents per square foot on the shell monthly.
Smaller spaces are netting 50 cents or more per square foot on the shell, while older or less functional spaces have lease rates in the high 30-cent range.
Harper doesn’t expect rates to increase. In the next year, he predicts vacancy will get tighter and more speculative projects will move forward, but growth will be slow.
“The new lease rates we’ve achieved are a new threshold and people are still absorbing that,” Harper said.
Office remains soft
While the county’s office market remains soft, leasing activity has remained relatively constant, said Byron Roselli, vice president of Eric Fuller & Assoc.
Several large-scale projects are in the works in downtown Vancouver.
Through the November, vacancy for Class A and Class B office in the county was 17.16 percent, ending the year about where it started, and the average lease rate is $20.83 per square foot monthly.
East Clark County continues to show strength while the mall area is competing for tenants.
Almost 180,000 square feet in the mall district is being marketed, and rate reductions and landlord concessions are common to try to reduce vacancy and up absorption.
West Vancouver is stronger, at about 9 percent vacancy through July, but jumped to 14.4 percent as of November. Private developers continue to invest.
Construction is wrapping up on the 188,000-square-foot Columbian building, and Prestige Development has broken ground on The Luxe, a $17 million, six-story office condo, retail and residential building at 412 E. 13th St.
And the Al Angelo Co., Killian Pacific and Clark County Title Co. all have major developments in the works in the heart of downtown.
Landlords who have owned their buildings for two years or longer and can be flexible with lease rates are in good shape, whereas those with new developments face stiff competition in the office market.
Rising land prices and construction costs price new product into a different tier than established offices with lower base costs.
Most all new Class A office coming onto the market and in the next year needs to lease at $26 per square feet or more, which is much higher than range of $18.50 to $24.50 per square foot in the last five years.
Megan Patrick can be reached at mpatrick@vbjusa.com.
