The current “will it?”—“won’t it?” economy has had a slowing effect on Southwest Washington’s commercial real estate market, but several area brokers said interest remains strong.
But in retail, for instance, who is interested in setting up shop in the region is changing, and industrial tenants who don’t have to move generally aren’t. The region, however, continues to see further development on all fronts.
Some large office spaces open up
The region-wide office market is stable, said Brian Sullivan of Coldwell Banker Commercial Jenkins-Bernhardt Assoc. Across the board, vacancy remains at about 15 percent, he said.
Some large, notable spaces have recently opened up, adding to the vacancy.
Nautilus recently put about 65,000 square feet of its 500,000-square-foot headquarters on the market for sublease – at $14 per square foot, full-service. The space is divisible to 30,000 square feet and available immediately.
And Hewlett-Packard has an entire floor of one of its six buildings on the 175-acre campus on the market.
Because of the vacancy rate, lease rates in certain areas – such as the Westfield Vancouver area – are coming down. But 164th Avenue is still highly desirable and rates aren’t budging. Downtown Vancouver remains solid, Sullivan said, with space at the Bank of America building, Vancouvercenter and the Columbian building leasing for between $22 and $28 per square foot.
In general, lease rates range from $15 per square foot for Class B and improved Class C space to $30 per square foot for new construction, he said.
“It’s pretty steady out there,” Sullivan said. “It’s not an active market, but it’s not declining.”
National trends are pointing to investment in tenant retention.
“They’re not going to turn over tenants for higher rents,” Sullivan said. “This is all about maintaining.”
And green features are in demand.
“When I heard clients asking about what type of glue was used in the carpets and what kind of stains were used on the cabinets, I started paying attention,” Sullivan said.
Elements like air quality and natural lighting play into employee happiness and retention, and office developers are paying attention.
A green office building is under construction at Gateway Medical Campus on Northeast 134th Street, and Longview-based Schlecht Construction is working on a state-of-the-art office building near Sifton called 157th Plaza that will be so environmentally friendly, it was chosen as the prototype for the Bonneville Power Administration’s Energy Smart Design Office program.
While the office market has softened slightly – vacancy was about 11 percent a year ago – there continues to be new office projects in the works, including Vancouver Square near the mall, the Pacific Crest Plaza medical office condos near Cinetopia and C.E. John Co.’s luxury office condos on the east riverfront next to Beaches Restaurant.
Industrial market loosens slightly
Thanks to some recently added industrial space, Southwest Washington saw a slight bump in vacancy, which has been increasingly rare in the past few years.
First-quarter vacancy was 5.7 percent, said Garret Harper, of NAI Norris, Beggs & Simpson – up from 4.4 percent a year ago.
The 150,000-square-foot Barberton Industrial Park came online in the first part of the year and space also became available at the Port of Vancouver.
Barberton is one of the few new speculative industrial buildings in the region and more than 50,000 square feet was recently leased there.
“We’ve had lots of interest – people are saying we’re the only game in town,” said Bob Durgan, vice president of Portland-based Andersen Construction, which developed the project.
There are some projects being negotiated currently that could produce 100,000 to 150,000 square feet of new space, said Ron Kawamoto of NAI Norris, Beggs & Simpson.
“In today’s market, there are people who want to move but because of financing and the price of materials and gas, are hesitant,” he said. “Banks are reluctant to finance and tenants and users are reluctant to borrow the money, frankly.”
Because of the high cost of development, Kawamoto anticipates most of the industrial projects developed will continue to be build-to-suit or owner-occupied.
For the most part, developers are looking to have some kind of pre-leasing in place before putting up speculative projects, Harper said.
A 55,800-square-foot pre-lease was recently hooked for the Sifton Industrial Park, a speculative project on Northeast 131st Avenue in Vancouver. The development’s 74,500-square-foot first building is scheduled to break ground shortly, but the future tenant has not yet been made public.
“The activity level is a little bit slower, but there’s still activity,” Harper said. “There is more general uncertainty in the economic condition. Some of the folks looking around are ultimately staying put for right now unless they have a real need for growth space or their space is dysfunctional.”
Retail development continues fast pace
The recent addition of a few large retail developments, including Grand Central in Vancouver and The Crossing in Washougal, and hesitancy from national and regional retailers contributed to a slightly increased vacancy rate in the region.
Overall in the second quarter, vacancy was 7.3 percent, based on 8.2 million total square feet of retail space, said Pam Lindloff of NAI Norris, Beggs & Simpson.
A year ago, vacancy was 5.6 percent based on 7.5 million square feet, compared to 6 percent in 2006 based on 7.2 million square feet.
Deborah Ewing of Eric Fuller & Assoc. said she sees a sense of commotion in the market. Retail sales are strong, but the economic shift, high cost of living and substantial cost increases of durable goods – and the advent of an election year – are having an effect on families, she said.
“The combination creates uncertainly about when it is all going to calm down,” Ewing said.
Tenant-wise, she said national and regional retail expansion and relocation have hit a plateau and the most interest is coming from local people looking to start businesses or expand.
Retail developments under construction include the JCPenney and Lowe’s buildings at Columbia Tech Center, Fisher’s Landing Plaza, The Palms, Hazel Dell Crossing and Padden Crossing. In total, more than 288,290 square feet of retail space is under construction, Lindloff said.
“Clark County, by the sheer number of proposed projects and projects under construction, is experiencing by far the largest percentage of added square footage of any submarket in the (Vancouver-Portland) metro area,” she said.
And hold onto your hat, there is more than 1.86 million square feet of proposed retail development regionally, set to break ground in hot spots Fishers Landing, Padden Parkway, Hazel Dell, Salmon Creek, 192nd Avenue and areas supportive of the Battle Ground market, Lindloff said.
In Ridgefield, proposed development includes Pioneer Crossing, a 25,000-square-foot project at 56th Place and Pioneer Street, and Union Ridge Towne Center, a 39,000-square-foot project east of Interstate 5.
Lindloff said she thinks the area, which continues to see population growth, can support the additional retail development.
“I think a lot of the proposed projects are in areas that are underserved or where there is a gap in retail offerings,” she said. “We have the capability of supporting it. Is that today? Maybe not, based on the economy today, but eventually.”
Lease rates range from $12 to $40 per square foot and Ewing said there continues to be strong activity in sales of existing buildings.
RESIDENTIAL MARKET IMPROVES SLIGHTLY IN MAY
Clark County’s residential real estate market experienced a slight uptick in May, according to the most recent data available from Mike Lamb, associate broker at Windermere Vancouver.
In his monthly Clark County Market Report, Lamb said in terms of new sales activity, there were 484 new pending residential sales reported in May, up 3 percent from April – but down 32 percent compared to a year ago. It was the most new pending residential sales reported in any month this year.
This increase in new sales activity translated into a slight increase in the backlog of pending sales waiting to close, which suggests the number of sales closed should continue to increase in coming months, Lamb said.
Closing activity in May was up 3.6 percent from April at 400, reflecting the fourth month in a row that closings increased. This is, however, down nearly 32 percent from May 2007.
As sales activity increased in May, so did the number of active listings – up 3.5 percent from April to 7,366. This is a 20 percent increase from May 2007 and a 78 percent increase from May 2006, Lamb said.
The median sales price was unchanged from March and April at $250,000.
“The really interesting thing about these numbers is that they tell a different story from the national news reports that this is the worst market in decades,” Lamb wrote in his market report. “Yet we will be more likely to believe that if we subscribe to the wrong-headed belief that the boom times of 2004 through 2006 were normal.”
Megan Patrick-Vaughn can be reached at mpatrick@vbjusa.com.
