Southwest Washington’s commercial real estate market looks a bit different than it has in the past few years. Activity has gone from a boom to a crawl, and all have cast a wary eye to the start of 2009, which is not predicted to bring happy news.
Industrial vacancy spikes
At the end of 2007, regional industrial vacancy was less than 5 percent, as has been the case for several quarters previous. It crept to just less than 6 percent in the first quarter of 2008, and now it’s reached 11 percent.
The rise is due to some businesses that have vacated the market, either through departure or shutting down – the case at the Port of Vancouver, which saw Panasonic Shikoku Electronics Corp. of America close the doors at its projection TV assembly plant there in the spring.
There is about 280,000 square feet of available space in industrial buildings at the port, according to its website.
There also has been some growth of tenants in the marketplace, including Vancouver-based Pacific Nutritional Inc., which expanded out of one industrial building and into Sifton Industrial Park, leasing 55,800 square feet, said Garret Harper of NAI Norris, Beggs and Simpson.
Barberton Industrial Park, one of the other few new speculative industrial buildings in the region, saw a lease of 50,000 square feet in the summer, but the rest of the park remains vacant, Harper said.
And year-to-date net absorption of multi-tenant industrial space in Clark County is -421,808 square feet, the lowest it’s been in a decade, wrote Eric Fuller and Assoc. Broker Bill Connelly this month in his Annual Market Update for Commercial Real Estate.
Connelly points to the region’s unemployment rate as a major indicator of economic health. In November, Clark County’s unemployment topped 8 percent, higher than both the state and national rates – with increases expected to continue after the New Year.
“Last year, I mentioned the only risk to our industrial market was if the U.S. economy fell into a recession…If history is a guide, 2009 and 2010 look to be very disappointing years,” Connelly wrote.
There are a variety of properties that have had space come available and the sum of those spaces is adding up, Harper said.
Even with higher vacancy, new construction lease rates remain steady at 42 cents to 50 cents per square foot, depending on size. Older or less functional space leases in the mid-30-cent range.
While activity in the fourth quarter has been slower, Harper said there is still tenant interest to locate in Southwest Washington.
“We’re still seeing companies taking a look at the area from Portland and outside the metro area,” he said. The Portland companies are often looking to locate here because a large percentage of their workforce already is here, and companies outside the area are often driven by a lower cost of living and state tax benefits, Harper said.
In the coming year, little new construction is expected, lease rates will likely decrease and vacancy could increase – making 2009 very much a tenant’s market.
Retail feels the squeeze
While leasing activity has slowed significantly, vacancy in the Southwest Washington retail market is declining.
In the second and third quarters, vacancy was between 7 percent and 8 percent. Preliminary figures show it down nearly a whole point to 6.7 percent, said Pam Lindloff, of NAI Norris, Beggs and Simpson.
A large part of the vacancy came with the introduction of Grand Central to the market, and now the retail center anchored by Fred Meyer has started to absorb.
The decrease also is reflective of the region’s continued population growth, Lindloff said.
Gramor’s Hazel Dell Crossing, near Hazel Dell Square and Hazel Dell Towne Center, came online and is anchored by PetSmart but the rest remains vacant. The freestanding JCPenney and Lowe’s buildings opened, and the first phase of Lacamas Crossing, a Gramor development at Southeast First Street and Southeast 192nd Avenue is under construction.
“We’re seeing those developers that want to get projects on the ground phasing them to do so,” Lindloff said.
Developers hope to break ground this summer on the first phase of The Village at Evergreen, a large-scale mixed-use development planned for the former Evergreen Airport on Mill Plain Boulevard, said Thomas Kemper, one of the developers.
What the project will look like is still up in the air, but the developers are entitled to 340,000 square feet of retail, 180,000 square feet of office and space for a hotel.
Also on hold is Eastgate Plaza on Fourth Plain Boulevard, where Wal-Mart is supposed to locate.
“A lot of stuff in the proposed timeline will probably stay in the pipeline,” Lindloff said.
Other projects in the pipe include 192nd Station, at Southeast 192nd Avenue and Southeast 15th Street. At 192nd Plaza, an anchor tenant – which Leasing Agent Brian Sullivan of Coldwell Banker Commercial Jenkins-Bernhardt Assoc. could not disclose – secured 50,000 square feet. Crews are clearing dirt at Cougar Creek Commerce Center, a roughly 38,000-square-foot retail center planned for 1308 N.E. 78th St. in Vancouver.
Van Mall Court, 9414 N.E. Fourth Plain Blvd., is fully leased before it has finished construction. Urgent Medical Center and Vancouver Rehabilitation and Therapy Clinic signed on for the 10,060-square-foot building, which is the last retail pad site next to Westfield Vancouver Mall.
“All of our national retailers that would typically be moving and locating here, they’re all on hold,” Sullivan said.
The only sector performing well right now is medical, with “no signs of slowing down,” he said.
But circumstances facing developers in the near future may prove to be difficult, such as stormwater regulations and restricted financing – making it better to go into construction facing vacancy, Lindloff said.
December has been relatively busy as far as tenant inquiries go, but nothing that is translating into much leasing, she said.
But in some areas of the region, it seems that for every small business that goes under, one or two take its place.
“This kind of economy is a great time for entrepreneurs – especially those who may have lost a long-term job but have the finances to start a business,” Lindloff said.
Landlords are willing to make deals and be more generous with lesser qualified tenants than they might have been last year.
“Basically there’s no such thing as playing hardball right now,” Sullivan said of landlords looking for tenants.
And while deals may be done at lower rates, marketed lease rates haven’t yet declined.
New anchored space leases for $26 to $34 per square foot, whereas older space may go for $12 per square foot and second-generation strip space leases from $15 to $20 per square foot.
Office is wide open
The observation of leasing conditions for office space at Columbia Tech Center by Leasing Agent Barbara Bushell sums up the regional office market nicely: “It’s very slow, just like everywhere else.”
The office component at the mixed-use development has nearly 57,000 square feet of vacant space.
“We’re doing OK on renewals, but the activity level is very low,” Bushell said. “There are very few prospective tenants – we take them regardless of whether they’re national or local.”
While The Angelo Co. broke ground on its 400 Mill Plain office building downtown in August, Prestige Development’s Luxe Building – planned for just blocks away – is on hold due to market conditions.
The Columbian Building is up for sale, and regional vacancy is nearing 20 percent. Any new development in the office market in 2009 is unlikely.
However, Columbia Waterfront LLC submitted its pre-application to the city of Vancouver in early December, showing a conceptual plan for development of the 32-acre former Boise Cascade site. The plan reflects community feedback gathered from business, neighborhood and community groups and includes retail, commercial and residential buildings, parks, plazas, waterfront trails and open spaces, according to developers Columbia Waterfront LLC.
They plan to permit the project now and start construction likely in 2010 as the economy recovers.
WANTED: INFRASTRUCTURE PROJECTS
It is assumed that even within hours of swearing in a new president, an economic development stimulus plan could be passed that would include a large pot of money for infrastructure projects.
It is also assumed that states will have a high level of discretion as to how the funds will be used and allocated. Thus, the Office of the Governor is collecting projects that will be shovel ready by spring to possibly benefit from these funds.
The rules for what projects will qualify have not yet been defined, so groups are running on presumptions.
Public entities have compiled capital project prioritization lists and although there is not yet an application process for economic development stimulus projects, the governor’s office and Community Trade and Economic Development have received lists.
Regionally, leaders are identifying projects that could be appropriate depending on the rules and most public entities have submitted projects, hoping to get a piece of the pie in a time when budgets are constrained and funding for capital projects is reduced.
Mark Brown, the city of Vancouver’s governmental relations consultant, said its list isn’t finalized because the rules of the road aren’t yet known, but the city identified several projects that may qualify when the rules are decided.
These projects include redevelopment of the former Boise Cascade site, rebuilding the intersection of Southeast Mill Plain Boulevard and 136th Avenue, redevelopment of Vancouver’s Main Street and infrastructure funds for the Artillery Barracks at the Vancouver National Historic Reserve.
Other potential projects may include acceleration of the Riverwest Legislative Infrastructure Financing Tool project and the public components of the waterfront redevelopment project.
The Port of Vancouver submitted its West Vancouver Freight Access Project and Washington State University submitted the Applied Technology Building and Washington Technology Center semiconductor user facility projects.
The Regional Transportation Council has collected transportation projects from agencies in Clark, Skamania and Klickitat counties that meet several criterium. Some submitted projects include the North Parkway Improvement project in Battle Ground, the Camas City Overlay Project and the state Route 14 Pedestrian Tunnel in Washougal.
Megan Patrick-Vaughn can be reached at mpatrick@vbjusa.com.
