Contrary to expectations, interest rates have remained low
A strengthening economy and rising confidence throughout the business community bodes well for commercial real estate in the balance of 2005. Commercial agents expect vacancy rates to drop as existing space is consumed.
"People have confidence in the economy," said Wally Hornberger, manager of Coldwell Banker Commercial. "That, along with low interest rates, will continue to drive the market."
Riverview Bancorp Executive Vice President and Chief Credit Officer David Dahlstrom said long-term interest rates have remained low in the first half of the year, even while short-term rates are beginning to rise. "Everyone expected long-term rates would go up," said Dahlstrom.
Dahlstrom does not expect rates to fluctuate much in the second half of the year.
With the low rates, Hornberger said business owners want to purchase land as opposed to lease. But those looking to acquire and develop land are challenged by meager availability and drawn-out permitting processes. Developers are optimistic the county will ease negative land availability pressures with the current review of the comprehensive growth management plan, he said.
Schlecht Construction President Larry Schlecht said commercial real estate is steadily climbing up into positive territory. Development north along the I-5 corridor is increasing, he said.
"The industry realizes the availability of good ground that can be built on reasonably is diminishing quickly," said Schlecht.
Seeking lower prices and fewer restrictions, developers are finding attractive opportunities north of Clark County, said Schlecht.
NAI Norris, Beggs and Simpson Executive Vice President Roger Qualman said commercial development, particularly of office space, has slowed as a significant amount of space has come on line in the past couple years, resulting in inflated vacancy rates. Norris, Beggs and Simpson research indicates Vancouver’s vacancy rate is about 20 percent, or 615,550 available square feet. Qualman expects half of that space to be filled by year’s end.
"Much of the available space is just now getting filled," he said. "When vacancy rates reach 10 percent it triggers a new wave of construction."
The Vancouvercenter is a prime example, said Qualman. He expects the building to be entirely leased by the end of the year, making way for construction of the fourth tower.
The exception is medical office buildings, which continue to rise around the new Legacy Salmon Creek Hospital.
Figures compiled by real estate information clearinghouse, CoStar Group Inc., indicate 43,400 square feet of office space was delivered into the market in the first quarter of 2005, with another 80,000 square feet under construction. CoStar calculated a vacancy rate of 25.1 percent for Clark County, with 1,457,924 square feet of available space at the end of the first quarter.
Coldwell Banker Commercial lease agent Brian Sullivan said office space leasing has increased dramatically since the end of last year. While the county continually sees businesses relocating from the south, agents say much of the growth is coming from expansion of existing businesses. Additionally, clients are seeking three- to five-year leases, as opposed to the six-month to two-year variety many were seeking when the economy was down, said Sullivan.
Retail has remained strong, as national players look to enter or expand their presence in the market. Sullivan said an unnamed national retailer is seeking eight one- to two-acre lots in the area. And stores such as Target, Costco, Home Depot, Lowe’s and Wal-Mart are seeking expansion, he said. Sullivan said construction of a new Wal-Mart is underway in the Bircher Business Park on Northeast Fourth Plain Boulevard, which he said will attract additional retailers there. Among the many retail projects underway, the second phase of the Triangle Mall project will be completed in September 2005. The 78,988-square-foot project is located on 15th Street and Ocean Beach Hwy. in Longview and includes buildings for Ross Dress for Less, Petco, Michaels and Bed, Bath & Beyond. Additionally, the Hazel Dell Towne Center will be completed in October 2005. The shopping complex adds seven new retail stores to serve the growing area. Buildings were constructed to house Petco, Office Depot, Famous Footwear and other shops, totaling 79,000 square feet.
According to numbers from Norris, Beggs and Simpson, the retail vacancy rate at the end of the first quarter in Vancouver was 4.6 percent, with 336,642 available square feet of space.
Industrial development is strong as well, but Qualman said the segment is slower to absorb available space. There is not much growth in manufacturing, he said, but the distribution business is demanding more space. Norris, Beggs and Simpson figures show a vacancy rate of 13 percent for industrial and business park space in Vancouver at the end of the first quarter, with 1,019,105 square feet of available space and another 89,766 square feet under construction. Construction has begun on the 121st Avenue Business Park, which will include four buildings ranging in size from 25,000 to 34,000 square feet, and the first of three 52,000-square-foot concrete tilt up multi-tenant industrial buildings is underway at the Union Ridge Industrial Park.
With good job growth, low interest rates and available financing, Qualman expects the commercial real estate market to remain strong. Sullivan agrees that the market is on an upswing that has yet to hit its peak.
"I don’t see any slowing in sight," he said.
