Today, economists report that “we’re finally out of the recession” detailing broad gains in jobs, consumer spending, home values and construction. Yet, this information is always a moving target, which is why business and community leaders often seek current conditions from a local commercial real estate broker. The commercial real estate market reacts and fluxes with the economy, so it’s an accurate measure of national and local economic health. Whereas during the recession delivering any news about lease rates, vacancy activity and new tenants was often unwelcome, today has a different tone. Now, commercial real estate brokers are inundated with questions about the stabilizing market, looking to our expertise to see if this upward swing has lasting permanence.
Commercial real estate, like the economy, is cyclical. Currently, all property types – office, retail, flex, industrial and multifamily – are progressing with strong activity in both leasing and sales. Due to the recent surge in consumer spending, demand for retail properties has especially picked up speed, which is evident throughout Clark County.
Since consumer spending accounts for two-thirds of all economic activity, the retail market is very telling of economic health. As a commercial real estate broker specializing in the Vancouver retail market, I can speak to our local economy’s current conditions and provide insight on how retail is making an impact.
Vancouver’s retail vacancy rate is now at 7.92 percent, which is a sharp plummet from the high 11.6 percent vacancy rate reported in Third Quarter 2009. Low vacancy rates coupled with high rents and limited space options are typically signs of much needed construction. Rates in the retail market have improved by as much as 20 percent in some of the centers most in demand. Landlords have also drastically reduced incentivizing practices to attract and keep tenants. In contrast, during the recession it was common for landlords to negotiate concessions like free rent and tenant improvement allowances.
As a result of the lack of significant new construction, nearly 50,000 square feet was absorbed in First Quarter 2015. Some of the large vacant box spaces have been re-tenanted. Several new projects are in the pre-leasing or proposed stages, and as vacancy continues to drop, developers will be ready to meet their new construction goals. However, in order for developers to recover costs and stay competitive, shop space lease rates on new retail centers are expected to be $34 per square foot or higher. Projects with cutting-edge amenities may even demand north of $40 per square foot. Commitment from national credit tenants is critical to new development getting underway.
Retail store closings continue to make headlines, but Clark County isn’t expected to experience noticeable impact in 2015. Nationally, store closings represent approximately 0.1 percent of total retail space, and that statistic is even lower for local markets. Most First Quarter 2015 closures were apparel and department stores.
As major retailers work to reposition themselves in the market, discount general merchandise and discount clothing segments continue to show resilience with more than 2,000 new stores proposed for this year. This national expansion trend reflects the consumer’s new conservative approach to shopping and their renewed sense of value in the marketplace. Heightened demand for discount stores will determine new construction projects in Clark County as well. Vancouver is also seeing steady retail activity from national tenants that have an initial presence in Portland. After all, Vancouver is a prime location for tenants opting to expand in the metro-area, or even relocate to beat Portland’s higher rents.
Overall, Vancouver is reacting well to the improving economy. New construction is the next phase in the cycle, and this will generate more jobs as well.
Pam Lindloff specializes in the leasing and sales of retail properties throughout the Vancouver metropolitan area at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. She can be reached at 360.852.9622 or plindloff@nai-nbs.com.
