Vancouver Business Journal

What’s the big deal?

Retail is booming, Downtown Vancouver poised for explosion

Once again, retail was king of Vancouver’s commercial real estate market this year. And it’s only going to continue.

Retail is booming, Downtown Vancouver poised for explosion

Once again, retail was king of Vancouver’s commercial real estate market this year. And it’s only going to continue.

Once again, retail was king of Vancouver’s commercial real estate market this year. And it’s only going to continue.

Big retail projects are set to take off, while businesses wait for some big office spaces to open up and industrial stays in a slow down. Less new construction means tightness in all sectors.

"It won’t level out until markets adjust to the new cost factor in real estate and development," said Roger Qualman, executive vice president at partner at NAI Norris, Beggs & Simpson in Vancouver.

Retail continues to show strength in Vancouver.

As of the third quarter, the vacancy rate was at less than 6 percent – quite a healthy rate, said Pam Lindloff, senior sales associate at NAI Norris, Beggs & Simpson.

For at least the past seven years, the city’s vacancy rate has fluctuated between 6 percent and 8 percent.

And based on growth, which has proved to be strong, Vancouver has the capacity to absorb more retail. Currently, the city is under the national average of gross leasable area per capita, she said.

New product is being constructed, and national retailers are moving in.

The opening of Best Buy in September is a significant gauge of the area’s future in retail. Electronics are big ticket items, which have driven shoppers across the river to save on sales tax. But Columbia Crossing has drawn the electronics store, Kohl’s, Pier 1 Imports and Cost Plus World Market, and Best Buy has plans to open a second store in the Hazel Dell Towne Center in 2007.

Along with Columbia Crossing and Hazel Dell Towne Center filling out, Hazel Dell Square, a 7-acre, $24 million retail complex that will include LA Fitness, broke ground this year. In the coming year, retail will continue to pick up speed.

Construction is expected to begin on the Landing at Evergreen, a $215 million mixed-use development planned for the former home of the Evergreen Airport. Retail is expected to take up 340,000 square feet of the 60-acre tract.

Although tenants have yet to be announced, many are locked in, and will include several national apparel chains, a specialty grocer, book store and fitness center. Opus Northwest LLC, a member of the Minneapolis-based Opus Group, is the primary developer.

Also in the pipeline are the Grand Central retail-commercial center and potentially Eastgate Plaza, a 47-acre, $80 million project to be anchored by a Wal-Mart, now held up by road improvements.

National retailers don’t necessarily mean good news for smaller, independent businesses. Smaller companies are sensitive to leasing rates, which continue to creep upward, and a lot of times they must move to second-generation spaces because of the cost of building.

But by and large, Lindloff said, the future looks bright.

"As we continue to see openings here, the hope is that we will see sales tax leakage continue to decline and more people shopping here," she said.

Lindloff added that retail growth is also strong in the outlying areas of Vancouver, including redevelopment of the Orchards Market Center.

It’s officially a landlord’s market in the industrial sector.

Vacancy rates are low at just more than 5 percent, down from 18 percent in 2003. The rate will only decrease until rental rates increase to the point they justify new construction by developers, said Bill Connelly, vice president of Eric Fuller & Assoc. in Vancouver.

"For the landlords, that’s good," he said. "But it will discourage tenants coming here because we don’t have a lot of space."

And those in a lease renewal situation are going to be facing higher rates than they anticipated, so business retention may be an issue.

Connelly said expanded growth boundaries will bring more industrial land into the inventory, which is greatly needed.

General leasing activity was fairly good over the last year, but there is not a whole lot in the pipeline for 2007 because of the cost of construction. Space is getting leased and not being replaced by new construction, meaning the market will be faced with that very low vacancy rate for the next two to three years.

"The cost of construction is a real barrier," Connelly said. "It affects peoples’ expansion capabilities and forces them to look outside the area and outside Clark County."

Industrial users have little pricing flexibility.

"We’re competing with China for cheap labor and infrastructure," Connelly said.

Connelly commends Board of Clark County Commissioners for wanting to include more industrial land in the UGB, he said.

"We like to retain 50 percent more land than is needed to keep the price low," he said.

The office sector is staring at a 12 percent vacancy rate without any big spaces available in the city, Qualman said.

The preferable vacancy rate is in the under-10-percent range, and the current situation is pretty unusual.

"I think typically we’ve felt there were plenty of larger spaces available for office users," he said. "But as we’ve made inroads in leasing up what’s out there, the big spaces have gone away."

The biggest spaces available include the Stone Mill Business Park off Mill Plain Boulevard in East Vancouver, which has 50,000 square feet total, the largest space being 30,000 square feet.

"We like to see a pretty good array of space available so we can appeal to a bigger company that’s considering locating here," Qualman said. "If we don’t have the space available, they’re not typically going to wait around for it to be built."

Looking ahead, the market around Westfield Shoppingtown will open up with the migration of more than 200 Bonneville Power Administration employees from its Vancouver offices there to the Portland headquarters to cut costs of renting.
The transfer will flush more than 70,000 square feet of the relatively new and modern space in several buildings at the Park Place Business Center out into the market.

Downtown, the Vancouvercenter building is 60 percent occupied and could be completely full within a few months, Qualman said. The 11-story building has seven floors of office and four floors of condominiums. The two-square-block project also includes two apartment buildings.

Vandevco, developers of the $100 million project, have plans for a south tower with another seven floors of office and two floors of condominiums, which could break ground in March or April.

The Columbian’s new building is expected to be completed in October. The newspaper will occupy most of the building, but has indicated it will have two floors of 36,000 square feet of office available to tenants.

The area’s housing market has entered a work-through phase where the white-hot market of the past two years has settled down to sustainable, said Sandy Hendrick, executive officer of the Clark County Association of Realtors.

Home inventories for resales and new homes have increased, providing a larger supply, but prices have stabilized.

"Prices have been bouncing around a little bit, but are basically staying in the same place," he said.

As for 2007, Hendrick predicts the work-out period will continue for the first few months and then the market may see a pick up in volume .

A forecast from the National Association of Realtors projected sales for the year will be down marginally but also forecasted sales will be up in the last quarter. The Pacific Northwest generally has better sales than the national average, Hendrick added.

"To the extent that any forecast is worthwhile, I think we’ll have a continuation of the current market with an uptick at the end," he said.

2006 at a glance

The downtown Riverwest project peeked its head out early in 2006, secured state funding aid and in September, Vancouver residents approved a $43 million bond to replace two city libraries, building a 90,000-square-foot library that will be a major component to the four-block redevelopment.

The $165 million mixed-use project will rise on the land currently occupied by the Carr auto dealership at Evergreen Boulevard and "C" Street, and is set to include 200 apartments, 120,000 square feet of office space, 15,000 square feet of retail space, a central plaza and an underground parking garage.

Killian Pacific purchased the land in 2005.

Portland-based Rose City Printing & Packaging announced plans this month to lease 80,000 square feet at Columbia Tech Center.

"It’s the biggest transaction of the year from a lease standpoint," said Bill Connelly, vice president of Eric Fuller & Assoc.

In August, Killian Pacific purchased the 219-acre Columbia Business Center near the former Jantzen swimwear factory site for $30 million. The business park, east of the Interstate Bridge, boasts more than 2 million square feet of office and industrial space in 26 buildings. Tenants include Sharp Electronics Corp., Vanport Warehousing, West Linn Paper Co. and Portco Corp.

In November, Killian Pacific announced that Fred Meyer will anchor Grand Central, the nine-building, $40-million retail-commercial center at Grand Boulevard and State Route 14, the former home of the Jantzen swimwear factory. The store could add as many as 400 jobs to the local market.

In August, Tualatin-based development firm Gramor announced the purchase of 29 acres on the waterfront from Boise Cascade Corp. The vision for the land includes condominiums, apartments, office, retail, restaurants and public open spaces, and the expectation is that it will be largely water-oriented. Investors are Steve and Jo Marie Hansen, George and Paula Diamond, Al and Saundra Kirkwood and Steve and Jan Oliva.

The electronics superstore opened its location at Columbia Crossing, helping to fill out the shopping center on 164th Avenue.