Job growth, retail development expected to buoy commercial real estate and development in year ahead
Though rising interest rates, construction costs and real estate prices may cool real estate and development activity in Clark County from record highs in the past couple years, some say unique market factors will continue to fuel growth in 2006. In particular, strong job and population increases may help to keep demand high.
"There continues to be an extremely high level of demand from businesses looking to locate here," said Ron Frederiksen, president of RSV Construction Services.
But Frederiksen said land supply lags behind demand. In the last month, he has had two potential projects cancelled due to the lack of available parcels, which has never occurred before in his career, said Frederiksen.
"I am hopeful that it will begin to correct itself with the commission looking at expanding the urban growth boundaries," he said.
Matt Olson, president of Robertson and Olson Construction, said he was forced to turn down more jobs in 2005 than he ever has before due to the company’s already full workload. He said the market is strongest for established companies benefiting from repeat clients.
"Developers we have worked with through the years are very active," he said. "Volume is up because of that."
Clark County growing up
Frederiksen agrees that the maturing of the market became evident in 2005. He has found that businesses are flush with cash and want to put it to work. As an example, this year RSV completed the first phase of a 140,000-square-foot expansion for RS Medical at its Vancouver campus. When completed, the company will have more than 215,000-square-feet of space on its site adjacent the Evergreen Airport on Mill Plain Boulevard, making it one of the biggest office complexes in the county, said Frederiksen.
Retaining Nautilus, which relocated to its Columbia Tech Center headquarters this year, was a significant milestone, said Frederiksen, and evidence of the attractiveness of the market.
Unemployment, vacancy rates down
Roger Qualman, executive vice president of NAI/Norris, Beggs & Simpson, said vacancy rates in the office and industrial markets stand at about 15 percent, but he anticipates them dropping to about 10 percent by mid-2006.
The growing job base is helping to fill the county’s commercial buildings, said Qualman.
The most recent Washington Employment Security Department figures show Clark County has added 5,300 jobs in the past year. In that same time, the unemployment rate has dropped from 6.4 percent to 5.9 percent.
Lower vacancy rates and upward pressures on land and building costs could lead to higher lease rates, too.
"It’s been a renter’s market for two years," said Qualman.
Rent incentives and promised tenant improvements are declining and the market is headed in the direction of higher lease rates, he said.
Medical construction pace continues
Qualman said the growth in retail development, the opening of the Vancouver Hilton hotel and conference center, Nautilus’ decision to stay in Clark County and the opening of the Legacy Salmon Creek Hospital were the highlights of 2005. And Legacy is only the first of several significant health care related facilities popping up across the county. A combined 640,000 square feet of health care related space will come online in 2006 with the Southwest Washington Medical Center expansion, Clark County Center for Community Health, Vancouver Clinic at Salmon Creek and Kaiser Permanente’s Fourth Plain Boulevard medical office building.
Development not down on higher interest rates
In the face of higher interest rates, declining vacancy rates will trigger development, said Qualman.
Earlier this month, the Federal Reserve raised its target for the federal funds rate, the interest that banks charge each other, to 4.25 percent, the 13th quarter-point move since it began raising rates in June 2004.
Freddie Mac reported average rates for a 30-year loan at 6.32 percent and 15-year loan at 5.87 percent for the first week in December, versus 5.77 percent and 5.21 percent for 30-year and 15-year loans, respectively, for the first week of January 2005.
Qualman said the increase would likely slow investment sales across the region.
The bigger impact on commercial real estate and development may come from substantially higher construction costs. Qualman said a recent survey by Norris Beggs and Simpson showed the cost of constructing a large warehouse increased 40 to 50 percent. Material shortages and increased petroleum-based product costs brought on by demand for overseas projects and the effects of Hurricane Katrina could hurt local construction activity, said Qualman.
Sold on retail
2006 will welcome the groundbreaking and completion of construction of several large-scale retail developments started or announced in 2005.
Wal-Mart is increasing its presence in the community with plans to open its third county store at Columbia Tech Center’s Columbia Crossing development in early 2006. And the retailer is expected to break ground soon on a proposed store in the Eastgate Plaza development on Fourth Plain Boulevard. Wal-Mart’s presence at the site is expected to spur additional retail development at the site. And construction at the adjacent Birtcher Business Center, a 172-acre industrial and office development, could get underway in 2006.
National department store Kohl’s is making its entrance into the Vancouver/Portland market with a location under construction at Columbia Crossing. Along with Wal-Mart and Kohl’s, Bed Bath and Beyond, Cost Plus World Market, Pier 1 Imports and Best Buy are expected to join the existing Home Depot at the 45-acre site.
With its size and tenant mix, Columbia Crossing is the "most significant retail development in Vancouver" since the Westfield Vancouver mall opened in 1978, said Deborah Ewing, vice president with Eric Fuller and Associates.
Ewing expects retail vacancy rates to remain stable through 2006 at between 3 percent and 4 percent.
Construction could also begin on the mixed- use Landing at Evergreen project proposed for the Evergreen Airport site, which would include residential, retail and office components.