Clark County's commercial real estate market is in a much different situation than it was just a year ago.
Office building values are down while vacancy is up, and it remains a tenants' market – the increased vacancy is pushing lease rates down monthly.
Retail vacancy rates are inching up, with a few bright projects in the works. And industrial vacancy, which has been tight for some time, has opened up significantly.
Office: Not a pretty picture
Clark County's office vacancy has been floating above 20 percent since November 2009, said Adam Roselli, associate broker at Eric Fuller and Assoc.
In May, it was 20.19 percent, compared to 17.35 percent in May 2008 and 15.6 percent in May 2007.
A healthy market has a 12 to 14 percent vacancy rate, Roselli said.
Camas/Washougal and Hazel Dell/Salmon Creek have the lowest vacancy rates, while Cascade Park and Orchards/Battle Ground have the highest.
Clark County has just more than a total of 5.9 million square feet of available office space and the absorption rate is negative, with just more than 9,000 square feet more available this year than last, Roselli said.
Higher vacancy rates are driving lease rates down.
"Office lease rates are dropping like crazy," Roselli said. "We've seen a drop in asking lease rates every month, and expect that to continue."
The average office lease rate is about $20 per square foot annually. Two years ago, rates were $23 to $24 per square foot.
Vancouver's Central Business District and the Westfield Vancouver Mall area have held lease rates better than average, while Cascade Park and East Vancouver have been hardest hit and have adjusted lease rates significantly, Roselli said.
There are no new major office building projects in Clark County. The Angelo Building downtown is nearing completion, but has not come online yet.
"It would shock me if anyone brings anything out of the ground in the next 18 to 24 months," he said.
Not only is development more expensive and lease rates lower, but banks are now requiring 60 to 70 percent prelease. Roselli said it was challenging to get 10 to 20 percent preleases, even in a hot market.
Another problem for developers is increasing investor cap rates – the required rate of return. Cap rates have increased from 5 to 8.5 percent, essentially dropping building values by 40 percent, Roseli said.
"Nobody is selling product if they don't have to," he said.
Retail vacancy: Trending up, but not disastrous
The picture is a little brighter for retail space, said Pam Lindloff, associate vice president at NAI Norris, Beggs and Simpson in Vancouver. Retail rates are trending up, but are not disastrous, she said.
Vacancy for the first quarter of 2009 was 7.9 percent, with preliminary numbers putting second quarter at 8.7 percent. The rates have risen steadily from 6.6 percent in the first quarter of 2008, Lindloff said.
Salmon Creek has the least available retail space, due to the previous development moratorium and "tremendous concern" about the amount of traffic generated by development, which could easily overwhelm the existing infrastructure and spark a new moratorium, she said.
Retail lease rates have seen a steady rise over the last nine to 10 years, but now developers with projects that were completed in the last year are working to hold their asking rate steady.
To do so, they are making concessions, such as higher contributions to tenant improve-ment costs or one or more months of free rent. Lease rates for second-generation space are flattening.
Lease rates for new space range from $26 to $32 per square foot, and second-generation space ranges from $19 to $26.
Two major retail projects are ongoing in Clark County.
Lacamas Square at 192nd Avenue and First Street has started construction, but Portland-based developer Gramor was unavailable for comment.
Bowyer Marketplace in Brush Prairie (at 119th Street and state Route 503) is actively "moving dirt," Lindloff said. WinCo will anchor the project, which is being developed by Vancouver-based Killian Pacific. Vancouver-based Robertson and Olson is the general contractor for all but the Winco building.
The 20-acre project has 146,000 square feet of building area, of which 93,000 will be used by the WinCo building. The balance will be spread among nine retail pads, said Mert Meeker, president of Portland-based MBM Properties Inc., which is the exclusive leasing agent for Bowyer Marketplace.
The WinCo portion of the project started construction in early June, and is slated to open April 1, 2010. Meeker said some of the outlying buildings have been preleased, and national chains, restaurants and financial institutions have exhibited interest in four of the nine buildings.
Despite the climbing vacancy rate, Lindloff sees these two new projects as promising.
"Until the consumer is comfortable and ready to start spending, the (retail) market will feel a little depressed," she said.
But on the upside, businesses that have been "able to adapt" are doing well, with sales figures improving compared to last year's, Lindloff added.
Industrial: Wide open
Industrial space, which has been notoriously tight in the past few years, now has vacancy firm in the double digits.
Bill Connelly, vice president of Eric Fuller and Assoc., reported an industrial vacancy rate of 15 percent, compared to 5 percent last year, based on an analysis of 33 multi-tenant business parks across the county.
Garret Harper, senior real estate salesperson at NAI Norris, Beggs and Simpson, said his preliminary numbers for second quarter 2009 show Vancouver's industrial vacancy at 12 percent, compared to 13.8 percent for the overall Vancouver-Portland metro area.
Connelly said he doesn't expect the vacancy rate to go any higher, as there are no new major projects on the horizon. Two business parks in north Vancouver
(Cold Creek Industrial Park
and Minnehaha Business Park) were completed the first of this year.
Industrial lease rates have not experienced a wholesale drop, Connelly said, but like the retail market, landlords are making more concessions.
Construction and the related warehousing market are the slowest sectors according to Connelly, while metal fabrication and anything to do with green energy and process efficiency are the most active sectors, he said.
The lending market is still difficult for new construction, but it's easier to get funding for existing buildings – it's a good time to secure owner-occupant loans, Connelly added.
Despite Clark County's "uncomfortably high" unemployment rate of 13.2 percent, Connelly said there is good news, too.
"The Port of Vancouver is having a good year, and is providing space and dock facilities for wind turbines," Connelly said.
Harper added that an "industrial incubator" project in Salmon Creek was wrapping up buildings F and G, and that would provide some new industrial space in the county as well.
Office submarket vacancy rates
Total leasable area
Central Business District/ West Vancouver
Hazel Dell/Salmon Creek / Ridgefield
The residential market is starting to stabilize
Mike Lamb, associate broker at Windermere Real Estate/Stellar Group in Vancouver has some good news:
"The market has improved significantly from where it was in fourth quarter 2008 and first quarter 2009," he said.
Looking at closed sales, one would see a gloomy picture of the residential housing market. But Lamb said that is because it now takes longer to get financing and close deals.
Lamb considers the best indicator of residential market health to be pending sales, not closed sales.
"It's the best it has been since August 2007," Lamb said.
In May, there were 541 new pending residential sales reported, down 1.2 percent from April but up 18.8 percent from May 2008.
While this is only about half of what it was during the boom years, it is a more normal level of activity historically, Lamb said, and May was the fifth month in a row that new sales activity showed improvement compared to the last half