Vacancy rates slowly reaching optimum levels for developers and landlords, construction firms ramping up business
The commercial real estate market has its share of pressures with rising interest rates, restricted land availability and volatile commodity prices. Despite these concerns, strong demand in Clark County has kept commercial real estate from a decline.
"The market is very active," said Wally Hornberger, manager of Coldwell Banker Commercial Jenkins-Bernhardt Assoc. "There are people that want to do things."
Rising interest rates may have a slowing effect on the commercial real estate market, he said. "We expected it to slow, but we do not expect the bottom to drop out. There is too much demand."
Bank of Clark County Senior Vice President Hunt Coracci said the bank’s commercial lending volume is ahead of last year and in line with 2006 projections.
"We have a fairly steady pace of commercial loan requests in a variety of different sectors," said Coracci.
Interest rates and construction costs have likely had an impact on the investment side, but owner/occupant deals will remain strong as long as business is good, he added.
Roger Qualman, NAI Norris, Beggs and Simpson executive vice president, said there has been some hesitancy in the market.
"I thought it would be a good year, but it has not materialized in the first half," he said. "I expect the second half will be better. There is a lot of money out there."
The market has maintained an even keel in the first half of 2006. Vacancy rates in the office and industrial markets have continued to tick down slowly.
Qualman said vacancy rates for industrial space have dropped to about 6 percent from about 15 percent at the beginning of 2005.
Office vacancy rates have dropped from more than 20 percent to less than 15 percent since mid-2005.
Though vacancy is declining, lease rates have remained flat and there is little new construction in the pipeline.
Industrial development hard to pencil out
Although there is healthy demand for industrial space, said Qualman, there is almost nothing new under construction, leaving few options for potential tenants. A decline in vacancy rates to below 5 percent could trigger new construction and a jump in lease rates.
But the increasing price of land due to limited supplies in Clark County and Portland and rising material and energy costs make it hard for developers to turn a profit.
"There’s not much speculative building going on," said Qualman.
Larry Schlecht, president of Schelcht Construction with offices in Kelso and Vancouver, said his company has seen an increase in volume of projects.
"Business ratcheted up at an acute angle last November when things normally drop off," he said. "The Northwest and Southwest Washington, in particular, caught up to other parts of the country experiencing good economic growth."
But with limited inventory in Clark County, the search for shovel ready land stretches north along Interstate 5. Schlecht just broke ground on a retail and distribution facility for Parr Lumber in Ridgefield and the company completed a 65,000-square-foot industrial building in Woodland.
Schlecht is not optimistic about short-term development opportunities in Clark County, where land prices and permit time and costs are not economically feasible. And following a breather late last year, commodity prices are on the rise again. Energy costs and economic growth in other parts of the world, particularly Asia, will only add to the shortage, he said.
Downtown topping off
Office vacancy in downtown Vancouver remains tight. The existing Vancouvercenter space is 60 percent leased out. Qualman said Norris, Beggs and Simpson is working to fill the remaining space to make way for construction of the fourth and last tower. Earlier this year, developer Vandevco said the nine story building will include ground floor retail and eight floors of office space, scrapping plans to include condos on the top three floors.
The only other new building that has broken ground downtown is The Columbian newspaper’s office building. Two stories of the $30 million, six-story building adjacent the Hilton hotel and conference center are expected to be available for office lease. The space is being held off the market for now, however, said Qualman.
Salmon Creek continues to see an explosion in medical-related office demand following the opening of Legacy Salmon Creek Hospital. The Vancouver Clinic opened a 90,000-square-foot Salmon Creek facility in April.
"People are positioning to get around Legacy," said Qualman.
Brian Sullivan, with Coldwell Banker Commercial, said there is virtually no space available in Class A medical offices and calls continue to come in for it.
With supplies tightening in other parts of the county, the Vancouver mall area is attracting attention. The area has had difficulty filling its office space in the past and any resurgence it has seen lately will take a step back when the Bonneville Power Administration consolidates from five buildings to just one near Westfield Vancouver Mall. The BPA will put about 100,000 square feet of office space on the market when it moves a number of its workers to its Ross Complex center in Vancouver and Portland facilities by the end of the year.
Sullivan said there is already 175,000 square feet of available office space within one mile of the mall.
Retail leading the way
Westfield Vancouver mall is undergoing some changes itself. Following the announcement by Mervyn’s that it would close its Vancouver store along with its other Pacific Northwest locations, mall owner The Westfield Group said it would purchase the building. Mervyn’s won’t vacate the two-story, 82,000-square-foot location until January 2007 and plans to fill the space have not been revealed. Expansion of Meier and Frank by 60,000 square feet to 180,000 square feet is expected to be completed by this fall and could possibly see a name change to Macy’s by that time.
The retail landscape in east Vancouver continues to change as well. The market remains brisk for big box stores and small retail centers, said Qualman. Retail vacancy rates stand at about 5 percent and never fluctuate far from that, he said.
The Columbia Crossing development adjacent the Columbia Tech Center added the first Kohl’s store in the county in April. The site is also home to the county’s newest Wal-Mart Supercenter and there is speculation the retailer is planning its fifth Clark County store in Salmon Creek.
Robertson and Olson Construction is involved in a number of local retail developments and is at full capacity for two years, said president Matt Olson.
"We have had an increase in volume from the previous year … with the biggest increase in Vancouver," he said.
Vancouver projects include retail development at Columbia Crossing and on 192nd Ave.
There is a demand for more retail as the county’s population grows and it becomes less desirable to travel to Oregon to shop.
"The cost and time of travel has increased," said Olson. "The tax savings is not so apparent, and retailers see that."
Groundbreaking on The Landing at Evergreen mixed-use project is anticipated this summer. The former Evergreen Airport site along Mill Plain Boulevard will be home to 340,000 square feet of retail space. Plans also include two office buildings, a 156-room hotel and a four-level parking garage.
Who will it be?
In the second half of 2006, all eyes will be on the Vancouver waterfront, especially the sale of the 29-acre Boise Cascade riverfront property that is expected to transform downtown’s waterfront. The city has expressed its desire to work with the property buyer to develop the property. Additionally, the sale and possible development of the Columbia Business Center could open up development of riverfront property east of downtown.