Driving through the Westside, I have been struck by the lack of vacancy signs on commercial properties.
I was thinking back about seven or eight years ago when I saw "for lease" signs on just about every corner. That was also a time when I know leasing tenants were able to negotiate leases and receive incentives, like six months of free rent.
At Westside Economic Alliance, there are several members of our organization who are commercial real estate investors and/or managers. I made a few phone calls to those members recently and found that my casual observations were correct. The Westside commercial real estate market is doing well.
Jeff Borlaug, managing director at Felton Properties and a WEA Executive Committee Board member, talked with me about the reputation of Portland and the region from a national perspective. "We are well known, highly regarded, and considered an excellent investment; a good place to live, work and play."
With the region experiencing such a low unemployment rate, it brings business expansion and a demand on more space. Rents are increasing and that today's market is more of a landlord market, where concessions are less than during the Great Recession.
Borlaug said during the Great Recession, the Sunset corridor experienced vacancy rates reaching as high as 40 percent. Currently, the vacancy rate in that corridor is 10 percent or lower. It's close proximity to the high tech sector seems to have boosted that segment of the market. The Majestic Brookwood Business Park, located near Brookwood Parkway and Highway 26, some know it as the home of Top Golf, broke ground a little more than a year ago on 73 acres with plans to develop about 1 million square feet in 11 buildings of office, industrial, and retail space. It's predicted Majestic's park will be pretty much occupied by its build out.
Industrial space is in demand with not a lot of inventory available. Tualatin probably has the most industrial supply. Outside of the Tualatin area, industrial property is difficult to come by. The economic development community is keenly aware of that shortage and is continually working on future options.
Borlaug also said that Felton Properties just completed a lease for a 100,000 square feet of light manufacturing located on the Westside.
The crown jewel of the commercial real estate market still appears to be Kruse Way where vacancy rates are said to be in the single digits.
In March, a Jones Lang Lasalle, or JLL, report showed 2016 rent growth in the suburbs outpaced downtown Portland for the first time in 10 years. The rents in the suburban market grew at 6.6 percent versus downtown's 5.4 percent, signaling the suburbs are poised for a period of strong rent growth.
A couple of potential snags in the market are traffic and maybe too many investors.
It was interesting to learn that properties along Highway 217 tend to experience higher vacancy rates than others on the westside. The logical reason appears to be traffic congestion. Companies that produce goods or have offices in the 217 corridor are having difficulty getting products to market and/or employees to work. Movement in and out of the market is, of course, very important to productivity.
When it comes to capital and the competition for acquiring commercial properties, there is a fear that too much interest can cause an artificial demand. "We're cautiously optimistic," Borlaug said, "Capital from outside the region is coming to the Westside. While that is a good thing, the infusion of capital could create an artificial bubble and the local investment community is watching that closely."
We are a growing area, but with our low unemployment rate, we need to continue to focus on land supply and workforce development. It's important to make sure we have the right supply of industrial land, so we can continue to give room for businesses to expand or locate here. At the same time, we need to make sure we have programs that address the redeployment of workers, who may be under employed or just wanting to expand their careers. We also need to emphasize career and technical education for high school and community college students. By working together, we can continue to keep our residents employed and our Westside economy thriving.
Pamela Treece is the executive director of the Westside Economic Alliance. Her column appears monthly, addressing issues that are critical to the economic health of the Westside. Learn more about the WEA at: westsidealliance.org