Construction costs on the rise
Although industrial construction is booming along the Portland side of the Columbia River, developers have all but exhausted the supply of land that is easy to build on.
"Almost all of the easy-to-develop sites are gone. Everything else has challenges, from topography to contamination, that is increasing the cost of construction," said Scott Kappes, principal broker at the Capacity Commercial Group.
Justin Carlucci, a partner with Bridge Development, agrees. His company is tearing down and redeveloping a long unused former concrete pipe manufacturing plant at Northeast Martin Luther King Jr. and Columbia boulevards. Demolition and cleanup work are increasing the cost of the project.
"It will be a much more environmentally better site when we're done with it," said Carlucci, who believes the site's location near I-5 helps compensate for the additional expenses.
Other developers are finding easier opportunities outside Portland, however. Panattoni Development recently bought seven acres for its next project in Ridgefield, Washington.
"It's 24 miles away, but the land is clean and the city is pro-development and easy to work with," said company partner and senior engineer Bart Brynestad.
Kappes, Carlucci and Brynestad spoke on a panel at the annual Real Estate Trends and Forecast breakfast hosted by the Columbia Corridor Association on the morning of Wednesday, April 24. The association represents businesses and other organizations in the corridor, which stretches from the Rivergate industrial area on the west to Troutdale on the east.
The corridor has the most industrial land in Portland and is home to most of the current and planned industrial projects. According to information presented at the breakfast, of the 1.9 million square feet of industrial projects currently under construction in Portland, 1.2 million are located in the corridor.
The share of future projects is almost as large — 1.3 million of the 2.7 million square feet presently planned.
The other panelists were: Mark Childs, senior vice president of the Capacity Commercial Group, and Chris McLaughlin, director of preconstruction services at Perlo Construction. All of them agreed that although the economy slowed down earlier this year, but it is still growing and will continue to do so for up to three more years — both inside and outside the corridor.
"The economy continues to be healthy, vacancy rates are low and employers are still hiring," said Kappes.
But all of the panelists admitted construction costs in the corridor are rising for several reasons. In addition to the increasingly difficult development sites, costs are also going up because of a shortage of workers, caused in part by competition from such publicly funded projects as those being undertaken by Portland Public Schools.
Ironically, the recent completion of two large projects in the corridor also increased competition for available jobs — the Amazon warehouses in Rivergate and Troutdale. The Rivergate warehouse covers 59 acres, has 82 loading docks, and employs more than 1,000 people. The one in Troutdale covers 74 acres, has 64 loading docks, and employs more than 2,000 people.
Several panelists referred to the competition as "the Amazon Effect."
But, according to McLaughlin, work on the Troutdale warehouse demonstrated the difficulty of building on the available industrial land. The developer had to drive 400 columns that were 2 feet in diameter 50 feet into the ground to support it.
"For Amazon, money was not object, but the easy sites are gone," said McLaughlin.