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2019: How was it for you? Business leaders run the rule over the year just gone and try to assess if 2020 will be year the bubble pops.

TIM HERMAN/INTEL CORPORATION - Cranes at Intel's Ronler Acres where the next big fab is going up.

2019 was a year when the national economy did well in spite of the Trump trade tariffs.

Locally, Portland chugged along, suffering no disasters nor changes in leadership. 2019 started with a 20 percent stock market correction and looked like ending with the DOW up 21 percent.

The apparent fundamentals are sound. Unemployment is still at record low levels — 3.9 percent for Portland and 4.1 percent for Oregon.

The standard minimum wage for Oregon is now $11.25 per hour and inside the Portland metro area $12.50. (It will rise to $12 and $13.50 respectively on July 1, 2020.) The minimum wage increase will apply to an estimated 162,000 Oregonians — half of whom are under 25.

Using the latest numbers from the Employment Department, Oregon's median household income reached $64,610 in 2017, which is higher than the U.S. median household income of $61,372.

Housing prices continued to rise. As of June 2019, the median price of homes currently listed in Portland was $465,000, while the median price of homes that sold was $416,200. The median rent price in Portland was $1,995, just higher than the Portland-Vancouver-Hillsboro Metro median of $1,900.

Home prices in the Portland metro area grew by 2.4% during the 12 months that ended in June, according to the S&P/CoreLogic Case-Shiller index. That is a higher rate than other west coast cities, but lower than the national average where home prices rose 3.1 percent year-over-year. That was half the rate of 2017-2018.

How the economy affects local businesses is where it becomes a real-world issue and not just an economist's forecast. To that end, we asked Portland-area business leaders how this past year was for them and what they were looking forward to in 2020.

COURTESY: PACWEST - The newly remodeled PACWEST is an example of amenity-led office space, with new outdoor terrace, bike rooms and user-friendly lobbies.   Portland Commercial real estate brokers are preparing for a mild slowdown in activity, but other business people are crossing their fingers that neither the 2020 election nor trade wars affect knock the economy into a long-overdue recession.

Jason de Vries

Senior Managing Director, Managing Principal, Cushman & Wakefield

De Vries has a background in industrial real estate but watches all aspects of CRE, including office and retail.

"In this economic expansion, the question we're all asking is, 'How long can this real estate market keep going up?' Construction continues to be strong, yet vacancies are staying steady. The downtown office vacancy rate is 11 percent, that's pretty typical. It's the same in the industrial sector: vacancies are at 3.6%. At what point does the market correct itself? I think in 12 to 24 months we'll see some kind of correction, but I don't think going to fall off a cliff.

The general Portland dynamics are strong. People are moving to Portland, although not at the same rate as a couple of years ago.

One of the metrics we track is full floor availability in the office market. There are more full floors available now than a year ago. That's partly due to the increase in construction. We're also seeing some impact from the Portland Building: City workers are leaving their temporary spaces and moving back into the remodeled Portland Building (with the Portlandia statue on its front).

In the office market, tenants start looking for space about a year before their requirement, sometimes even longer depending on market conditions. It's our job to know all the details of the market and find them a building that's the right fit.

The demands of tenants have changed. Thirty years ago, it was just "does the boss like the location and can they fit everybody in. Now, amenities have become a necessity, whether it's a new building or an upgrade, people want to know there are bike storage rooms, showers, a gym, a roof terrace, access to public transportation, shops and restaurants.

PACWEST and Big Pink have been remodeled and the Broadway Tower has been successful.

At PACWEST, where we represent the owner, as part of a major renovation and re-brand, they added an outdoor living space, a fitness center, and a bike room because that's what the tenants want. Office managers are asking, "How do we best serve our employees and attract top talent?

The addition of space on the inner east side has changed that landscape. Some companies like creative office space. Every tenant is unique. They may not care about high rises. The central eastside has a more industrial, yet creative feel, that can be more appealing to a younger workforce.

Most commercial brokers use online databases that show listings.

We also network with other brokerage firms, to make sure we know what's available.

We've also seen a shift to focus on workplace strategy. What's the best set up for the office to take advantage of connecting people? Collaborative versus individual versus conference space. The office environment has definitely become a more open, collaborative environment.

It's a war for talent right now. Everyone wants a workspace culture and environment that makes people engaged and productive and want to stay. What's maybe even more important than the space itself, is the amenities.

At Cushman & Wakefield, we remodeled our space at 200 Market, across from the Keller Auditorium. We have a gorgeous park view and a terrace space.

In 2020 we'll see a continuation of the market of 2019, with a little bit of slowing in rent growth, but no backward movement. There's enough space on the market and quality fundamentals.

We're still seeing development projects going forward, and unless there is some significant unforeseen event, I expect growth in our market to continue.

But if somebody could accurately predict the market, they'd be rich! We had our national economist in recently. He introduced himself by saying he had predicted nine out of the last three recessions."

COURTESY: INTEL CORP - Intel's Courtney Martin

Courtney Martin

Public Affairs Director for Intel Oregon and California

Martin explains how Intel is changing from a PC-centric company to a data-centric company, and how vital relations are with its local neighbors and the 20,000 people Intel employs in Washington County.

"Intel first established its roots in Aloha in 1976, so it has been a presence in the state for decades. When, in December 2018, we announced our global expansion to meet demand, Oregon was one of the chosen sites. Construction has been ongoing at Ronler Acres in 2019, and it will be a multi-year project.

During construction projects, an important focus is on updating our near neighbors. We have a fully dedicated staff that keeps the lines of communication open. We know there has been a high demand for the trades in the state, but through our partnerships, we have been able to meet our needs.

We're making a direct investment into the construction industry — you can see that by the number of trades on site. But annually, we purchase from hundreds of micro, small, and medium Oregon-based businesses who are a component of our footprint: the people who make the tools, who manufacture the inputs, the spare parts, and provide professional services like marketing and legal, printers, caterers, media companies, and more.

TIM HERMAN/INTEL CORPORATION - Rich Uhlig, managing director of Intel Labs, shows off a Nahuku board used in the company's R&D department where they are investigating neuromorphic computing, the next wave after Artificial Intelligence, which is supposed to simulate the way the brain makes decisions using elusive concepts such as common sense.

What folks see out here are the cranes. What's more representative is our ability to invest and grow in the state and build up the Oregon-based businesses we buy from. Our employee base has grown, which means more people out volunteering in local schools and doing environmental clean-up projects.

We're also investing in sustainable projects around energy and water use (see Intel.com/water). By 2025, we aim to restore 100% of our water used in manufacturing back to the community. Currently, 20 percent is lost.

And we have a partnership with the Bonneville Environmental Foundation and have invested in a handful of restoration projects, such as protecting fish habitats with the Deschutes River Conservancy.

Generally, if it happens at Intel, it happens first here in Oregon. For example, quantum computing. We're investing in the next generation of technology to drive computing and transforming from a PC-centric company to a data-centric company. This will give us a more diverse array of products and a broader set of customers. We're working on data centers and the analyzing and processing of data with artificial intelligence, with 5G networks and in other emerging technology focus areas with businesses like our Mobileeye subsidiary that is focused on autonomous driving and advanced driver assistance systems.

There are so few companies left who are investing in leading-edge silicon technology. It's very expensive and very hard to do.

Under Moore's Law, we moved from producing 14 nanometer to 10 nm products, and now developing 7 nm and 5 nm, but fewer companies are able to invest in it. But we are, and the majority of our technology development group is based here in Oregon. The innovation starts here."

COURTESY:  SCHWABE, WILLIAMSON & WYATT - Graciela Gomez Cowger, CEO of LAW FIRM Schwabe, Williamson & Wyatt, says the company is growing sector by sector, including high tech.

Graciela Gomez Cowger

CEO of Schwabe, Williamson & Wyatt

"We had an exciting 2019 that featured several big client wins, like the recent landmark labor case between ICTSI Oregon, Inc. and the ILWU. The case resulted in a $93.6 million verdict for our client, representing a huge win for west coast ports, which historically have had no choice but to yield to the demands of a powerful union.

We added some talented new team members, including IP (intellectual property) veteran Bill Abrams and Real Estate law professionals Amy Hanks Cornelius and Brendan Crowley. We looked at new ways to work together with our clients and have several initiatives underway with our innovation lab while offering client collaboration solutions for case management, budget tracking, document automation, contract management, and task and event tracking. We are working with clients to design dashboards specific to their needs.

As a firm, Schwabe, Williamson & Wyatt continue to focus on delivering more value to our six key industries: healthcare and life sciences; manufacturing, distribution, and retail; natural resources; real estate and construction; technology; and transportation, ports, and maritime. We remain committed to working on the areas important to our client's strategic needs like intellectual property, litigation, artificial intelligence, and elsewhere. IT power, privacy concerns, misuse, and government regulation are also areas of focus.

We are committed to running like a business, as our clients do, which is why I am a full-time CEO.

We are constantly looking at efficiencies, processes, culture, and quality controls to add more value to our clients. We utilize document automation technology tools like Practical Law/Contract Express and IPDAS (Intellectual Property Document Assembly System) to reduce duplication and increase drafting efficiency.

We are approaching diversity, equity, and inclusion in new and creative ways to develop talent that will form the basis for future improvements in our shareholder ranks. As a Hispanic woman, I represent less than one percent of ?Hispanic partners in ?U.S. law firms. In addition, our executive leadership is entirely women, and the board of directors is forty percent women. Diversity of thought is an invaluable asset that allows Schwabe to continually evolve the way we do business for the better. We don't just recruit for diversity; we develop and promote opportunities to retain diverse attorneys. A reflection of this is our IP (Intellectual Property) department, forty percent of which is comprised of women, minorities, and LGBTQ attorneys.

These efforts are already bearing fruit to our benefit. We are focused on creating and maintaining a healthy workforce. This helps us attract and retain the highest talent to serve our clients. We are paying attention to what inspires and motivates today's young people, and we are passionate about helping them thrive physically, emotionally, and socially. The newest generation wants to make the world a better place, and we support that notion fully."

COURTESY: BORA ARCHITECTS - Bora architect Robert Hoang said the firm was doing well, and won awards for its redesign of the Meier & Frank lobby.

Bora Architecture & Interiors

Robert Hoang, Associate Principal, and Director of Marketing & Business Development.

"Bora had a very successful 2019 leading several significant projects both locally and nationally. Close to home, we are completing the design of the new six-story Lincoln High School in Southwest Portland, a complex building which begins construction early in 2020. We were selected to design the Portland Community College Metro Workforce Training Center in Northeast Portland and continue to do major commercial interiors work for tech firms in the region. We also completed our first Net Zero building — the Creekside Education Center for the Tigard-Tualatin School District — while our University of Oregon Knight Campus for Accelerating Scientific Impact is under construction in Eugene.

Further afield, we have major educational and arts projects in design or construction at Texas A & M University, Texas Christian University, Michigan State University, Stanford University, and for the Plano Independent School District in Texas.

From a community standpoint, we're excited that our four-year effort to promote the importance of a Paid Family Leave policy for our industry, and our state came full circle with Governor Brown signing House Bill 2005 enacting paid family leave into law in Bora's Office in July, making Oregon just the eighth state to pass such legislation.

From a design recognition standpoint, our redevelopment of the Meier & Frank Building received two Design Excellence Awards from IIDA, our Center for Management at the University of New Mexico received an AIA Albuquerque design award, and Architect Magazine recognized us as one of the top 50 architectural practices in the country.

We are excited at the prospects of 2020, but also recognize the challenges of the tightening market as well as greater competition and consolidation in our field. Our focus in 2020 is to diversify our portfolio, continuing to build our national practice and pursuing opportunities to do more community-oriented projects with greater social impact."

COURTESY: COLLIERS INTERNATIONAL - Jerry Matson, Executive Vice President, Colliers International commercial real estate

Jerry Matson

Executive Vice President, Colliers International commercial real estate

Jerry Matson specializes in representing corporations in locating and negotiating the sale and lease of industrial buildings in the major Portland submarkets and in industries such as third party logistics (Expeditors, Mergenthaler, Mercer, USA Warehousing), Food & Beverage, Paper & Packaging, Oil & Gas (Tarr Oil/Leathers Fuel/Wilson Oil), Outdoor Gear & Sports Apparel (Keen/Nike/Dr. Martens) and R&D (Microsoft, IDEXX, Coherent) to name a few.

"As a full-service real estate brokerage and property management company servicing industrial, apartments, office buildings and mobile home communities, Colliers has the opportunity to collect data across from a wide variety of companies, executives, investors, lenders, and contractors.

Although our advisors specialize and know their individual markets, several larger themes jump out at us. The largest is that the U.S. remains a safe haven for the 'wall of capital' trying to find a safe home globally. Among the largest sovereign wealth funds, pension fund advisors and investors are increasing their allocation of commercial real estate given the lackluster rates of return offered by treasuries, corporate bonds, and savings accounts and given the potential volatility associated with stocks in an election year.

Here's how we see each category:

Industrial. The highest and best use of many close-in land sites, historically, have been turning older industrial sites into retail, office, and apartments. This has been turned on its head with some jurisdictions even changing retail zoning to attract industrial development. There are market cycles, and there are long-term secular trends; the rapid change in consumers' willingness to shop online is in its infancy, with only 10% of national retail sales made online, and most sources indicate that it is heading toward 30%. For context, just a 5% shift from brick and mortar to online sales would require an approximately 205 million square feet of additional e-commerce space across the U.S. This is equivalent to adding the entire size of Portland industrial market to the U.S., which would be on top of the space required by our organic growth. This is and will continue to be the darling of product types for years to come based on these facts alone.

Office. The office market has seen numerous new faces come to Portland, changing the skyline and performing massive renovations of older buildings. Although there are many success stories, the demand for these more expensive, amenity-rich buildings comes mainly from out of state technology firms fighting for talent. The question for owners of these assets in 2020 will be, "how deep is the demand for Portland go?"

Apartments. The housing issues in the Portland metro are far from over. While long-term fundamentals

remain strong, there are serious challenges to creating sufficient supply today that meets the demands of tomorrow. There is temporary softness in multifamily after the significant number of units delivered under the pre-Inclusionary Housing policy. Demand for housing around the Portland metro remains robust.

Mobile Home Parks. Yield starved investors continue to look high and low for opportunities. What was formerly a product type that only local investors owned has become one of the best performing and most dynamic product types to many institutional clients.

Our collective long-term view of Portland remains bullish across all product types. However, we will expect the rate of appreciation to moderate. Given the significant new supply of office products planned, there may be a lull in net absorption in 2020. Given the pending presidential election, some executives will pause for those results, which may dampen overall transactional volumes in 2020."

COURTESY:  FERGUSON WELLMAN - The economy is strong, but growth has been so sustained that experts are wary of even the usual predictors, according to George Hosfield, director of money managers Ferguson Wellman.

George Hosfield, CFA

Director and Chief Investment Officer, Ferguson Wellman

Having climbed the proverbial "wall of worry," all the major domestic equity indices are poised to end the year at or near all-time highs. In fact, it was an excellent year for virtually every asset class, as bonds enjoyed their best return in a decade. International equities have returned approximately 20 percent, and real estate and commodities have also prospered. Against this backdrop, the number one question on clients' minds is, "Can this continue?"

Just as Mick Jagger and the Rolling Stones illustrate that age isn't the ultimate arbiter of success, the resilient U.S. economy posted its record 11th consecutive year of growth in 2019. Though the current expansion may be the longest in US history, as can be seen in the graph below, examples abound of cycles around the globe that are much longer in duration. Adhering to the adage that economic expansions don't die of old age, but rather of excess, we observe a U.S. economy still lacking the characteristic "bubbles" of excess that have ended past expansions. While the pace of economic growth may be modest by historic norms, we expect the U.S. economy to continue growing next year.

Turning to politics, elections can move emotions, but seldom economies. While it is impossible to predict the outcome of an election that is still 11 months away, history does provide some useful tools in assessing the likelihood of an incumbent being reelected. In short, voters vote their wallet and their heart. Specifically, the candidate's approval rating on election day is highly correlated with the share of the two-party vote received. By this measure, President Trump will not be re-elected. However, the growth of disposable income has proven to be an excellent measure of voter's economic health, and by this measure, President Trump is a shoo-in for re-election. If the election were today, one of these tried-and-true indicators would be wrong, but as we said, we have 11 months to go, and we will continue to monitor these historically accurate indicators.

Bottom-line, despite the campaign rhetoric, we believe policy changes will ultimately be more evolutionary than revolutionary, and our expectation is that neither party will win both houses of Congress and the presidency. To this end, historically, a divided government and the associated gridlock has provided a supportive environment for equity markets.

Given that the trade war with China (and others) has been underway for more than two years, investors have become more accepting that this is a complex situation in which there are no winners. Furthermore, this is far more than a U.S./China issue for Brexit, and a host of other trade skirmishes around the world are the product of a global, populist movement that will not quickly be "resolved."

As we enter 2020, we are maintaining our recommended neutral allocation to equities, and given a slow-growth, low-inflation, low-rate environment, we will continue to opportunistically look for lower-correlation, higher-yielding alternate assets with which to diversify client portfolios.

Though equities are no longer inexpensive, and earnings growth will likely be minimal, buybacks and the potential for further multiple expansion could deliver mid, single-digit equity returns. Furthermore, with no recession in sight, investors shouldn't bet against equities in 2020. For as Peter Lynch notably stated, "Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves."

COURTESY: GREATER PORTLAND INC - Matt Miller, interim CEO of GPI, says they are looking for more foreign direct investment in 2020 as Portland expands.

Matt Miller

Interim President & CEO, Greater Portland Inc.

"The fundamentals for the region are strong. Greater Portland remains a very attractive place to live and do business. We have strong clusters here, for example, advanced manufacturing. There's a lot of activity in Washington, Clackamas and Clark Counties, such as the new Edwards Vacuum facility in Hillsboro and Hewlett Packard's new site in Vancouver, Washington.

Another cluster, apparel design, we're a world-class market for that. We're seeing international companies establish a presence here and other companies relocating their headquarters here, just like Black Yak and Oros, a high-tech apparel maker, which moved its headquarters here from Cincinnati.

At GPI, our strategy for 2020 is to stay cluster-focused. We think that has the highest opportunity for multiplier effects. We're also agnostic to the size of the companies we look at. Startups can do well here. There have been historical success stories where small, early-stage entrepreneurial companies come here and they grow to be something spectacular. DiscoverOrg in Vancouver is a great example of that.

We're also looking forward to EVS 33 — the Electric Vehicle Symposium & Exhibition, a global conference in Portland in June, and we're keen to showcase the region's opportunities in that field.

There's no one big company we're chasing in 2020. Rather, we want to continue to attract foreign direct investment. It opens our global connectivity, and foreign companies pay higher wages, have better research and development departments, and create diversification in our regional economy. So if the economy does slow down, our economy will limit the downside risk for our market. If you have good international economic diversification, if there's a downturn stateside, but there's still global growth, then we'll be able to minimize the impact of recession to us.

Five years ago, we implemented a foreign direct investment strategy, called Greater Portland Global. Then, 5% of our pipeline (companies considering a move to the Portland area) was international. Today, nearly a third of our pipeline are international companies.

In 2020, we'll be working on our next five-year economic development strategy, our goals for the region over the next five years. We're going to be working with many folks around the region to build that out. It will be a very big engagement process. So we need input from community partners, policy makers, but also from business and non-governmental organizations."

Interviews have been edited for clarity and length.


Joseph Gallivan
Reporter, The Business Tribune
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