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Carter Beyl on office

The Portland office market continues to see promising signs of improvement in the second quarter of 2014, with decreasing vacancy and net absorption on the rise. With once-stalled projects coming back to life and redevelopments of older property under way, the Portland office market will see an increase in inventory with a majority of it being dedicated to creative users.

Block 300, the U.S. Bancorp Tower and 2 & Taylor continue to lead the repositioning efforts downtown by catering to the ever-growing creative office user. Recently inked deals include Puppet Labs signing on for 75,000 square feet in Block 300, Webtrends opening up its new 65,000-square-foot office in the remodeled base of the U.S. Bancorp Tower, and Jama taking half of 2 & Taylor with 35,000 square feet.

Portland’s burgeoning new office development is also heating up the market. With more than 10 stories, Park Avenue West continues to rise, and the Pearl District is now home to the newest Class A office tower at 14th and Irving; they will deliver 273,000 square feet and 150,000 square feet of office space respectively. These projects are already absorbing tenants fast, as evidenced by Stoel Rives’ claim to over 131,000 square feet in Park Avenue West, and more than 1.5 floors already preleased at 14th and Irving.

The revival and repositioning of downtown historic buildings – specifically the Yeon, Spalding, Hamilton and Electric buildings – continue to push rates higher with increasing levels of occupancy. With favorable market conditions expected to remain, Portland’s office market is projected to gain steady momentum for the latter half of 2014.

Michael Merino on industrial

At the close of the first quarter of 2014, the industrial market touted the lowest vacancy and highest absorption since 2007, confirming a trend that has since inspired much confidence in developers. Demand is outpacing supply, especially for desirable distribution properties in the Northeast submarket. Motivated by the signs of another strong development cycle, eight more speculative industrial projects are now in consideration, with low vacancy and rapid absorption to continue over the next 36 months. Currently, more than 2 million square feet of additional space will flood the market.

Last year, Capstone Partners was behind the first post-recession project with the PDX Logistics Center, a three-building complex totaling 833,000 square feet. Now with today’s increasingly limited leasing and sales activity, Capstone is joined by two other developers in an effort to alleviate the robust demand for distribution centers. Specht Development Inc. committed to build Interstate Crossroads, a 493,000-square-foot building located in the Northeast submarket, and New York Life Investment Management just announced a 215,250-square-foot speculative warehouse in Gresham. Ground will be broken on both projects in June.

The domino effect of these speculative projects continues the need for more modernized distribution space in the Portland-metro area, reprising a breed of industrial product last seen before the Great Recession. The cutting-edge amenities of 2008 are now considered standard, catering to distribution tenants with higher clear heights, efficient space and low office build-out.

The cost of such new construction standards will be noticeable. The project budget for Specht Development Inc.’s Interstate Crossroads is an expected $64 million, so rental rates will reflect the current costs of construction as well as the healthy competition these new projects generate. Yet, this is simply the growing pains of yet another development cycle, and one that Portland’s industrial market sorely needs.

Pam Lindloff on retail

The identity of America’s grocery store is up for grabs.

Between warehouse clubs, value supermarkets, specialty and gourmet retailers, and now Amazon’s expansion into fresh delivery services, the grocery aisles are a bit crowded with options.

The generic mainstream ‘one-stop shop’ experience of traditional and supercenter is facing competition, and not just on price. The monumental merger between Safeway and Albertsons announced in March 2014 highlights this change in the marketplace. When major grocery chains consolidate, they can achieve greater economies of scale, which may result in lower prices. But a consolidation between such ‘super value’ retailers also fortifies against mounting competition for consumer dollars, and that battle is echoed throughout the Portland-metro area.

Upon the shuttering of two Albertsons stores in Vancouver, Wash., earlier this year, a new Walmart Neighborhood Market opened in May and then another 154,000-square-foot superstore opened in Battle Ground. Walmart’s deep discounts fill the Albertsons void, but its trendy ‘neighborhood-centric’ atmosphere is its own answer to the high-end experience.

More consumers are moving away from coupon-clipping and opting for the targeted experience of specialty stores. Whole Foods, New Seasons and Trader Joe’s all focus their identity on creating a specific experience rather than competing on price, and this strategy has proven quite successful. The market has absorbed this new demand with more specialty locations opening each year. Indeed, Tigard welcomed a new Whole Foods Market at Greenway Town Center, Nyberg Rivers at Tualatin broke ground to feature New Seasons Market and Natural Grocers opened in Vancouver.

The niche of experience beating out the dollar is also a result of stores choosing to anchor shopping centers. Freestanding buildings don’t drive the same foot traffic found in grocery-anchored retail centers. This is especially true as the American grocery store continues to redefine itself as a reflection of lifestyle rather than a chore.

Carter Beyl specializes in the leasing and sales of office properties at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact him at 503-273-0359 or [email protected].

Michael Merino specializes in the leasing and sales of industrial properties at NAI Norris, Beggs & Simpson. Contact him at 503-273-0354 or [email protected].

Pam Lindloff specializes in the leasing and sales of retail properties at NAI Norris, Beggs & Simpson. Contact her at 360-852-9622 or [email protected].