Thursday, July 31, 2008

Portland Commercial Real Estate Demand 'Anemic'

From the Oregonian:

Portland's commercial real estate market had largely dodged the residential market's swoon.
But the region's continuing housing slide, the nationwide credit crisis and a slowing economy appear to be eating away at the office and retail real estate markets.
"The economy has finally caught up with the office market," said Patricia Raicht, vice president at real estate firm Grubb & Ellis in Portland.

The Portland-area office vacancy rate -- the percentage of empty office space -- leveled off at 11.3 percent in the second quarter of 2008. Before that, Portland had four straight quarters of declining vacancy rates.
The net absorption -- the true measure of office space demand -- was an "anemic" 42,000 square feet, according to Grubb & Ellis' figures.
Last quarter, net absorption was nearly 500,000 square feet.
The downtown Class A office market remains tight with vacancies below 5 percent. But demand for space is waning as tech, software and service firms downgrade to Class B or C buildings to save on rent, Raicht said.
On the retail side, Portland-area vacancy rates crested over 5 percent for the first time since 2003.
Real estate firm Norris Beggs & Simpson says anything below 6 percent is considered a healthy market. Jack Gallagher, a Norris Beggs & Simpson associate vice president, said lower-priced stores like Fred Meyer, Jo-Ann's fabric store and TJ Maxx are doing well even with rising food and gas prices.
Downtown Portland, though, is struggling.
The central city reported a 7.1 vacancy rate in the second quarter. That's the highest ate since a 9.5 percent rate during the dot-com recession in fall 2002. Only Vancouver (7.3 percent) and 122nd Avenue/Gresham (7.9 percent) were higher.
Debi Rosenbaum, a Norris Beggs & Simpson retail broker who specializes in downtown sites, attributed the rising vacancies to renters scared off by high rents, the sluggish economy or financing woes.
The housing market's troubles have an inverse effect on the apartment market.
During the boom, buyers with credit trouble could secure high-interest mortgages to buy homes. But the mortgage market has since tightened up and those credit-challenged people are now renters.
Portland-area apartment vacancies fell to 3.5 percent in the second quarter, according Norris Beggs & Simpson. The Lake Oswego/West Linn and Gresham/Troutdale markets saw big drops in overall apartment vacancies.
Downtown apartment rents continue to rise as developers finish more pricey partments targeted to people who three years ago were condo candidates.
The average two-bedroom, two-bathroom apartment downtown now rents for $1,672 a month.