Portland Retail Vacancy Rises During Fourth Quarter, But Some Positive Signs

The Portland area’s overall retail vacancy rose about half a percentage point to 8.0%, with negative 293,920 sf of absorption. Central City saw the greatest increase of 1.5% for a total vacancy of 11.7%, the highest of any submarket. Nearly 15,000 sf is currently available at One Main Place, and Pioneer Place has about 50,000 sf available. Vacancy also rose nearly a percentage point in the Southeast/East Clackamas and Eastside submarkets. Vancouver vacancy stayed steady at 10.5%, though 59,573 sf was absorbed at Columbia Square. The 93,000 sf Bowyer Marketplace WinCo store, at the corner of NE 119th Street and 117th Avenue, delivered this quarter.

Construction remains slow, with 24,499 sf under construction throughout the Metro area. 17,000 sf of this is a freestanding building at 13233 SE McLoughlin in the Southeast/East Clackamas submarket.

Noteworthy News
The national retail market is showing signs of a slow recovery. Consumer spending rose for the fifth straight month in February, by 0.3%, according to the Commerce Department. And the International Council of Shopping Centers (ICSC) expects retailers to close fewer stores in 2010 than in 2009. But many retailers continue to face challenges, and Saks Fifth Avenue announced that it would close its two downtown Portland stores. It is rumored that Swedish retailer H&M will take over the 23,000 sf men’s store, and Saks will vacate the 60,000 sf main store by the end of July. Area officials are working to find a quality tenant for this space. In one bit of good news, Saks may open an Off Fifth store, which offers discounted designer clothing and accessories, at Bridgeport Village.

Though restaurants have been challenged during the recession, Portland’s restaurant scene has remained solid. Affordable, casual restaurants have generally fared better during the recession than their higher-priced counterparts, so many are focusing on this market. For instance, Foster Burger opened late last year in Southeast, and Little Big Burger is expected to open in Northwest this spring. Some of Portland’s popular food carts are even opening storefronts – Korean taco truck Koi Fusion, has opened a restaurant on NW Lovejoy. Some higher-end restaurants are also in the works – Lucier is expected to reopen in South Waterfront, and a group from San Francisco plans on opening a restaurant in the former Bay 13 space in the Pearl.

Specialty grocery stores have continued to do relatively well. The Whole Foods Market on NE 43rd and NE Sandy in Hollywood opened in January, and work has begun on the New Seasons Market on SE 40th and Hawthorne, which has long been delayed but is expected to open this fall.

Featured Deal: John’s Incredible Pizza Lease
John’s Incredible Pizza, a family entertainment restaurant with ten locations in California, is opening its 11th location in Portland. John’s leased 46,212 sf at the former Circuit City at Washington Green Shopping Center, 9180 SW Hall Boulevard, Tigard. John’s features a pizza, salad, soup, pasta and dessert buffet, as well as themed dining rooms and carnival-style rides and video and ticket-dispensing games. It’s expected to open in First Quarter 2011. NAI NBS Real Estate Broker J.J. Unger and NAI Capital Senior Vice President Irwin Hyman of Encino, California, represented the tenant.

PDX Industrial Market Looking Up in First Quarter

Industrial vacancy decreased slightly to 14.56%, with 118,458 sf absorbed. Vacancy in North/Northeast remained stable at 17.58%. Some large leases were signed in this submarket, including Owens Corning leasing 123,120 sf at Bybee Lake Logistics Center – Phase II. Ferrotec USA and Archive Systems also signed leases at Birtcher Center @ Townsend Way totaling 81,850 sf. Vacancy in Vancouver decreased about 1.5 percentage points, as 82,800 sf was leased up at Hart Industrial Center, bringing that property to 100% occupancy, and 40,267 sf was leased at Westside Business Center.

Flex vacancy rose nearly two percentage points to 18.01%, with 166,559 sf of newly available space coming back on the market. Much of this space can be accounted for by Intel, which vacated more than 100,000 sf at the Amberglen Business Center in moving back to its headquarters, pushing Southwest Sunset’s vacancy up more than two percentage points to 19.71%. Some positive absorption did occur, though. BiAmp Systems leased 50,963 sf at Nimbus Corporate Center in the Southwest 217 submarket, whose vacancy stayed fairly flat at 17.76%.

Market Trends
The industrial market showed continued signs of a slow but steady recovery during First Quarter. Vacancy in the Portland metro area, though still high, appears to have stopped rising, and construction and new deliveries have been so limited of late that the market isn’t burdened by oversupply. National economic indicators were looking up. Factory orders rose 1.7% in January, the largest increase in four months, with heightened demand for commercial aircraft, and industrial production rose 0.1% in February.

Manufacturers continue to invest in the Portland metro area. LaCrosse Footwear is moving production of Danner boots to a new 59,000 sf factory about a mile from its Northeast Portland headquarters, a facility twice the size of its current plant, which it is replacing. Production is expected to begin there in Third Quarter 2010. Boeing is also investing up to $120 million in upgrading its operation in Gresham, which will add 152 jobs in the next three years. It will build a new 60,000 sf facility on its 87-acre campus where it will treat metals used in making commercial aircraft.

First Quarter 2010 Office Market Report: Central City Vacancy Stable, While Suburban Rises a Percentage Point

Central City office vacancy remained stable this quarter at 11.99% (see vacancy comparison chart at right), with 54,312 sf absorbed. Some significant sales and leases occurred, especially in the Central Business District. The General Services Administration (GSA) signed four leases totaling more than 250,000 sf at First & Main, which delivered this quarter, and Alpha Broadcasting leased more than 25,000 sf at Pacwest Center. In one of the largest sales in recent months, KBS REIT II purchased One Main Place for $57 million, or about $180 per sf. American Pacific International Capital Inc. also purchased the office portion of the KOIN Center, reportedly for between $53 million and $60 million. Vacancy in Northwest fell more than a percentage point to 15.69%, as two tenants leased space at Machine Works, including the GSA in 19,431 sf.

Suburban office vacancy rose about a percentage point to 21.93%, with negative 142,240 sf absorbed. The Barbur Boulevard, Beaverton-Hillsdale/Sylvan and North/Northeast submarkets all saw vacancy rise at least two percentage points. Though vacancy in the Kruse Way submarket stayed relatively stable, this area saw some movement, including M & T Bank relocating from Kruse Woods I to about 20,000 sf in 4949 Meadows. A few submarkets had positive absorption, such as I-5 South, where vacancy decreased slightly and Pinnacle Mortgage Bankers leased 16,000 sf at Durham Office Center. Though a number of suburban buildings are totally empty, one will soon be fully occupied. The Oregon Institute of Technology is planning to purchase the 131,000 sf former headquarters of InFocus in Wilsonville, and consolidate its four Portland-area locations there. InFocus moved out of the building last fall to a smaller office in Tigard.

Vancouver vacancy fell nearly half a percentage point to 18.10%, with 42,644 sf absorbed. Vacancy in Class C space fell five percentage points to 14.57%, as 29,000 sf was leased up at the Former Red Lion Headquarters. Class A and B space also saw some significant absorption; Doug Williams and Associates and Richard James and Associates both signed leases at the Thurston 500 Building, totaling 12,583 sf.

April 2010 Market Watch: Maturing Commercial Mortgages

Some recent press has focused on the challenges of maturing commercial real estate mortgages in today’s market. About $1.5 trillion in commercial and multifamily mortgages held by lenders is currently outstanding. With deterioration in underwriting fundamentals, many loans will be difficult to refinance as they mature.

Based on a recent Mortgage Banker’s Association survey, $183.9 billion of the $1.45 trillion of outstanding commercial and multifamily mortgages will mature in 2010. GSEs (Fannie, Freddie, FHA, Ginnie Mae) will see 2% of their outstanding mortgages mature, life insurance companies will see 7% of their outstanding balance come due this year and CMBS will see 12% of their balances mature. It is important for owners and investors to know how their lender will look at loans as they mature.

Since GSEs operate as both portfolio lenders and security issuers, they have considerable discretion in dealing with maturing loans in their portfolio. For loans they have securitized, GSEs are restricted in what they can do and in some cases have to buy back a loan in order to work through maturity-related issues.

Because CMBS mortgages are held in a trust, servicers have limits on how they can deal with maturities. Servicers have some ability in extending or modifying fixed-rate mortgages, and less flexibility for floating-rate mortgages. A servicer’s job is to maximize net recovery on a present value basis. When loans are flagged as troubled, a master servicer will be assigned who generally has more flexibility in providing forbearance, extension or modification.

As portfolio lenders, life insurance companies have considerable flexibility in how they deal with maturing mortgages. Financial institutions and life insurance companies have to take reserve against loans that require extensions or loans that are classified as non-performing.

NBS Celebrates 78th Anniversary Today

Today marks Norris, Beggs & Simpson's 78th anniversary. Here's a brief look at NBS' history.

NBS was founded in 1932 in Portland, Oregon, by A.D. Norris and George Beggs, and later joined by David B. Simpson. The company had a small office in the Wilcox Building, which still stands today at the corner of SW 6th Avenue and Washington Street in downtown Portland.

With the country mired in depression, few areas of the economy were left unscathed. Though the real estate industry suffered, Norris, Beggs & Simpson quickly became profitable by specializing in property management and acquiring many prominent families of the Pacific Northwest as clients.

New England Mutual Life Insurance Company of Boston played a key role in the early growth of Norris, Beggs & Simpson, by enlisting the company to manage a series of foreclosed properties in Portland and appointing the company as its mortgage loan correspondent in the area. Commercial and industrial brokerage services were also added to expand the company’s reach, and an emphasis was placed on involvement with major financial institutions.

NBS expanded into a full-service commercial real estate operation, and opened its Vancouver office in 1985 and Bellevue (now Seattle) office in 1988.

NBS Financial, one of four companies under the Norris, Beggs & Simpson Companies umbrella, joined Strategic Alliance Mortgage (SAM), a 20-member firm of privately held mortgage banking and commercial real estate investment companies located strategically throughout the United States, in 1997.

In 2009, the company arranged $175 million in financing for transactions ranging in size from $650,000 to $23,840,000, and our servicing portfolio is $1.7 billion strong.