Summary excerpted from our Q1 2015 issue of Compass Points.
By Erich Schultz SIOR
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For the first time since the boom, the three product markets in Bend, (retail, office, and industrial) have single digit vacancy rates in the same quarter. Retail stands at 6.1%, office at 8.9%, and industrial is 6.6%. This is remarkable considering where we came from just a few years ago. It is also confirmation that the commercial real estate market is back!
Do you need 20,000 square feet of contiguous retail space? Good luck finding it. There are only two options from which to choose in Bend. Searching for 5,000 square feet of office space for your new high tech company? You had better move quickly. There are just seven properties that can accommodate your need. Have a requirement for 7,000 square feet of office/warehouse space to expand your widget production facility? There are just nine buildings in Bend with that amount of available square footage, and it is a certainty that at least half of these building owners won’t divide the building to meet your needs. You may need to expand your search to Redmond where there are currently five buildings that have enough vacancy to meet your requirement.
Under these conditions, one would expect to see developers stepping in to create more inventory. Why isn’t this happening? One reason is the lack of available/affordable land. During the last economic expansion, Bend experienced unprecedented commercial growth. Once plentiful, available land was snatched up and developed. Today, there are fewer options. In addition, many of the lots that remain available are because they are priced beyond what a potential development can support. This leads us to reason number two: rents don’t yet support new development. For example, the majority of office rents today range from $1.25 to $1.45 per square foot per month on a triple net basis and top out at about $1.65. Based upon land, material and labor prices, not to mention city fees, rents have to reach above $2.00 per square foot before it makes sense to develop more office product. Thus, speculative development will be slow in coming.