Eric Fuller: Consumer confidence rebound key to commercial real estate

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2011 Outlook

• There will be very little multi-tenant retail development in Clark County, and vacancies will stay high in existing retail spaces.

• There will be no new multi-tenant industrial warehouse construction.

• Commercial real estate faces challenges until employment levels improve and more credit options become available to businesses.

Commercial Real Estate Sales

2010:$163.2 million (estimated)

2009: $250.5 million

Source: Riley & Marks, Vancouver

Back to 2011 Economic Forecast Breakfast home page.

While the great and prolonged recession of 2008-2010 has been declared over by many economists, the regrettable reality for owners and users of commercial real estate is not so positive.

If anything, owners and users are rather gloomy due to the general lack of confidence in the jobless recovery. In addition, both groups struggle to find financing for business expansion.

True, the outlook is healthier than last year, but many factors still conspire to keep commercial real estate from making a total recovery for at least the next several years.

Retail market

Consumer spending has been the heavy lifter of the commercial real estate retail marketplace. The current bleak outlook for jobs and higher wages has hijacked consumer confidence. While there have been several success stories announced in Clark County, the persistent 12.5 percent unemployment rate keeps a damper on future retail sales. Some people estimate the local unemployment rate is more than 15 percent if you include the under-employed. Clark County retail sales were expected to increase 1 to 2 percent in 2010, according to some predictions, compared with 10 percent increases in the boom years.

We need new jobs, consumer confidence and capital flow to the markets in order to support any significant prolonged growth in retail sales.

In summary, the multi-tenant retail market as 2011 starts will have a vacancy rate in excess of 9 percent, with over 750,000 square feet vacant and available for immediate lease.

With the exception of some single-user retail tenant buildings being constructed (Costco, Walgreens and Chase) and a lone multi-tenant development on Northeast 192nd Avenue, there is no new multi-tenant retail development planned for Clark County in 2011.

Industrial market

Industrial multi-tenant properties started and ended 2010 with a 14 percent vacancy rate and over 1 million square feet available for immediate lease.

There was very little industrial lease activity for the year and there will be no new multi-tenant industrial warehouse construction in 2011.

Office market

Multi-tenant Class A office space started 2010 at 19 percent vacancy and ended the year at 20 percent vacancy, with more than 1 million square feet available for immediate lease.

Tenants seem to be trading between buildings as they downsize, which produced a negative absorption of over 50,000 square feet for 2010.

Many people believe 2011 will be a better year with positive Class A office absorption. However, there will be no new Class A office buildings starting construction in 2011.

Investment sales

The national investment market was down more than 60 percent last year. There was some strength in large metropolitan cities, with top-of-the-class properties closing at higher prices.

When 2010 is tallied, the Clark County market will have ended the year with less than $72 million in total investment sales, which is down from the previous year by 46 percent. The sale of the former Columbian building to the city of Vancouver represented 26 percent of this.

The investment market will continue to weaken due to the gap in how sellers and buyers value property.

Land sales

In 2010, commercial and industrial land sales totaled less than $39 million, which is down 7 percent from the prior year.

The Providence Health System land purchase of 20 acres for more than $16 million represented over 41 percent of this spending.

The year 2011 will experience very slow land sales, as commercial and industrial users and developers are limited in their ability to expand due to the overall business climate remaining weak and lack of available financing.