Sunday, January 22, 2006
By ERIC FULLER Columbian forecaster

Clark County's positive growth in new jobs and continued population increases supported a banner year in 2005 for new retail construction, and 2006 will continue the trend of significant retail construction activities.

The most significant retail activity has been at Columbia Crossing at Mill Plain between 162nd and 192nd Avenues, which is being developed by PacTrust. Columbia Crossing is part of the 408-acre master plan Columbia Tech Center, which is home to the new Nautilus Inc. world headquarters. The scope of Columbia Crossing represents the most significant retail project since the Westfield Vancouver mall was built between 1978-1980. The tenant mix includes over 800,000 square feet of new retail space, already built, under construction or forecasted for construction in 2006. The tenant mix will include Wal-Mart and Home Depot, and also new retailers to Clark County such as Kohl's, Cost Plus and Best Buy. Columbia Crossing is strategically positioned to serve the Fisher's Landing market, which is Clark County's largest master plan housing development and highest income demographic, and appeals to retailers who want to be positioned to serve the higher-end consumer demand in this market.

Towne Center update

In addition to Columbia Crossing, retail development here also will include phase two development at Hazel Dell Towne Center, consisting of junior anchors Bed Bath & Beyond, Best Buy and TJ Maxx (totaling 160,000 square feet) serving the Interstate 5 corridor in north Clark County. Two other developments that will begin construction in 2006 are Grand Central at Grand Boulevard and state Highway 14, developed by Killian Pacific (totaling 165,000 square feet); and The Landing developed by Opus Northwest (totaling 630,000 square feet) on the Evergreen Airport site. Neither development has announced an anchor project.

Eastgate Plaza on Northeast Fourth Plain Boulevard and Ward Road will also be under construction in 2006, developing a Wal-Mart Supercenter as an anchor to (600,000 square feet) to serve the Orchards and Sifton markets of Clark County.

Although the 2005 forecast was for vacancy rates to increase based upon substantial new retail construction, vacancy rates for anchored retail centers fell to 4 percent at year-end 2005. This extremely low vacancy rate is further proof that there are many retail services and companies looking to provide their services to Clark County.

Vacancy 2006?

The forecast for 2006 will be for vacancy rates to trend to over 6 percent, which is still very comfortable, and the vacancy will allow more options for retail shops to locate in various submarkets of Clark County. As vacancy rates remained low, the rental rates in 2005 for new construction exceeded $26 per square foot, with some shop space tenants paying over $30 per square foot for premium locations within specific development projects. Rental rates for 2006 will remain at $26 to $32 per square foot for shop space in anchored retail centers.

Other real estate outlooks:

* Commercial land prices for retail development continued to escalate last year, with price increases expected to continue in 2006. In some cases, it is not about the cost of commercial land, but about whether there is any commercial land in a given geographic area that is suitable for retail development to support the consumer demand. The limited supply of commercial land will be addressed in the Clark County Growth Management Act vacant land analysis, which will review all the cities in Clark County for an adequate supply of vacant land. Without an increase in the supply of vacant commercial lands the prices will start to restrict new development.

Prices for commercial and retail land ready for development will exceed $15 per square foot for 5- to 20-acre parcels. Smaller parcels for pad users such as banks and restaurants will exceed $25 per square foot, and in some cases, exceed $30 per square foot for locations that are perceived as premium.

* Investor demand to purchase finished retail projects is at an all-time high, with buyers competing with each other to purchase the limited supply of retail centers that are available in Clark County. Due to the increasing rents in existing centers, the value of retail shopping centers has increased and owners are considering selling their projects to lock-in their extraordinary gains this past year with a sale of their projects. Clark County has an extreme shortage of all type of investment properties for sale, and prices of existing properties will continue to increase during 2006.

* The Class A office market in Clark County represents over 2.4 million square feet of developed office space. Last year saw active office construction with approximately 290,000 square feet of Class A office projects coming to the market. These buildings include The Rockwell Building in Salmon Creek; Vancouver Square, Vancouver Mall Professional Campus and The Timbers, all three near Vancouver Mall; First Place Plaza, Fisher Building, Park Tower V and Southview Professional Center, all in the greater Fisher's Landing area of the city of Vancouver.

The surprising news in 2005 was that the office space absorbed was over 300,000 square feet, which directly reduced the vacancy rate for Class A office space from 17.7 percent to 14.4 percent. This positive office absorption represents the eighth consecutive quarter that Clark County has experienced net absorption.

Significant office lease transactions for 2005 included iRiver at Tidewater Cove Waterfront Office Buildings (15,440 square feet), Bailey Pinney at Columbia Tech Center (6,798 square feet) and Bay Bank at Vancouver Center (5,890 square feet). There are no new Class A office buildings scheduled for completion in 2006; subsequently the vacancy rate at the end of 2006 should be less than 10 percent.

Office building projects in the pipeline for 2007 and beyond include The Columbian building and Vancouver Center Tower II, both in downtown Vancouver. Class A rents will gradually increase to $26.50 per square foot, with virtually no landlord concessions of free rent or additional tenant improvement allowances.

* The multi-tenant industrial market for Clark County in 2005 did not experience the forecasted growth that was predicted in 2004. The vacancy rate at the end of 2005 jumped up to over 9 percent, compared with the forecast of 5 percent last year as more industrial space was returned to the market.

The largest industrial space available in Clark County is at Columbia Business Center on the Vancouver waterfront, with over 100,000 square feet of warehouse space available to lease.

The industrial market vacancy rates for 2006 are expected to be closer to 5 percent due to the positive growth of existing companies in Clark County and the strong job growth.

Asking rents for multi-tenant industrial space have increased significantly in 2005 and will continue to increase in 2006 to over 50 cents per square foot per month for warehouse space, compared with 35 cents per square foot per month.

Existing tenants and new tenants will not only be confronted with higher rental rates, but also confronted with fewer alternatives to accommodate their expanding businesses.

Industrial land prices for ready-to-build sites are approaching $6 per square foot, with larger industrial land sites of 10 acres or more ranging between $4.50 to $5 per square foot this year. No new construction is anticipated for multi-tenant industrial buildings in Clark County in 2006, in part because the required rent to support the total development costs will need to be increased to over 60 cents per square foot to justify any new construction.

COMMERCIAL REAL ESTATE: What might happen 20 years from now

Over the next 20 years, forecasters expect continued growth as more families and businesses call Clark County home. Population growth forecasts range from 2.3 percent to 3.2 percent a year. If the highest growth projects become reality, as many as 621,763 people could be living in the county by 2026, up from about 400,000 now.

But here's a more moderate outlook: The county's population will likely grow by 153,000 residents to 553,000 by 2026.

Other projections:

* Population in the county increases by 153,000 residents to 545,000.

* Households increase by 35,000.

* Retail real estate square footage increasing by 7 million square feet (60 percent) totaling to over 18 million square feet.

* Class "A" office buildings increasing by 4 million square feet (150 percent) to over 5 million square feet.

* Multi-tenant industrial buildings increasing by 7.5 million square feet (100 percent) to over 15 million square feet.

The outlook for 2006

* Rapid expansion of retail square footage is expected. The question of how much new retail development Clark County will support can be answered by analyzing the retail sales leakage from Clark County to the Portland metropolitan area. Clark County continues to export one-third of its retail consumption dollars to sales tax-free Portland. Clark County's current retail demand could equal several million new square feet of retail projects.

* The Class A office market will also experience positive net absorption as rental rates are increasing and vacancy rates are decreasing.

* The industrial market needs a significant rental rate increase to justify new construction for multi-tenant industrial space in Clark County.

* Owners of all types of commercial real estate should consider locking-in historically high prices for their income producing property compared with the future interest rate fluctuation that will place downward pressure on all existing values of commercial real estate.

* The adoption of Clark County's Growth Management Act is extremely important to provide all cities in the county significant vacant land to support the future growth demand of both jobs and consumer spending in Clark County.