COVID Impacts Central Oregon’s Commercial Real Estate Market
By Pat Kesgard, Compass Commercial Real Estate Services
When COVID-19 hit Central Oregon in April 2020, commercial real estate transactions effectively came to a halt. Transactions were either delayed or canceled and virtually no new deals started. We were back to almost normal by the beginning of the third quarter of 2020. Miraculously, the fourth quarter was above the previous year’s activity.
The hospitality industry suffered tremendously through the pandemic. The labor shortage extended the challenge of operating at full capacity, and this is still impacting businesses today. Fortunately, landlord and government subsidies helped many in the industry survive.
Retail Transactions in 2021
Compass completed more than 31 retail leases that totaled more than 85,000 square feet since January 1, 2021. The current retail vacancy rate is 5.86 percent with 264,077 square feet available for lease. We noted some softening in rents in 2020, and are now starting to see asking rates returning to normal. The redevelopment of older properties continues, along with new localized projects in areas outside of downtown
Bend. We expect to see this trend continue for the unforeseeable future. Large retail spaces opened up when the former Sears and Shopko closed in 2020. Both buildings were eventually leased to national brands.
Office Transactions in 2021
Compass completed more than 51 leases since January 2021. This has been a surprising amount of activity. Although rents did suffer slightly in 2020, they, too, are back to normal rates. The current vacancy rate is 7.07 percent with 193,643 square feet currently available for lease.
Industrial in Bend and Redmond
The Bend vacancy rate fell for the fourth consecutive quarter, landing at 1.5 percent with 69,367 square feet available for lease. On the other hand, the Redmond market vacancy rate increased to more than 2.3 percent with 38,874 square feet of leasable space. Compass executed more than 40 lease transactions and more than 15 sales transactions so far this year. There has been significant development and construction of various industrial facilities in both markets. Most of these facilities have been built for owner-users and bridge the gamut from large manufacturing to smaller, for-lease flex spaces.
In-migration to Central Oregon has been amazing to watch. People from virtually every state come to visit, with some moving to the area. This has greatly impacted the availability and affordability of all housing types. The demand for investors to acquire multifamily is extremely strong, though there is little inventory available to purchase. Fortunately, the lumber prices are now coming down quickly, which will help with construction costs.
Prices are continuing to increase on bare land throughout Central Oregon. We are seeing several unsolicited offers on land, particularly in Bend. The City of Bend has a limited amount of developable land inside the urban growth boundary, which creates the upward pricing pressures.
As business owners sell to take advantage of strong valuations, we are seeing an increasing number of businesses for sale.
Central Oregon will continue to grow with more redevelopment and new construction. We are also seeing the “I” word in our daily vocabulary: inflation. Landlords with fixed annual escalations in their leases are seeing how inflation erodes property values due to these limited rent increases, much like they did in the 1980s. Interest rates remain low…for now. Investors and businesses want to be in Central Oregon, and we believe our values are still going up the left side of the bell curve, but for how long?