Business Journal - February 25, 2005
Portland Gains Appeal for Retail Investments
By: WENDY CULVERWELL
Job growth and the prospect of fewer new stores opening in 2005 helped
propel Portland past Minneapolis, Philadelphia, Dallas, Houston and
Jacksonville, Fla., in a national index of retail markets compiled by
Marcus & Millichap.
Portland moved up five spaces
to No. 25 in the real estate investment firm's 2005 retail index, which
offers a snapshot of 41 major markets.
Only Denver made a bigger jump, climbing six spots to No. 26.
Seattle, the only other city to move five places, moved to the No. 15
spot.
San Diego, Southern California's Orange County and Washington, D.C.,
remained the top three retail markets. At the bottom: Columbus, Ohio;
Cincinnati; and Indianapolis.
Markets at the top of the list are generally deemed more attractive
for new investments in retail property, and markets at the bottom are
generally less attractive, Marcus & Millichap said. The rankings
are based on factors such as job creation, retail vacancy rates, new
construction, formation of new households, retail sales growth and rent
patterns.
Portland wins on all accounts, according to Gary Lucas, Marcus &
Millichap managing director and regional manager of the firm's Portland
office.
"Throughout the well-documented economic struggles of the past
several years, the Portland-metro-area retail market has remained vibrant,"
he said in a statement.
"The retail market has outperformed other commercial real estate
segments by a wide margin in 2004. Additionally, national retailers
continue to show interest in the Portland market."
The Kohl's Corp. department store chain, for example, identified possible
locations for its first Oregon stores -- at the Wood Village Town Center
in Gresham, near the new Wal-Mart in Clackamas County, and in Beaverton,
according to the Marcus & Millichap report.
Portland leapt, if not to the top of the pack then at least to the middle
-- a welcome change from a year ago, when it fell three places.
Factors working to its advantage:
• The employment picture showed improvement in 2004 after three
years of losses. The report projects employment growth of 2.4 percent
in 2005, with nearly 23,000 new jobs in high-tech manufacturing, transportation
and hospitality.
• Construction levels will decrease slightly in 2005 to about
1 million square feet, with the Vancouver, Wash., area poised to be
one of the most active submarkets. In fact, the general lack of suitable
property for retail development will push up retail property prices
in 2005.
• The vacancy rate for retail real estate is expected to drop
by 30 basis points to 6.2 percent in 2005. New centers, including the
465,000-square-foot Bridgeport Village "lifestyle" shopping
center in the Tigard/Tualatin area, will open nearly fully leased in
the spring. The report notes that existing and older centers will find
it more challenging to attract strong tenants.
Craig Sweitzer, principal with Urban Works Realty, isn't surprised by
the strong showing.
''I think Portland is often viewed as a second-tier market, which it is, but I think it doesn't get its due respect because we probably have one of the stronger retail environments on the West Coast," he said.
Outside retailers -- large
and small -- are increasingly drawn by Portland's "hot" reputation.
Urban Works is the leasing agent for much of the retail space in the
Pearl District and is also responsible for the street-level retail stores
planned in The Meriwether and the John Ross condominiums at the South
Waterfront.
The Meriwether is under construction now; work begins this year on the
John Ross.
The buildings won't open for more than a year, but already prospective
tenants are calling. That's a strong early indicator, Sweitzer said.
"Typically this far out, you don't see this type of interest. I'm
surprised," he said.
Sweitzer said Metro and the urban growth boundary are a big reason for
the strong showing now.
"I don't think they get enough credit for doing that. I think that
what it's done is keep construction down and vacancies low," he
said. Compared with major metropolitan areas, Portland has avoided urban
sprawl and a proliferation of strip malls. "We didn't overbuild
retail in the '90s," he said.
No. 1 San Diego (No. 3 last year) eclipsed Orange County with a a combination
of rent growth and the nation's second-lowest retail vacancy rate. Orange
County fell to No. 2 because of middling projections for job creation
and household growth, despite having the country's lowest vacancy rates
for retail properties.
The slowest markets, generally located in the Midwest, suffered from
below-average job growth and outmigration, which hindered household
growth, according to the Marcus & Millichap report.
wculverwell@bizjournals.com | 503-219-3415
