Oregon’s retail real estate market is on fire with declining vacancies, limited new inventory, and properties changing hands with new owners reinvesting and re-tenanting to enhance returns.
But first, the fundamentals. The US economy continues strong with average growth of 2.2% annually since the recession of 2009 (Bureau of Economic Analysis).
In Oregon, employment, personal income, and population have been growing faster than the national numbers.
Job gains in Oregon have been 3.0% to 3.5% annually, with about 5,000 new jobs per month and 297,790 new jobs since 2009 (State of Oregon Employment Department). Private sector employment increased 2.4% in the second quarter of 2017, a decline from prior years, but still respectable.
Statewide unemployment is currently 4.3% and personal income rose 2.7% annually over the last 10 years. Oregon’s population has grown 1.6% since 2016 and 8.1% (310,026 people) since 2010.
With the strong national economy, retail real estate’s greatest challenge is online retail sales, which are $445 billion (12.2% of total retail sales) and growing 15.5% annually (Amazon accounts for 43% of total US online sales) (Business Insider). While Walmart has met the challenge with online sales up 50% over last year, many retailers have not. The Sports Authority, Macy’s, Sears/Kmart, to name just a few, have gone out of business or closed stores, leaving sizable gaps in the market.
Good real estate, with owners that understand the market, continue to lease space and improve their returns. CenterCal’s Cascade Station, with the departure of 40,788 square foot Sports Authority, quickly leased to Nordstrom Rack and Ulta Beauty, both of which have recently opened.
In Salem, CE John’s loss of Macy’s and The Sports Authority created the opportunity to reposition Willamette Town Center as “the place” in Salem. New tenants include Hobby Lobby (60,750 square feet), Sierra Trading Post (20,000 square feet), HomeGoods (20,000 square feet), and Ulta Beauty (10,500 square feet), with other new tenants in the works. This joins Best Buy, Burlington, Pier 1, and Sears (read…additional opportunities available).
In Portland, Kimco’s purchase of the 758,000 square foot Jantzen Beach Center at a 5.3% cap rate and SKB’s purchase of 86,445 square feet of retail space in the Pearl District at a 6.0% cap rate, demonstrate continued velocity in the market and the willingness of new owners to invest, re-tenant, and reap the rewards. Mall 205 is also in new hands, as are many other smaller retail centers. Opportunities continue to be found throughout the market to purchase less than stellar performing properties. With additional investment and the right leasing team, yesterday’s problems are today’s opportunities.
Within the city, Natural Grocers opened on SE Powell Boulevard and Target is under construction with a new 32,000 square foot store, which starts the much-needed improvement of Portland’s most overlooked streets.
Expect to see additional redevelopment on Powell.
On Martin Luther King, Jr. Boulevard, Natural Grocers will open a 16,550 square foot store, with an additional 8,400 square feet of retail space. Expect to also see additional retail development on this street, as well.
Elsewhere in the market, most new retail inventory will be in conjunction with mixed-use projects.
In Vancouver, the Waterfront Vancouver, USA project will include 1.25 million square feet of office space, 250,000 square feet of retail and hospitality space, and 3,300 residential units. Restaurants in the current phase include MidiCi, Twig’s Bistro and Martini Bar, and Wildfin American Grill, all expected to open by Summer 2018.
In downtown Portland, Sky3 at 11th and Jefferson, just completed 196 apartments and 13,000 square feet of retail, with new retail tenants Coava Coffee and Amazon Pickup Points.
At the south end of downtown, the Collective on 4th is under construction with 417 units and 36,000 square feet of retail space, set for completion in 2019.
In NW Portland’s Pearl District, five projects are underway with a total of 837 apartments, 30,859 square feet of retail space, and 31,260 square feet of office space. In SE Portland, in addition to the Goat Blocks, (247 apartments and 97,000 square feet of retail) there are 1,488 apartments in eight properties with 63,326 square feet of retail.
The market is as strong as we have ever seen. With declining vacancies and limited new inventory, Oregon’s retail real estate market will continue to be one of the strongest in the country.