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Commercial real estate starting to heat up

Construction picks up, office vacancies drop around region


by: TRIBUNE PHOTO BY JAINE VALDEZ - Work is underway at Hassalo on Eighth Avenue, the large mixed-use project on the superblock in the Lloyd District.The commercial real estate market is sputtering back to life in the metropolitan area. A number of high-profile projects that stalled during the Great Recession have suddenly restarted. Several other large construction projects also are just getting underway.

But according to commercial real estate experts, new construction is only half the story — vacant office space in the region is rapidly filling up, foreshadowing even more construction in coming years.

“Coming out of the Great Recession, it wasn’t a pretty picture. There were a lot of empty office buildings. Vacancy rates were as high as 30 percent. But we’ve returned to just about normal in the last 36 months, and now it’s getting hard to find a lot of empty [office] space in many areas,” says Scott Weigel of CBRE, a commercial real estate services firm.

According to Weigel, office parks that have experienced turn-arounds include Kruse Way in Lake Oswego and Lincoln Center in Tigard. Before the economy collapsed, they housed many financial firms involved in the real estate business. Now they are refilling with a more diverse mix of businesses, including some from out of state.

Weigel personally brokered the deal that moved Salesforce.com into a long-vacant office tower in the Synopsys Technology Park in Hillsboro. That single deal took 115,000 square feet of office space off the market.

The biggest exception, Weigel says, is downtown Portland, which has about 56 floors of empty office space. Much of that occurred when numerous federal agencies moved back into the renovated Edith Green-Wendell Wyatt Federal Building. But Weigel predicts the vacant downtown space will begin filling up soon. Already, he says, several technology companies from San Francisco and the Silicon Valley are looking to relocate or expand in Portland.

Flurry of activity

Weigel spoke about the commercial real estate market before the Westside Economic Alliance Oct. 24 in Tigard. The business advocacy organization includes public and private leaders in Washington and western Clackamas counties. Weigel appeared on a panel with Brad Fletcher of Newmark Grubb Knight Frank and Clayton Hering of Norris, Beggs & Simpson.

Weigel, Fletcher and Hering all agreed the economy was recovering to the point where speculative commercial construction will be resuming soon. Fletcher also said that he was aware of several future redevelopment projects in the Beaverton area, but declined to provide details.

Their remarks came as construction already is resuming throughout the region. For the past few years, the biggest private projects have been in Hillsboro. That’s where Intel is building two large new fabrication plants and Kaiser Permanente just opened its first westside hospital.

But now, several stalled projects in Portland have restarted. Work has resumed on Park Avenue West, the mixed-use tower being constructed by TMT Development at 728 S.W. Ninth Ave. Plans are underway for all five Burnside Bridgehead blocks on the east end of the Burnside Bridge, with new tenants already moving into the recently renovated Convention Center Plaza building. And Venerable Properties has just announced that work finally will begin on the former Washington High School later this month. Plans call for the long-shuttered Southeast Portland building to be transformed into an office building with ground floor retail.

A number of other projects in Portland also are underway. The biggest is Hassalo on Eighth, the large apartment and retail project under construction by American Assets Trust on the superblock in the Lloyd District formerly owned by Langley Investments. Work has begun on the mixed-use Morrison Bridgehead project being built on former Multnomah County property at the west end of the Morrison Bridge. And a new Residence Inn in the Pearl District is under construction.

The Pacific Northwest College of Art is preparing to start renovating the historic federal courthouse on the North Park Blocks into the Arlene & Harold Schnitzer Center for Art and Design. And St. Mary’s Academy recently bought the former post office at 1505 S.W. Sixth Ave. for an expansion project. Even more projects are in the works. Metro is close to finalizing plans to build a headquarters hotel next to the Oregon Convention Center.

And that doesn’t include the apartment buildings that are springing up throughout the region to meet the growing demand for rental homes.

“Most projects that are underway now have a residential component,” Hering said.

Despite the flurry of activity, not every project that has been discussed in the past is moving forward, however. The Portland City Council has still not decided what to do with the Veterans Memorial Coliseum. The Portland Development Commission has not yet purchased the large U.S. Post Office complex near Old Town. And the Multnomah County Commission has not yet finalized plans for replacing the downtown county courthouse.

Of course, large construction projects did not completely cease during the Great Recession. Many of those that got underway were funded by government or quasi-government agencies, however. They include TriMet’s Portland-to-Milwaukie light-rail project, the extensive renovation of the Edith Green-Wendell Wyatt Federal Building in downtown Portland, the Bud Clark Commons in Old Town and the OHSU/OSU Collaborative Life Sciences Building in South Waterfront.

But now publicly supported projects are once again being outnumbered by private ones, another sign of the region’s slow economic comeback.