The commercial real estate market in the Salem area gained momentum in 2013, leaving industry observers optimistic about continued improvement this year. Speakers at the 2014 Commercial Real Estate Economic Forum on Thursday served up the statistics to the business community. The private event, attended by about 200 people, was presented by Sperry Van Ness Commercial Advisors, LLC at the Salem Convention Center.
Leasing activity for retail space increased last year throughout most of the Salem area, resulting in an overall vacancy rate of 11.4 percent. That compares to 13.9 percent vacancy at the start of 2013.
Jennifer Martin, a Sperry Van Ness senior adviser, recapped the recent opening of new retail business in the Salem area, such as Cafe Yumm and Mor Furniture. A deal to sell the former Safeway store on Commercial Street SE is pending, she said.
Five proposed retail projects in South Salem, if they were all built, would add 100,000 square feet of retail space to the market. Martin, however, advised real estate investors to avoid overbuilding.
“Stay cautious, my friend; let’s not celebrate too fast,” she said.
South Salem, with a 3 percent drop in the retail vacancy rate from 2012, saw the largest improvement. Keizer Station leased space to REI, but other properties in the Keizer area have struggled to find new tenants.
Apartment vacancy rates finished the year at 3.4 percent. Low vacancy rates have triggered more apartment construction in the Salem area.
But the vacancy rate may be ticking up. Somewhere between 600 to 900 apartment units have been proposed. If all 900 units were built within the next 24 months, vacancy rates could rise above 7 percent, said Chris Fischer, a Sperry Van Ness senior advisor. Higher vacancy rates means it takes longer for property owners to lease-up buildings.
Sales of apartment buildings rose last year, showing a “slight” increase, Fischer said. Total sales volume in this area was close to $41 million, spread across 12 sales (over $1 million). More than half the sales volume came from one deal. The Rosewood Apartments in West Salem sold to private buyer in December for $23 million.
The market for office space improved in 2013. Vacancy rates dropped to 17.28 percent, down from 21.44 in 2012. “We’re going in the right direction,” said Curt Arthur, managing director for Sperry Van Ness. Last year, was “a very strong year” for the office market, he said. In contrast, 2012 was the worst year in a decade.
The biggest turnaround was in the market for suburban Class A buildings. The office vacancy rate in the suburban area went from over 30 percent to 15.7 percent. Large leases to the State of Oregon, Cover Oregon, and pharmacy benefit management company Catamaran, were responsible for the sharp drop.
Rents remain largely unchanged at $1.59 per square foot, full service, indicating that it’s still a tenant’s market. Tenants enjoyed low lease rates and concessions.
Chad Freeman, president of the Strategic Economic Development Corporation, said local companies invested about $64 million in expansions in 2013. “Last year, from SEDCOR’s perspective, (the market) was driven by local companies investing in their own property,” Freeman said. SEDCOR is the region’s economic development agency.
Four companies were responsible for the lion’s share of the investments.
NORPAC Foods Inc. and Henningsen Cold Storage’s warehouse project resulted in more than $30 million in new investment in Salem. Garmin AT invested $12 million in growing its Salem operation. And Donald-based GK Machine began a $10 million expansion. Industrial vacancy continues to improve at just 9.0% with asking rents averaging $.36 per square foot, modified gross, for completed deals in 2013.