• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
 
PGP
 
 V 
 ALUATION
I
NC IS PROUD TO PARTNER WITH A WORLDWIDE AFFILIATION OF INDEPENDENTLY OWNED AND OPERATED REAL ESTATE SERVICES
.
 
T
HE POWERFUL PARTNERSHIP WITH
CMN
ALLOWS
PGP
 
 V 
 ALUATION TO OFFER ITS CLIENTS A VERY BROAD RANGE OF SERVICES AND RESOURCES IN MORE THAN
100
MARKETS AROUND THE WORLD
.
R
ETAIL
N
EWSLETTER
 
[P
ORTLAND
,
 
OR]
 
[Q
UARTER
O
NE
2009]
Commitment to Values
RRRR
ETAILETAILETAILETAIL
MMMM
 ARKET ARKET ARKET ARKET
OOOO
 VERVIEW  VERVIEW  VERVIEW  VERVIEW 
 
By Grant NorlingOregon Retail Specialist – 503.542.5416
The Portland Metro commercial real estate market isbeginning to show signs of an economy adversely impactedby recession. The office, industrial and retail sectors areslipping and can no longer help buoy the economy whichhas been drug down by the tanking residential market. Without the ability to gaze into a crystal ball to predict thefuture, it is hard to forecast when the overall real estatemarket will hit bottom and when it will begin to crawl back out. Don’t expect an inflection point for at least a few morequarters even from the most optimistic perspective. Doexpect a vast amount more retailers to call it quits in thecoming months as the aftermath of the grim holiday seasonis sorted out. Some experts project that over 12,000 stores willgo dark across the US by year end. When the dust settles, thisrecession will hopefully provide the road map to reinvent theretail market in a way to generate sustainable growth.The 2008 holiday shopping season was dismal and left many retailers reeling in the already stagnant economy. TheInternational Council of Shopping Centers (ICSC) which tracksretail sales volume shows that the holiday retail sales fell to alow that hasn’t been touched in over 35 years. The outlook for 2009 is bleak; unemployment has reached a high thathasn’t been seen since 2003, rising to 9.0% in Oregon and will rise higher. In reaction, retailers are slashing prices toentice consumers that have expendable income to shop attheir stores. However, these are not a sustainable long-termbusiness practices. With many big box retailers filing for bankruptcy, there isincreasing availability of unobstructed spaces available inthe marketplace. With the collapse of Wicks, Linens N Things,and Circuit City, it has left an additional 1% vacancy in thelocal Portland retail market alone. Many of these vacantspaces aren’t the appropriate size to accommodate the few active national retail tenants. A high level of incentives fromproperty owners will be required to attract willing tenants tolease the empty spaces. Likely incentive will either come withhigh tenant improvement funds or months of concessions orboth. However with many national retail tenants taking aconservative growth route and waiting out the uncertainty ofthe volatile financial markets; it is likely that a majority ofthese vacancies will endure prolonged vacancy periods.
SSSS
UPPLY UPPLY UPPLY UPPLY 
,,,,
 
 V  VV  V 
 ACANCY  ACANCY  ACANCY  ACANCY 
&&&&
 
 A  AA  A 
BSORPTIONBSORPTIONBSORPTIONBSORPTION
 
Retail supply, vacancy and absorption are analyzed usingthe
 Norris, Beggs & Simpson Retail Market Report 
. As of theend of the fourth quarter 2008, the total retail supply in thePortland market was 43,178,907 SF of which 2,521,052 SF was vacant, indicating a vacancy rate of 5.8%, up 90 basispoints from 4.9% one year ago. This shows a relatively high vacancy rate from what the Portland market hasexperienced in the past five years. This increase can belargely attributed to the increase in vacant big box spacesdue to bankrupt national and regional retail chains.Currently, the Portland market is experiencing a retail vacancy rate that is slightly above the range typically exhibited by healthy markets of 4 to 5%.The following table details changes in retail supply,absorption and year-end vacancy over the past 10 years.
 Year Year Year YearAbsorption (SF) Absorption (SF) Absorption (SF) Absorption (SF)Vacancy  Vacancy  Vacancy  Vacancy 1999199919991999506,1415.0%5.0%5.0%5.0%2000200020002000979,7666.0%6.0%6.0%6.0%2001200120012001342,8866.7%6.7%6.7%6.7%2002200220022002375,9205.4%5.4%5.4%5.4%2003200320032003242,7094.3%4.3%4.3%4.3%20042004200420042,461,4894.3%4.3%4.3%4.3%2005200520052005808,9814.7%4.7%4.7%4.7%200620062006200646,5844.8%4.8%4.8%4.8%20072007200720071,100,0004.9%4.9%4.9%4.9%2008200820082008339,7745.8%5.8%5.8%5.8%TotalTotalTotalTotal9,476,3329,476,3329,476,3329,476,332
Source: Norris Beggs & Simpson Retail Market Report 
Portland Metro Retail DemandPortland Metro Retail DemandPortland Metro Retail DemandPortland Metro Retail Demand
 
The Portland retail market has achieved positive retailabsorption each of the past 10 years, which is a positivedemand indicator. This trend is projected to abruptly reversein the coming quarters as the market continues to soften.The Portland market consists of seven general submarketsincluding: Central City, Sunset Corridor, Southwest, Eastside,122
nd
 /Gresham, East Clackamas and Vancouver. Five of theseven sub markets achieved positive year-to-dateabsorption. Particularly strong submarkets include the EastClackamas and Eastside, which have retail vacancy rates of2.5% and 5.0% respectively. The 122
nd
 /Gresham and Central
 
Retail Newsletter Q1 2009 Portland OR
2
1
.
Real Capital Analytics – Capital Tends Monthly – 2008 (www.rcanalytics.com)
 City submarkets cover the high end up the vacancy spectrum operating at 7.5% and 8.0% vacancy respectively.The following table provides the estimated retail space percapita (SF/Capita) for the Portland Metro area compared toSalem and nationally.
Catergory Catergory Catergory CatergorySF/CapitaSF/CapitaSF/CapitaSF/CapitaPortland Metro28Salem41National Low22National High74National Average44
Source: CoStar Property ®
Retail Supply/CapitaRetail Supply/CapitaRetail Supply/CapitaRetail Supply/Capita
Portland ranks as the third lowest retail supply per capitaaccording to CoStar. This positions Portland well to beartough economic times and is evidence that the Portlandmarket is not overbuilt with retail like many major US markets.Presently, it is easier to appreciate the insolating impact thatthe UGB and stringent zoning have on the region, rather thanfocus on the obstacles they present to sustained growth.
.
CCCC
OMMERCIALOMMERCIALOMMERCIALOMMERCIAL
&&&&
 
RRRR
ETAILETAILETAILETAIL
SSSS
 ALES ALES ALES ALES
 
Nationally commercial property sales decreased by almosttwo-thirds; dropping from $450 billion in 2007 to below $150billion in 2008 according to Real Capital Analytics.
1
 Furthermore their data reveals that retail sector sales volumedropped from $75 billion in 2007 to just over $20 billion atthe close of 2008. Looking forward to 2009; the marketshouldn’t be much different. A close look at the Portlandmarket retail sales volume for 2008 reveals it’s nearly half of what it was at the close of 2007. The chart below summarizessome of the sales from 2008 and breaks them down intothree categories; Anchored, Strip and Other (triple net, fastfood, freestanding, etc).
2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon2008 Investment Retail Sales - Oregon
Category Category Category Category Anchored Anchored Anchored Anchored StripStripStripStrip Other*Other*Other*Other*SizeSizeSizeSizeLow 40,800 12,000 1,690High 78,292 27,710 14,820 Average 53,306 16,465 5,264Sale PriceSale PriceSale PriceSale PriceLow $6,925,000 $1,575,000 $625,000High $16,762,867 $6,200,000 $7,300,000 Average $12,165,717 $4,018,250 $2,607,479Sale Price/SFSale Price/SFSale Price/SFSale Price/SFLow $170 $131 $191High $322 $347 $835 Average $226 $248 $528Cap RatesCap RatesCap RatesCap RatesLow 6.5% 6.5% 6.0%High 7.6% 7.0% 8.5% Average 7.0% 6.7% 7.2%
Source: PGP Valuation, Inc. Database *Fast food, freestanding & NNN
 
Since the early 2000s investors have looked for relatively safeinvestment vehicles. With the stock markets slumping andmoney markets erratic, many investors flocked towards realestate investing. With property values on the rise it was a safebet that any property they bought could be sold for a profitin five years. However with the recent softening of thecommercial market, the residential market six months prior tothat, and the CMBS market evaporating overnight; it has leftmany participants at risk of being upside down in theirinvestments. The previous five years of a bull real estatemarket peaked and we are now in the midst of a bearmarket. Investors are being less hasty with their money andare searching for the best deals they can find.
CCCC
 APITALIZATION APITALIZATION APITALIZATION APITALIZATION
(CAP)(CAP)(CAP)(CAP)
 
RRRR
 ATES ATES ATES ATES
 
The following table shows historical CAP rate trends in Oregonfor the past several years. The average CAP rate for allcenters rose from 6.8% during 2007 to 6.9% in 2008; anominal change; however, a telling sign of the times tocome. Increased vacancies will likely push CAP rates higherin the coming year as investors take a more conservativeapproach for non-stabilized properties and are faced withhigher costs for loan dollars, which will require reduced pricesto maintain modest cash-on-cash returns.
Retail CAP Rates - ORRetail CAP Rates - ORRetail CAP Rates - ORRetail CAP Rates - OR
 Year Year Year YearType ofType ofType ofType ofCenterCenterCenterCenterCAP Rate RangeCAP Rate RangeCAP Rate RangeCAP Rate Range Average Average Average AverageCAP RateCAP RateCAP RateCAP Rate2002200220022002Strip8.3 - 10.8%9.6%9.6%9.6%9.6% Anchored7.9 - 9.5%8.9%8.9%8.9%8.9% All Centers All Centers All Centers All Centers7.9 - 10.8%7.9 - 10.8%7.9 - 10.8%7.9 - 10.8%9.2%9.2%9.2%9.2%2003200320032003Strip8.0 - 9.6%8.8%8.8%8.8%8.8% Anchored7.0 - 9.5%8.7%8.7%8.7%8.7% All Centers All Centers All Centers All Centers7.9 - 9.6%7.9 - 9.6%7.9 - 9.6%7.9 - 9.6%8.7%8.7%8.7%8.7%2004200420042004Strip6.5 - 8.9%7.6%7.6%7.6%7.6% Anchored7.0 - 9.4%7.6%7.6%7.6%7.6% All Centers All Centers All Centers All Centers6.5 - 9.4%6.5 - 9.4%6.5 - 9.4%6.5 - 9.4%7.6%7.6%7.6%7.6%2005200520052005Strip6.4 - 7.8%7.1%7.1%7.1%7.1% Anchored5.9 - 8.6%7.2%7.2%7.2%7.2% All Centers All Centers All Centers All Centers5.9 - 8.6%5.9 - 8.6%5.9 - 8.6%5.9 - 8.6%7.1%7.1%7.1%7.1%2006200620062006Strip5.5 - 10.1%6.9%6.9%6.9%6.9% Anchored5.7 - 7.7%6.7%6.7%6.7%6.7% All Centers All Centers All Centers All Centers5.5 - 10.1%5.5 - 10.1%5.5 - 10.1%5.5 - 10.1%6.8%6.8%6.8%6.8%2007200720072007Strip5.8 - 8.1%6.8%6.8%6.8%6.8% Anchored6.2 - 7.3%6.7%6.7%6.7%6.7% All Centers All Centers All Centers All Centers5.8 - 8.1%5.8 - 8.1%5.8 - 8.1%5.8 - 8.1%6.8%6.8%6.8%6.8%2008200820082008Strip6.5 - 7.0%6.7%6.7%6.7%6.7% Anchored6.5 - 7.6%7.0%7.0%7.0%7.0% All Centers All Centers All Centers All Centers6.5 - 7.6%6.5 - 7.6%6.5 - 7.6%6.5 - 7.6%6.9%6.9%6.9%6.9%
Source: PGP Valuation, Inc. Database
 
 
Retail Newsletter Q1 2009 Portland OR
3CAP rates in Oregon trended downward for several years;however, they stabilized (2006-07) and have trended upwardslightly in the past year due to the credit crisis and increasedinvestment risk in today’s economy. Interviews with salesbrokers familiar with both local and national real estateinvestments indicate that CAP rates and corresponding values within the Pacific NW region are holding strong relativeto other regions. However, this might be a lag effect similarto the one seen in our housing markets.Several factors contribute to the relatively strong commercialreal estate fundamentals in the Pacific NW region: (1)stringent zoning and scarcity of developable commercialsites create a barrier to entry for new development; (2) stablesupply/demand conditions (vacancy levels) insolate existingdevelopment and ensure that market rent levels at minimummatch inflation; (3) very few prime investment properties areavailable for sale, while demand from local, regional andnational investors is still relatively strong in this marketplace;and (4) the relationship between NOI and value (CAP rates)have remained in balance relative to other regions. Even thebest markets with the most ideal fundamentals are primedfor correction in a slumping global economy.
UUUU
NEMPLOYMENTNEMPLOYMENTNEMPLOYMENTNEMPLOYMENT
,,,,
 
 W  WW  W 
HENHENHENHEN
 W  WW  W 
ILLILLILLILL
IIII
TTTT
PPPP
EAK EAK EAK EAK 
????
Unemployment is on its way up as recession breeds joblosses. Oregon has the 6
th
highest unemployment rate in theUS as of December. The national average is at 7.2% andOregon is almost two hundred basis points higher at 9.0%.Some of our neighbors have slightly higher unemployment, with Nevada at 9.1% and California at 9.3%. Expectunemployment to rise with the number of retailers and majoremployers downsizing or declaring bankruptcy. PresidentObama is working towards an economic stimulus program tohelp combat the high unemployment; however, it couldtake several months before any relief is created by thisprogram. Some economist are doubtful of the long-termbenefits than can be provided by any stimulus package.Below is a graph that charts unemployment in Oregon and inthe United States as it has been on the rise in the past year.
 
Unemployment 2008Unemployment 2008Unemployment 2008Unemployment 2008
4%5%6%7%8%9%10%JanuaryAprilJulyOctoberOregonUnited States
 TTTT
HEHEHEHE
BBBB
IGGESTIGGESTIGGESTIGGEST
LLLL
OSERS OFOSERS OFOSERS OFOSERS OF
2008200820082008
Banks are getting a handout from the government for every bad investment decision they made and retailers are beingleft to bare the burden of a sour economy. It’s inevitable forthe strongest retailers to survive and those who were tooaggressive with their business model being forced intobankruptcy court to settle their now troubled assets; causingtens of thousands of jobs to be lost in the mean time. Here isa list of the biggest losers in the retail world.
 WalgreensCircuit CityWilson Leather WalmartLinens 'N ThingsSharper ImageLowesWicksLevitzJC PennyMacysGottschalksBest BuyKB ToysWilson Leather WincoMervynsBlockbusterMcDonaldsShoe PavillionHollywood Video
Losers of 2008Losers of 2008Losers of 2008Losers of 2008
 
Many retailers may have had a slow year, but some shouldcount their blessings as they hold on. Those who haveannounced major bankruptcies or store closings aresummarized in the following table with the number of storeclosings nationally listed on the right.
R
 
etailerRetailerRetailerRetailerStatusStatusStatusStatusStores ClosedStores ClosedStores ClosedStores Closed
 Ann TaylorRe-StructuringRe-StructuringRe-StructuringRe-Structuring117Banana RepublicRe-StructuringRe-StructuringRe-StructuringRe-Structuring25Circuit CityChapter 11Chapter 11Chapter 11Chapter 11721Disney StoresChapter 11Chapter 11Chapter 11Chapter 1198Foot LockerRe-StructuringRe-StructuringRe-StructuringRe-Structuring60Linens 'N ThingsChapter 11Chapter 11Chapter 11Chapter 11371Macy'sRe-StructuringRe-StructuringRe-StructuringRe-Structuring11Mervyn'sChapter 7Chapter 7Chapter 7Chapter 7149Pacific SunwareRe-StructuringRe-StructuringRe-StructuringRe-Structuring154Phillips-Van HeusenRe-StructuringRe-StructuringRe-StructuringRe-Structuring175Sharper ImageChapter 11Chapter 11Chapter 11Chapter 1196StarbucksRe-StructuringRe-StructuringRe-StructuringRe-Structuring600 Wilson's LeatherChapter 11Chapter 11Chapter 11Chapter 11103Zales JewelersRe-StructuringRe-StructuringRe-StructuringRe-Structuring105
 
ForecastingForecastingForecastingForecasting
The Rivers at Oregon City is a proposed 64 acre shoppingcenter to be constructed at the intersection of I-205 and Hwy 213. It will sit adjacent to Home Depot and will be anchoredby a Target and a Regal Cinema. Sub-anchors include BestBuy, Staples, Bed Bath & Beyond, and Dicks Sporting Goods.Total retail building square feet is projected to come to haveover 706,000 SF
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...