Freeway Access Key to Wilsonville’s Promise

Development of Coffee Creek industrial area will require funding for infrastructure

Ken Boyko, Vice President, and Ross Connor, Real Estate Broker, NAI NBS

South of the 205 and nestled against the West Coast’s Interstate 5 jugular vein, the City of Wilsonville has been a strong market for industrial real estate since the late 1980s. Prior to that, Tigard was the furthest south most industrial clients felt they could go to service the Portland region. Once Interstate 205 opened up in the early 1980s, Wilsonville’s star began to rise as a thriving area for business growth and is now home to Xerox, Mentor Graphics, Hollywood Entertainment, Flir, Rite Aid, Owens & Minor and several manufacturing and distribution businesses.

A Little History
As the Silicon Forest began to take root throughout Hillsboro in the mid 1980s, corporate headquarters and distribution companies began to locate in Wilsonville. Hillman Corporation laid the groundwork for a thriving commercial center when it built the Wilsonville Business Center in 1985. Nike put in a 500-thousand-square-foot distribution center next door shortly after, and other companies followed suit.

By the late 1980s, Burns Western Corporation was the primary landowner at the North Wilsonville I-5 interchange. As interest developed, Burns Western sold land to companies like Cisco and Smith’s Home Furnishings (whose property later became the headquarters for Hollywood Entertainment). However, it wasn’t until Xerox bought the color printing and imaging division of Beaverton’s Tektronix Inc. for $925 million, and set up shop in its Wilsonville campus, that the area gained notoriety.

Why Wilsonville?
What’s the appeal? With over three miles of freeway land encompassing the confluence of I-205 and I-5, easy access to these freeways puts distribution companies in an ideal position for transportation options. There are few points in the metropolitan area affording distribution to both sides of the river with relative ease, and Wilsonville is perched at the nexus of multiple route options. Once decision makers realized what a growth mode the city of Portland was seeing, Wilsonville’s additional 10-mile journey was small potatoes. A highly educated labor force, excellent public schools, the close-knit community with a small town environment, and high quality of life serve as additional attractions to the area.

Where We’re At
Recent trends have shown low vacancy for the area, increasing its desirability. In the Fourth Quarter of 2005, NAI Norris, Beggs & Simpson’s Quarterly Report numbers showed the Wilsonville submarket’s vacancy at 7 percent. It had squeezed to 6.9 percent a year later and, by the fourth quarter of 2007, was whittled down to 6.28 percent. These figures represent a total of more than 846,600 square feet of net absorption in the past three years. In late 2007, Weston Investment Company took advantage of these encouraging trends and purchased the Parkway Industrial Building for $11.3 million.

Local companies continue to inject money into their current operations. In early December of 2007, Xerox announced it would drop $24 million into an expansion of the company’s Wilsonville manufacturing operations. The improved facility represents one of the corporation’s most important growth strategies, as the expansion will allow for 10 times the current production of solid ink.

Rates, in turn, have increased, partially due to the submarket’s generous freeway visibility. While owners believe this to be a significant (and profitable) value-add, distribution centers don’t need this kind of exposure. Putting too much of a premium on freeway-visibility properties actually reduces the field of prospects.

Another complicating factor in rate determination is that property owners right now have unrealistic expectations about what their land is worth. This is due to a lack of knowledge about what development actually costs. Land and construction costs are at historical highs, and the “going rate” for leaseable space has not yet caught up to justify this investment for developers.

Looking Ahead
As for the future of this area, there is more land proposed to open up in Wilsonville – all 370 acres of it zoned industrial.

This land, known as the Coffee Creek industrial area, is an undeveloped site west of I-5 and south of Day Road. Although the master plan for the area has been approved by the city of Wilsonville, barriers remain to development. The most prominent question is city infrastructure – such as roads, sewer systems, and water lines – and who will pay for it.

Another major issue is the routing of a connector between Highway 99 and I-5. The cities of Tualatin and Sherwood advocate such a connector, but the city of Wilsonville believes that this will funnel traffic pressure into the north Wilsonville I-5 interchange.

The city of Wilsonville contends that if Coffee Creek developers want to build up the area, they must either assume public utility costs up front or raise funding through the formation of a local improvement district – which would pay off improvements over time through taxation of residents. This process may take two or three years to come to fruition.

If the Portland metro area intends to accomplish further growth in the next 10 years, it is imperative that new development take place. Since most Wilsonville owners are not bound by any specific timeframe, they can sit on their land until they get a price they like. As a result, developers will be faced with taking on a significant amount of risk if they want to purchase and develop land, either out of pocket or through civic funding. Until rental rates rise to justify the cost of new construction, or landowners become more motivated to sell, development will be stymied.