This Land Problem Needs a Solution

A lack of ready-to-develop industrial sites is hurting the Portland-area economy

Jack McConnell, Senior Vice President, NAI NBS

When Senate bill 100 went into effect in Oregon in 1974, it required each Oregon town to maintain within its Urban Growth Boundary a 20-year inventory of land for ongoing residential development. Yet the bill was incomplete because it neglected to include a similar requirement for maintenance of an inventory of land for retail, office and industrial development.

Today, in the greater Portland area, there is a significant shortage of ready-to-develop land sites zoned for industrial use, especially along freeway corridors where an increasing number of businesses prefer to locate. Yet demand is still present for local firms to construct their own facilities and other firms to enter the region. In fact, it would be accurate to describe this shortage of land sites as “a clear and present danger” – a situation that will continue to hurt both our economy and our image.

Metro will tell you there is a more-than-adequate supply of industrial property to accommodate expansion and new development. And when considering only the number of acres available, that conclusion may seem accurate. However, such a conclusion is wrong and damaging to our community’s economic health, now and in the future. Numbers alone can be seriously misleading.

A recent study by a Portland engineering firm identified 9,300 buildable acres inside the Portland-metro UGB. But of these 9,300 acres, the great majority represent very small sites; many are just one acre or smaller.

Also, as many as 4,600 of these 9,300 acres (49 percent) are not even available to purchase and use (that is, the owners simply do not want to sell their land). This fact makes it unreasonable to include those acres in the inventory, because doing so implies availability.

Finally, most of those acres identified as buildable have serious development constraints (i.e. wetlands, lack of adequate utilities, sloping topography, poor configuration, environmental contamination, undesirable location, etc.), making them impractical to use and/or too expensive to correct for new construction.

There is only one sector of Portland that has significant industrial lands available for sale and new development. The largest inventory of such lands (approximately 300 acres) is located along Highway 26 in the Beaverton-to-Hillsboro corridor. However, the great majority of firms prefer to locate on or near the major north-south spine of Portland (Interstate 5), or on the east-west I-84 corridor. These routes allow quicker and less costly travel within the Portland area and beyond. Also, they provide the easiest routes to the Port of Portland’s marine terminals on the Willamette and Columbia rivers and the Portland International Airport.

Here’s another way to address the real issue here: If a local or new company wants to purchase, say, a 5- to 10-acre industrial-zoned site along the I-5, I-205 or I-84 freeways in the Portland area (from Wilsonville north to the Columbia River, or east from state Route 217 along I-84 to Troutdale), the list would include no more than six available ready-to-develop land sites. If the need was for a site 10 to 20 acres, the list would include no more than two parcels. And for sites of 20 acres and larger, there would be no list, because no ready-to-develop sites of that size exist today in these corridors.

Why should the citizens of Portland and the state of Oregon be concerned about this? Because a lack of land sites available for local firms looking to expand and others eager to enter our marketplace conveys a lack of commitment to business development and the creation of jobs. Such a realization by companies will drive them out of the area, to seek land sites (and more business-friendly environments). This is true at any time, in good and not-so-good economic times.

Here is what our civic leaders (both in Portland and throughout all Oregon communities) need to do now, to address this very real problem:

Remember that “quality of life” starts with a job, for every Oregonian.

Recognize that current land-use laws within Oregon are broken, slowing the creation of new lands for expansion and new development, which hinders job creation, which hinders quality of life for us all.

Stop talking about the problem. Identify the real problem and take steps to fix it … sooner rather than later.

Create an accurate inventory of “truly usable, truly available, ready to develop” industrial-zoned land sites.

Recognize the need for a sufficient inventory of these sites at all times within each community’s UGB, to meet the always-present demand for land parcels that will surely grow as the economy turns upward.

Commit financial resources to providing urban services (utilities, streets, etc.) to make these land sites “ready to go” for each expanding or new company.

An Update on Commercial Real Estate

The retail sector may be suffering, but some opportunities do exist for small business

JJ Unger and Debi Rosenbaum, Real Estate Brokers, NAI NBS

Struggling retailers have been dominating the news this fall, and big-box retailers from Linens ‘n Things to Circuit City to Mervyns have filed for bankruptcy. Though Black Friday sales were better than expected, industry insiders are forecasting disappointing retail sales this holiday season.

But a glimmer of hope in this recession is an opportunity for small businesses that have funding and good business plans to gain space not previously available to them.

Retailers today have a lot to be worried about. November’s retail spending was the weakest in more than three decades, according to the International Council of Shopping Centers. Consumers are spending more carefully than in the past, and though consumer confidence has recovered a bit from its steep drop in October, the mood remains tenuous. So many retailers are drastically cutting prices in order to move product, but their profits may suffer.

Third quarter retail vacancy in the Portland metropolitan area was 6.0 percent, and that number is expected to rise in coming months, though it may take time for the numbers to reflect what landlords and tenants are experiencing. Some businesses are leaving space that sits vacant for months, while others are downsizing, potentially subleasing space they are not using.

In these difficult times, certain retailers are getting along better than others. In general, consumers are looking to get more bang for their buck. Grocery stores are doing well as Americans eat out less and opt for prepared foods at the grocery store over restaurants. Thus many restaurants are experiencing tough times, with the exception of fast food. Stores focused on value, like discount stores, thrift stores, and pawn shops, are in a good position, but today even stores like Target and Costco are seeing diminished profits.

There is a possible bright spot: small and local businesses may be in a position to benefit from the stagnant market. Oregon is said to be an incubator of small business, and aside from the state’s many successful smaller homegrown enterprises, major companies like Nike and Columbia Sportswear have prospered in the state and gone national and international.

Landlords try to attract tenants with strong credit, and in the past, that meant established big-box and chain retailers. Now, with many of those retailers having financial problems, landlords may be willing to give small businesses of all types a chance.

For entrepreneurs who have financing, a fresh idea and a strong business plan, an attractive lease could be in the cards. Landlords don’t want to have retail space sitting empty, so rates and terms may be negotiable, with some landlords willing to give concessions like free rent or more money for tenant improvements. Landlords are also getting creative in marketing space, especially during the holidays; for instance, some are displaying local art in vacant store windows to fill the space and attract potential tenants.

In addition, existing small business tenants may have an opportunity to upgrade into a higher quality space than they could previously afford. With lower rates and concessions, those in Class B space may now be able to move up to Class A.

Rather than signing a long-term lease on a new business that hasn’t been tested, some small business owners are opting to enter the market through subleasing. They can get a smaller space and test their concept for a year or two, then relocate, expand or sign a longer lease if the enterprise proves successful.

Another opportunity for certain small businesses to gain space is through a trade show atmosphere. For instance, HomeShow America recently leased nearly 28,000 square feet in Vancouver for a new location. A home-related vendor can set up a display at this location for a fraction of the price of a space of their own. The home show is open daily, so it’s convenient for consumers to access many businesses in one location and it can provide vendors with exposure.

Though much of the focus in the news today is on struggling businesses, landlords are also feeling the economic crunch. General Growth Properties, which owns more than 200 malls around the nation, including the Portland area’s Pioneer Place and Clackamas Town Center, has considered filing for Chapter 11 bankruptcy. So though some landlords are providing incentives like free rent, others may be financially unable to do so.

As is the trend throughout commercial real estate, many retailers of all types and sizes are taking a wait-and-see approach to expanding or opening new enterprises. Though the much-anticipated presidential election is over, the impact of the new administration’s policies and actions on retail will not have an immediate effect, so for many the wait continues.

No one knows quite when this recession, which began in December 2007, will end. While hoping for a quick turnaround, experts are predicting that retail will see tough times through 2009, and potentially into 2010. In the meantime, retailers are doing everything they can to attract consumers and maintain profits.