The past 12 months have been a period of rapid growth for the real estate market in Bend and Central Oregon. According to one broker, the next 12 will come down to how well the region can provide the services necessary to accommodate that growth.
“I know a lot of communities that would love to have to deal with the problems of too much growth,” said Brian Fratzke, principal broker at Fratzke Commercial Real Estate. “We just have to manage that growth.”
According to the U.S. Census Bureau, 5,739 new residents moved to Deschutes County from a different state from 2014 to 2015. An additional 4,078 moved to Deschutes County from other Oregon counties during that same period. Those two groups accounted for around 6 percent of the county’s population of 166,622 in 2015. The net population of Deschutes County rose by more than 3,000 during that period.
The combination of new arrivals and a shortage of homes for sale in Bend forced home prices up in 2016. The median home price in Bend was $374,000 in November, up nearly 18 percent from the previous November, according to the Beacon Report.
Lynnea Miller, principal broker at Bend Premier Real Estate, said the rise is in response to a lack of inventory, particularly on the lower end of the market.
“Anything under $200,000 gets snapped up immediately,” Miller said.
The high point came in September, when the median home price in the city reached $385,000, a high not seen since before the Great Recession. However, Miller said those prices are still low relative to Seattle and San Francisco, two key “feeder markets” for Central Oregon. In November, the median home prices in Seattle and San Francisco were $612,400 and $1,132,300, respectively, according to Zillow.
“As long as we still have buyers who are willing to buy at that price point, I think we’ll see more luxury development,” Miller said of the market in Bend.
While home prices in Bend and Central Oregon will almost certainly continue to rise as long as the national economy stays strong, there is reason to believe they might grow less rapidly in 2017. Tim Duy, professor of economics at University of Oregon and senior director of the Oregon Economic Forum, wrote in an email that he expects the Federal Reserve to raise rates in 2017, which would translate to higher mortgage rates.
“That said, some of the impact of higher rates on housing activity will be offset by what I expect will be faster wage growth in 2017,” Duy wrote.
Miller added that southeast Bend has seen a lot of new development in the past couple of years, and is well-positioned to continue to grow in 2017, particularly once the city completes its sewer work for that area.
Additionally, she said demand for single-family homes within walking distance of downtown Bend has stayed strong, even as those properties get increasingly scarce. However, as home prices continue to rise, new Central Oregon residents are looking toward outlying areas like Redmond and Prineville for a bargain.
“Even La Pine has had a resurgence,” Miller said.
According to the Beacon Report, the median home price in Redmond in November was $270,000, a 15 percent increase over the prior November.
The commercial real estate world has evolved as Bend has grown as well. With most of Central Oregon’s industries growing, Fratzke said one of the prevailing trends during 2016 was companies and investors snapping up the few remaining affordable retail and industrial spaces in Bend.
During third quarter 2016, 5.1 percent of the office space in Bend was vacant, according to Compass Commercial Real Estate Services’ quarterly report. Additionally, 4.5 percent of retail space in the city limits was available.
“It’s a seller’s market, and it’s a landlord’s market,” Fratzke said.
While a number of nonresidential projects have broken ground in Bend, Fratzke said most of them are government buildings or hotels. The only large-scale office building going up in Bend is Crane Shed Commons, a 50,000-square-foot building containing a mix of flexible office and creative space. The building, on SW Industrial Way, is slated to be completed in 2017. Howard Friedman, partner and principal broker at Compass Commercial, said the majority of space in the building is already under lease, and added that the building is leasing at around $2.25 per foot.
“I don’t see a lot of new development, which is going to drive prices up even more,” Friedman said.
Consequently, Fratzke said he’s heard from several Bend-based businesses that are looking to move to Redmond and beyond. While he said he hasn’t heard from many businesses that are leaving the region entirely, he said it’s incumbent on the city to provide supplementary services, from water and power to workforce housing, in 2017.
On the retail side, Friedman said he expects tenants in several high-profile buildings in town, including the former home of McGrath’s Fish House in Bend River Promenade, which closed Dec. 23 after the owner fell behind on rent. Friedman said Compass Commercial was nearing a deal with a tenant that would occupy a majority of space in the former Ray’s Food Place building on SW Century Drive, which has sat empty since the grocery store closed in 2013. Friedman would not disclose the name of the tenant.
Friedman pointed to the segment of NE Greenwood Avenue between NE First Street and NE Third Street as an area to watch in 2017. He said that part of Bend, which has been targeted by the city for redevelopment, could be a good fit for dense, mixed-use development.
“I think there might be a few more projects on the drawing board,” Friedman said.
Fratzke added that the shortage of industrial space in Bend will likely remain a factor in 2017. As Central Oregon’s manufacturing sector has shaken off the effects of the recession, the amount of available warehouse space in Bend decreased by around 90 percent between 2013 and 2016.
Duy wrote that he anticipates more demand for manufacturing space in Central Oregon in 2017, as the economy recovers from a brief national slowdown caused by a decline in the oil industry. But Fratzke added that lease rates for industrial space are still too low to support new warehouses being built on speculation.
“But in 2017, we’re going to see that gap continue to narrow,” Fratzke said.
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