Soon after the pandemic lockdowns closed restaurants and sent workers to hunker down at home a year ago, real estate broker Dan Kemp struggled to lease out commercial space to clients in Bend.
Now that the economy is easing out of the closures, those same buildings are filling up again, and Kemp is leasing them out at a fever pitch.
“We have ultra-low supply (in the industrial market) and ultra-high demand,” said Kemp, president of Compass Commercial real estate.
The drive for commercial real estate this spring comes on the heels of a torrid market for housing. The housing supply is at an all-time low in Bend, and the median price for single-family homes breaks records every month. Now commercial real estate is following suit.
The sudden demand for industrial space has caused prices to spike, said Kemp. Sale prices for industrial buildings are $170 to $190 per square foot in Bend, compared to around $140 per square foot pre-pandemic.
Brian Fratzke, the principal at Fratzke Commercial Real Estate, summed up the commercial real estate market in one word: “insane.”
“Right now there are no industrial buildings for lease with suites under 1,500 rentable square feet,” said Fratzke. “There is little to no restaurant space for lease, and there is almost zero small retail for lease on Century Drive, Galveston, Newport, Bond, or Wall.”
The tightening up of commercial space coincides with new businesses arriving in Central Oregon, said Kemp.
California-based drone manufacturer Velonsi and deodorant manufacturer Smarty Pits, both based in California, are examples of companies that are putting down roots in Bend. Clackamas-based Mike’s Pizza recently purchased a 50-acre parcel in Redmond, although the deal is not yet closed.
The light manufacturing industry has reduced warehouse space to just 2.2% in Bend and 1.1% in Redmond, according to data compiled by Compass Commercial. The rate drop in Redmond was particularly steep, falling from 4.2% in the fourth quarter of 2020.
“I usually have two to five deals in the pipeline at any given time,” said Kemp. “But a couple of weeks ago I had 18 properties under contract for sale, several of which have closed in the last few weeks.”
“It shows the demand and money flowing from California, Seattle, Portland; a lot of money is coming into the (Bend) market,” Kemp adds.
Roger Lee said, chief executive of Economic Development for Central Oregon, a nonprofit group, agrees that the sudden arrival of newcomers from other areas has been a catalyst for growth.
“We’ve benefited from an added influx of people and businesses during the pandemic, and we’ve seen the demand remain strong, particularly for industrial/light industrial space,” said Lee.
Katy Brooks, CEO of the Bend Chamber of Commerce, said she has also noticed an uptick in businesses entering Central Oregon and that space for them to occupy is shrinking.
“There’s been a lot of activity from out-of-town business moving here,” said Brooks. “A lot of them are either setting up small satellites or are working with partially remote labor.”
The demand for retail spaces, by comparison, has been tepid, Compass reports that the vacancy rate is 5.9%, compared to 5.8% in the fourth quarter of 2020. One of the largest vacancies occurred when Xcel Fitness departed its location on Reed Lane Plaza.
Indeed, driving around Bend, there is no shortage of “for lease” and “for sale” signboards, but Fratzke chalks this up to the constant turnover that is a feature in Bend, even in pre-pandemic times.
“Some businesses don’t make it. Some close due to retirement, some increase or decrease in size,” said Fratzke. “Many of the signs you see are for larger office space, land for sale or medical or larger industrial for lease.”
Among the sectors that fall under the commercial market umbrella, Kemp says the hardest hit were hospitality, office and retail; although hotels have made a strong comeback and the industry is starting to see a boost in retail and office.
“It was pencils down on everything from a purchasing standpoint,” said Kemp. “The lending got tough during COVID on hospitality because all the banks were really nervous on what COVID would mean for the hospitality market in the long term.”
Office space was also hard hit during the pandemic, and prices have remained flat . But Kemp said that office rentals have rebound sharply over the past eight weeks. The vacancy rate is currently 6.6% compared to 7.4% in the fourth quarter of 2020, according to Compass Commercial.
If history is any guide, the absorption of office space will continue to trend upwards.
“Office space hasn’t gone up as much (as warehouse space) because of the uncertainty,” said Kemp. “But overall though it’s a rising tide.”