For the last 21 years, Bend Brewing Co. has brewed an award-winning lineup of beer from a cramped, L-shaped production facility on the second floor of its NW Brooks Street brewpub.

While the brewery was initially intended just to support the pub, Patrick “Packy” Deenihan, who bought the brewery with his wife, Leslie Deenihan, in January, said one of his goals was to expand distribution further into the Portland and Eugene markets. To do so, he said Bend’s second-oldest brewery will likely have to move out of its 400-square-foot facility and into a larger industrial space.

“If all things go as planned, we’d run out of beer with our facility,” Deenihan said. “And that’s why we’ve been looking at space so aggressively.”

So far, however, finding a suitable industrial space has been a challenge for Bend Brewing Co. as well as other small manufacturers in Central Oregon. Since 2013, the amount of industrial space available for lease in Bend has dropped by more than 90 percent, and the remaining space has skyrocketed in price.

“It is a little concerning, from my perspective, when I still see people always looking for spaces with no place to go,” said Brian Fratzke, principal broker at Fratzke Commercial Real Estate in Bend.

During the Great Recession and initial recovery, there was plenty of industrial space available for lease in Bend. Manufacturing was one of Central Oregon’s hardest-hit sectors, due in part to the region’s reliance on manufacturing wood products for buildings. According to the Oregon Employment Department, 9,036 people held manufacturing jobs in Central Oregon’s three counties in 2006. By 2010, that total was 5,086, a 44 percent decline.

As companies downsized and closed their operations, the market for industrial buildings suffered accordingly in Bend and Redmond. As late as 2013, when other sectors of the region’s economy had begun to recover, around 2.1 million square feet of industrial space were still available for lease in Bend alone, Fratzke said.

While wood-product manufacturing has continued to lag, other sectors like beer, food-product and primary-metal manufacturing have rebounded, according to Damon Runberg, regional economist for the Oregon Employment Department. As a result, companies that can’t afford to purchase land and build their own facilities have found their options limited and increasingly expensive.

“Everyone’s worried about the housing for employees,” Fratzke said. “But where are they going to run their business?”

Earlier in November, Loop­Net, an online database that tracks commercial real estate, showed 171,000 square feet available in Bend, a 92 percent decline since 2013. Of that, 83,000 square feet are in a building on Brinson Lane that was formerly occupied by Advanced Energy Industries Inc., the Colorado-based solar company that purchased PV Powered in 2010. Pat Kesgard, president of Compass Commercial Real Estate Services, said Advanced Energy vacated the building in April after eliminating its solar inverter business in Bend. He added that the building’s floor plan makes it difficult to break up for multiple lessees, creating a challenge for smaller manufacturers.

“We don’t have too many users who want 83,000 square feet,” Fratzke said.

As the supply has dwindled, prices have risen dramatically. Of the 14 spaces in Bend listed as available on LoopNet, the Advanced Energy space is the only one available for less than $0.50 per square foot per month. Just one other is available for less than $0.60 per square foot. Howard Friedman, principal broker with Compass Commercial Real Estate Services, in Bend, said prices could continue to tick up, and companies looking to re-up at their current lease rates could be in for a rude awakening.

“Landlords are a little more in control of their destinies,” Friedman said.

At least for the time being, there isn’t much relief coming in Bend. Fratzke said the rising cost of land in Bend makes developers reluctant to build unless they feel confident they can charge high enough lease rates to make it worth their while. Even with lease rates climbing, they haven’t reached the point where construction pencils out for developers.

“In order for us to get the return on investment that we want, we have to charge about a dollar to a dollar and a half per foot,” Fratzke said.

Redmond options

Central Oregon companies seeking a bargain have historically looked north to Redmond, which has a robust manufacturing sector and a reputation for working with businesses. While lease rates in Redmond lagged behind Bend’s, Jon Stark, Redmond-area manager for Economic Development for Central Oregon, said rates have now more than doubled since the recession. During the depths of the recession, Stark said industrial space was available for $0.15 to $0.25 per square foot monthly. Today, rates are hovering around $0.50, and are still climbing.

“Frankly, we haven’t seen numbers like that since 2007,” Stark said.

Redmond, unlike Bend, has plenty of empty land zoned for industrial use within the city limits. Though some of the city’s large manufacturers, including PCC Schlosser and Medline Renewal, have bought or built new facilities in recent years, Stark said costs have largely kept developers from building speculatively.

However, he added that a plot of land on NE Jackpine Court was purchased by Spirit Lake Investment LLC, and that he expects a 20,000-square-foot industrial building to be available by next summer.

Relief is coming in Bend as well, though it is a ways off. The most obvious target for large industrial development is Juniper Ridge, a 1,500-acre plot of land to the northeast of Cooley Road. However, Carolyn Eagan, economic development director for the city of Bend, said the area lacks access to the city’s sewer system. Eagan said plans to bring sewer capacity to the area likely will not be complete until the early 2020s.

Chuck Arnold, Redmond’s economic development urban renewal project coordinator, added that Redmond has plans to annex additional land in 2017, and is working with Deschutes County and the state of Oregon to prepare lands for developers once they’re ready to build in the city.

“This is something we planned for and prepared for,” Arnold said.

For Bend Brewing Co.’s Deenihan, these plans could be too little, too late. He said the brewery already cuts back on distribution during the summer, when the brewpub is busiest, due to production limits. With Bend Brewing Co. planning to open a beer garden next to its existing pub, business is expected to increase.

While Deenihan said he was reluctant to move production to Redmond, he said there was a possibility that Bend Brewing Co. could move production if it can’t find space that works in its namesake city.

“It would be nice to stay local in Bend,” Deenihan said

— Reporter: 541-617-7818,