By Anne Hecht
Portland maintains its allure as a desirably cool retail destination, exemplified by ongoing leasing and sales activity, constricting vacancy and steady rent growth. Retail has been a critical contributor to the Portland Metro’s fast-expanding economy, especially over the past several years that have seen strong real estate growth, expansion and in-migration from a mixed industry of companies, such as tech, creative and professional services, outdoor and sports apparel, and more. Distinctly composed of proud homegrown and eclectic retailers, boutique and specialty stores harmonized with more mainstream national and international brands, this unique and diverse sector continues to help fuel Portland’s revival, while catering to and servicing its business and population growth.
At its core, this region is also highly regarded as a popular destination for foodies as restaurants and eateries have long-contributed to its primary retail composition and prestige—in fact several award-winning chefs have come from all over the globe just to make their mark here in Portland. With 116 breweries within a one-hour drive, the region’s prowess as a beer mecca is also well known around the world. As such, the region’s thirst of beer continues to overflow with the addition or expansion of a variety of established restaurant operators expanding with new concepts and local breweries. Great Notion Brewery will soon be opening its new production brewery, restaurant, and taproom in NW Portland, its second location in the market. The goal of its new 20,000 square foot facility is increasing production and meeting demand in the Portland beer market. Additionally, Breakside Brewery opened its third regional location in early 2017 in a multi-story development in the Slabtown district of NW Portland on the Conway site. Vagabond Brewery also continues its Oregon expansion, as the brewer made its entry into Portland with a 4,900 square foot lease at The Dairy Building in Southeast Portland.
In looking at the past year, despite experiencing some fluctuation during 2017 with a strong finish overall, retail vacancy in Portland closed 2017 at just 3.8%, largely attributed to well over one half million square feet of positive net absorption (occupancy growth) observed in the fourth quarter, as indicated by CoStar. Having flirted near the 6.0% mark following the Great Recession, vacancy stands at its lowest point in the current expansion cycle. During 2017, the largest leases stemmed from Coastal Farm & Ranch, a Northwest retailer offering farm and ranch goods, gear and equipment, which renewed its 87,000 sf store in East Portland; specialty craft retailer Hobby Lobby leased 45,100 sf of space as it seized the market opportunity to backfill the former Sports Authority anchor space at Clackamas Promenade; and Target leased 30,100 sf for its smaller-formatted store concept as it will replace the former AMF Pro 300 Lanes bowling alley this summer. Health and fitness also continues as a trending segment of Portland’s retail landscape, with 2017 transactions led by Bfit and Planet Fitness. New joint openings from off-priced stores Sierra Trading Post and Marshalls—both operated by TJX Companies, Inc.— at the Tanasbourne Town Center in Hillsboro were also significant occupancies last year, with each filling over 21,000 sf. Asian grocery has also been a rising segment, as H Mart leased 21,124 sf as it replaces the former Zupan grocery in the Belmont Dairy building. Oriental Pearl is also expected to open in a larger 45,000-sf grocery store in East Portland likely before summer.
Tenant demand has also kept great pace with a steady and balanced dose of new supply. In 2017, only 368,000 sf of new product completed construction, with nearly all of it already leased up. A recent newsy delivery was Goat Blocks, which comprises four city blocks in Portand’s trendy central eastside with eight distinctly different buildings featuring a 26,000-sf Market of Choice grocery, a 40,000-sf Orchard Supply Hardware, plus retail shops, restaurants, micro-retail space, and 347 apartment units. The project has been deemed ‘Portland’s first urban dual-anchored mixed-use project’. The overwhelming majority of new retail supply in Portland over the past five years has already been absorbed as tenants continue to flock to the new, often higher quality space. Additionally, of the remaining 960,000 sf currently in development and scheduled to deliver in the next year or so, just over half is currently pre-leased. Developers such as Gramor and Centercal are forging forward in the Portland and Vancouver markets with major retail projects. Gramor is bringing the Vancouver Waterfront to life with a mixed use of retail, multi-family, office, hospitality and an investment in the community with parks and open spaces that capitalize on the riverfront scene. Centercal has planned a redevelopment of an outdated center located in the Kruse Way area where the developer will build the new retail center around a grocery anchor. Meanwhile, continued redevelopment projects in the urban areas (Close-in SE, NE and NW) will push the urban core out to areas that were once defunct but now being energized by the activity and investment in the Portland mantra of building density to preserve the Portland sustainable way of life.
Another key focal area in retail, particularly nationally, has been department store closures, and Portland has not been immune to this trend either. The Macy’s closure in the heart of downtown at the 16-story Meier & Frank Building has had a significant impact in our market. However, the sentiment around the vacancy has quickly turned positive as this five-floor space is currently being revamped by KBS, in conjunction with Sterling Bay, into modern, high-quality street level retail, with a portion of the space also being transformed into creative office use.
Retail sales activity in 2017 remained solid in Portland, according to data from Real Capital Analytics (RCA). In 2017, the market saw 69 sales totaling volume of $631 million, nearly equivalent to the $642 million but in 52 transactions in 2016. Comparably, during 2013 to 2015, investment activity had surpassed $700 million each year. Since 2013, the average cap rate has fallen from the mid 7.0% range to the low 6.0% range according to RCA. One of the most notable 2017 sales was Portland’s Jantzen Beach Center, a 732,542-sf retail center that sold in July for $131.75 million at a 5.40% cap. Another key sale was ScanlanKemperBard (SKB), a Portland-based real estate merchant bank, in a joint venture with Artemis Real Estate Partners, acquiring a ground floor retail assemblage in the famous Pearl District consisting of 86,445-sf of prime retail condominium units in nine separate but adjoining blocks that were 94% leased.
With the backdrop of strong economic growth and exciting new transformation happening around the region, Portland still maintains its roots as a quirky, unique and highly creative marketplace, just some of the many inspired characterizations why countless businesses and residents are drawn to it—we would be remiss to not also mention its incredible and beautiful natural outdoor environment as another main attraction. Portland has also always been a fascinating place—so much so they even modeled a long-running, award-winning show after it simply titled, Portlandia. For all of these reasons and more, coupled with its diverse and popular make up of local, national and worldly retail, Cushman & Wakefield has declared Portland as a definitive ‘Cool Street’. We encourage you to learn more about this amazing market by checking out our brand new Cool Streets video, which stars many local experts, leaders, developers, and of course the region itself.
Please also note our next Cool Streets 2.0 Report is expected to launch this summer, so stay plugged in for that.
Anne Hecht joined Cushman & Wakefield in 2006, continuing her career as a retail specialist. She is currently Director, Retail Brokerage Services based in the Portland, OR office.