2012 was an extremely productive year in the commercial real estate sector in Central Oregon. Fratzke Commercial Real Estate Advisors, Inc. increased commissions paid to its brokers by 8.6 percent while the market decreased in total sales and closed leases by 15 percent year over year.
The majority of our success was attributed to owner/users purchasing properties and expanding their businesses which in turn increased the number of employees, warehouse and manufacturing space, as well as the ability to allow our clients to own versus lease their facility. This is exactly what we predicted would occur in 2012. We sold dozens of buildings and we also had great activity in the leasing arena as well.
We also experienced great success leasing space in the retail, office medical and industrial sectors to both existing and new businesses that started in Central Oregon.
Looking forward to 2013, we see FIVE main events taking take place in our community:
1. Look for new medical developments to take place for the first time since 2007. We presently work with four separate companies each of whom is working on developing new clinical medical office space in Bend. Demand for clinical medical space is high and there is less than 10,000 square feet of clinical medical space for lease in Bend. Clinical medical lease rates now support new development and the return on investment (ROI) meets investor and lender under-writing criteria.
2. We are running out of inventory in the industrial sector. Almost no new construction took place in the industrial sector in 2012 while companies were quietly purchasing existing inventory. Lease rates began to increase around April 2012, and we have seen industrial lease rates increase 28 percent in the past 14 months. We expect industrial lease rates to continue to increase three to six percent per year over the next 12-24 months for spaces ranging from 1,000 to 5,000 square feet. Larger industrial suites will begin to experience increased lease rates in 2013.
3. Multifamily is HOT! In the past five weeks, our team has sold nine multifamily properties in Madras, Redmond and Bend. We have four multifamily properties pending and we set the market high comparable at $100,000 per door for a four-plex sale in August 2012. The demand by investors to acquire multifamily properties will continue because rental rates are on the rise. The increase in rental rates is due to an extremely limited supply of rental properties available for lease while families continue to migrate to Central Oregon.
The housing market is recovering for those homes priced under $400,000 and there is little to no inventory for sale. Lenders are loaning money to credit worth investors attracted to multifamily investments many of whom are moving funds from the Bond and Securities markets due to a lack of confidence in the financial markets and the inability to control their security based investments.
4. Tenant demand for general office space remains week. Bend currently has over 600,000 square feet of vacant office space of which over 150,000 square feet is older wood framed structures that do not provide enough parking or elevator service needed by tenants. At the same time, leasing needs by office users has changed and if you consider that the average IT room decreased by 400 percent over the past four years due to cloud based computing and outsourced backup service providers, office users have learned to work with less space.
5. Turnover in the retail and restaurant sector has begun. In 2010 and 2011, there were 13 restaurant suites and over 50 retail suites available for lease in Bend. Over the past 12 months, we have seen almost every restaurant space lease up and in some cases, the space was backfilled twice. There is little to no retail space available for lease in Bend. When one restaurant fails, another restaurant backfills the suite immediately.
We expect 2013 to be a strong year for the absorption of multifamily, industrial, retail and medical inventory. At the same time, competition is strong by buyers looking to acquire their own building and this will continue to drive prices up. Demand for Central Oregon commercial real estate continues to increase with little new construction taking place.