(Graph | Courtesy of Windermere/Central Oregon Real Estate)
The question on the table is, “What is the 2021 outlook for commercial real estate in Central Oregon?” The answer can be found by understanding the factors affecting local small business. Just like the story Alice in Wonderland, when Alice went down the rabbit hole, it is a tale of two parallel worlds. Some businesses are prospering and some are considering their demise. Small business is the economic engine of Central Oregon and the prospects for commercial property rise and fall on the fortunes of small business.
Small business, and by association, commercial real estate professionals, approach 2021 with a mixture of caution and hope. Here are some predictions gathered from a variety of sources that help us understand the path ahead.
- While the COVID-19 virus will stay with us, effective treatments and vaccines will be widely available to large populations by mid-2021, facilitating a transition to the post-pandemic economy. Hopefully the timing will be favorable for impacted local businesses. Damon Runberg, Oregon Employment Department Economist says some businesses have taken the brunt of the pandemic. “Leisure and hospitality sector, small businesses, women and low wage workers have been hardest hit.” Runberg also says, “The recovery from the pandemic has been far faster and more robust than initially estimated. Here in Deschutes County in just seven months over 53 percent of all jobs lost due to the pandemic have been recovered.”
- The global economy will enter 2021 at a subdued growth rate and accelerate to a brisk pace in the second half. Companies that are considering downsizing their building footprint might decide to exit their current leases, creating an increase in office vacancies. Some restaurants, event venues and tourism-related businesses might decide to exit the local market creating commercial space for new businesses. Those with outdoor seating or space for a tent are finding strong support from locals. Greg Munn, Deschutes County Treasurer reports, “The Transient Room Tax revenue is well above last year and seems to represent people’s response to being locked up with very few travel opportunities. Central Oregon and the Coast appear to be the logical vacation option for folks in the valley. It is the same result with the gas tax.”
- In 2021, the focus of investors and policymakers will shift from COVID-19 to the environment and housing shortages. Expect incentives for environmentally conscious commercial buildings but at the same time, expect increased local development costs as cities try to find revenue to address housing shortages and subsidized affordable housing projects.
- Monetary policies will remain steady with low interest rates for the next two years. That will continue to encourage local new development but at the same time, bank lending policy will become more restrictive due to risk in the marketplace from the impact on business from COVID. Expect prelease requirements for financing spec buildings.
- Commodity and consumer goods prices will accelerate in 2021. Expect continued upward price pressure on building materials having an impact on lease rates for new commercial buildings.
- The shortage of industrial lots could limit new businesses moving to Central Oregon and the growth of local business. A recent ranking of the Nation’s largest cities shows that Portland has gone from one of the most desirable locations in the country just four years ago to 66th of an 80-city ranking. The lack of available space for new business could be a roadblock to those who want to move from Portland to Central Oregon.
- Americans are saving a greater percentage of their money than ever before, according to new data and that could indicate a buying spree for consumer goods later in the year. Unfortunately, there are many who are living at the poverty level and taking advantage of rent deferments. The National Association of Realtors predicts that rental rates will stagnate in densely populated areas but expect strong demand for rentals in Central Oregon from an influx of new residents. Investors are liquidating their multifamily properties in metro areas and looking to buy in Central Oregon.
- Small business likely will benefit from additional COVID stimulus in early 2021 but larger business could feel the impact later this year of unfavorable tax legislation at the National level and in Oregon. Local Economic Development groups are actively opposing State legislation that could diminish the benefits of local Enterprise Zones.
It is safe to say that all businesses in Central Oregon have been affected by events of last year but not all the same. Some may not recover, while others have prospered. Just as Alice discovered two parallel worlds, so have small businesses in Central Oregon. Runberg says, “As with the pandemic itself, the recovery has not been and will not create equal opportunity. A fully recovered economy, whether that is late 2021 or into 2022, will not look like the economy we had before the onset of the pandemic.” Most commercial realtors agree that businesses and investors will find opportunity in Central Oregon but some opportunities will come on the heels of those who do not recover.
