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Local banking pros share insights on Central Oregon’s economy and more.
Cory Allen
Senior Vice President | Central Oregon Team Leader
Washington Trust Bank
watrust.com
What is your 2024 outlook on Central Oregon’s commercial real estate market?
I would say cautiously optimistic. Commercial vacancy rates across the region are still considered very low in most key sectors, including retail and industrial where vacancy rates in Bend have remained in the 2% and 3% range.
Nationwide, office space has been a concern — especially in major metro markets where large office buildings are facing significant vacancy rates and a reduction in value. Bend and surrounding areas have fared much better due to consistent demand. Because of this, our vacancy rate remains under half of the national average.
With respect to values, commercial real estate has remained high as cap rates in Central Oregon have been slow to increase with higher financing costs. This demonstrates the demand for real estate in Central Oregon where investors continue to deploy their liquidity. Investors and developers seem optimistic about the long-term appreciation of real estate values and future rent costs. As such, they are willing to accept a lower cap rate or put more equity into the project based on the perceived risk or lack thereof. There is no current indication of this slowing, and we expect this to continue throughout the year.
Multifamily inventory is an area we continue to monitor. This sector saw the largest increase in vacancy in 2023 where it now sits at nearly 10%. In Bend, multifamily inventory has doubled over the last decade. There are several significantly large projects in the works that are expected to increase inventory by another 10% in the coming year. Rental rates and vacancies will be watched closely to see how the market absorbs this inventory and the impact it will have on the space.
In comparison to other regions, how is Central Oregon faring economically?
In Central Oregon, due to our region’s draws — high quality of life, abundance of outdoor recreation, vibrant local business community — we have done really well compared to many other markets. Our region is a magnet for tourism, and the strong presence of remote workers has strengthened our local economy. You can visit downtown Bend on just about any night and restaurants are busy. There seems to be an ever-present “buzz” of activity. This positive atmosphere and related community support have helped insulate the local economy from many challenges other markets are facing.
What are the key market indicators you’re watching in the months ahead?
Inflation reports are top of mind. While we’ve been trending in the right direction toward the Federal Reserve’s target 2% range, March marked the second consecutive month of an increase and inflation is not cooling at the rate wanted or expected. Inflation is pivotal in determining if and when the Fed lowers interest rates, so it carries a lot of weight. At the last Federal Open Market Committee meeting, Chairman Powell indicated three rate cuts this year (a total of 0.75%). With corporate earnings, unemployment, and jobs reports continuing to be positive and the recent increase in inflation, all eyes will be on the next FOMC meeting in May. There is a strong likelihood that they may adjust their outlook for reductions.
What is your view on the current interest rate environment?
A strong consumer reaction accompanied the initial raises. Discussions were then focused on how big of a recession was expected, but this was more of an emotional response. All things considered, the economy has absorbed and handled the higher rates relatively well. The outcome has so far mostly aligned with the Fed’s goal of creating a “soft landing.” I do think rates will continue to come back down from where they are now (hovering around 7%), but not to where they were. The rate environment was artificially low for such a long period of time. Looking at the macro picture, beyond the past three to four years, 3% is just not typical and should not be a target range for borrowers.
Additional Comments?
Our housing inventory levels have been and remain very low. This has kept new construction moving forward and protected Central Oregon home values. A large part of this is due to the higher interest rate environment which has discouraged movement in the market. It’s understandable: if you were lucky enough to lock in a 3% mortgage rate, it makes sense that homeowners who don’t have to sell would rather hold on to their property and rate. Currently, most of the residential inventory coming online is new construction.
Key economic indicators in the region continue to be favorable. The technology industry remains strong for software and hardware, the aviation and aerospace industry is another bright spot, and the outdoor/recreation industry continues to flourish and grow. The fundamental qualities that make Central Oregon an attractive place to live and do business remain in place, and I feel optimistic about prospects for the region and general
business environment.
Wendy McGrane
Vice President | Business Banking Team Manager
US Bank
usbank.com
What is your 2024 outlook on Central Oregon’s commercial real estate market?
Overall, we have an optimistic outlook on the commercial real estate market through the remainder of this year. We are seeing significant activity in the OOCRE space, where businesses are looking to acquire or finance real estate that they intend to occupy. That includes existing buildings and new construction, which shows us that the market is healthy.
In comparison to other regions, how is Central Oregon faring economically?
Unsurprisingly, everything hinges around the area’s rapid population growth. As remote work becomes more accessible, and people are leaving metro areas in droves for a seemingly quieter and slower lifestyle, Central Oregon remains a suitable destination. However, more people means more than just traffic. The rising cost of living and cost of housing to support a local workforce has made it more challenging to attract new businesses and industry to the area. It’s not uncommon to hear our business clients share their challenges when it comes to attracting and retaining employees, and because of it having to manage their businesses with higher operating costs.
Fortunately, there are local business organizations, including EDCO and the Bend Chamber, that are working tirelessly to remove or lessen these obstacles in an effort to encourage business growth. Central Oregon also boasts a collaborative business environment, where businesses support and connect with each other. Together, those factors give Central Oregon a positive economic outlook.
What are the key market indicators you’re watching in the months ahead?
The benchmarks that were previously strong short-term economic indicators aren’t as bulletproof as they used to be. However, there are a few metrics that our team looks to when attempting to map out the future. Consumer debt often directly impacts businesses that sell discretionary goods and services, and vacancy and absorption rates can tell you how healthy the CRE market is. Also, our team pays close attention to which businesses are expanding or moving to Central Oregon. The Oregon Employment Department does a good job highlighting this, as well as employment growth.
What is your view on the current interest rate environment?
It’s the bank’s view that while it seems that the next move for Fed monetary policy is a cut, the question is when. Earlier in the year it seemed that they would begin to cut rates in June. But with the recent pricing strength, it may be pushed out later in the year.
With higher interest rates, we’re having different conversations with businesses, who have been more cautious about financing capital expenditures. Businesses are being more strategic about leveraging their cash to maximize earnings and efficiencies while minimizing fees. Everyone is adapting to this higher-rate environment, and we’re expecting that many businesses will choose to move forward with financing their capital expenditures as they accept this new normal.
Additional Comments?
Regardless of the economic environment, our team at U.S. Bank knows that it is critical to have meaningful conversations with our business customers on a consistent basis to ensure that we are supporting their short- and long-term goals. We’ve recently expanded our team of local business bankers in an effort to deepen relationships with our existing clients, as well as establish new relationships with businesses that we don’t yet work with.
Even though the downtown Bend branch is currently under construction for a welcomed upgrade, which will be completed later this summer, we’re still open for business. Our business bankers are accessible to meet wherever and whenever is most convenient for our business clients.
Cameronne Mosher
Market President
First Interstate Bank
firstinterstatebank.com
What is your 2024 outlook on Central Oregon’s commercial real estate market?
The outlook for Central Oregon’s commercial real estate market in 2024 will be influenced by rather unpredictable economic conditions nationally, continued local population growth, industry trends, and government policies. It’s a little bit of a mixed bag given that we’ve seen some softening with negative absorption over the last year or so, leasing has slowed modestly, and interest rates are not coming down as anticipated. That said, our population continues to grow, vacancy rates remain low in comparison to national averages, and Bend in particular — along with the greater Central Oregon geographic area —
remains an economic hot spot. Additionally, we are seeing continued new construction in Central Oregon indicating confidence in the market generally. I believe we have reasons to remain cautiously optimistic for the remainder
of 2024.
In comparison to other regions, how is Central Oregon faring economically?
Central Oregon’s economy remains vibrant and in the last decade has seen extraordinarily sustained GDP, job and population growth. Central Oregon provides entrepreneurial support and incentives with both Redmond and Bend ranking highly as “best cities” to start a business. The Central Oregon lifestyle with its communities offering a small-town feel, big amenities and breathtaking scenery is hard to beat. What needs to remain a focal point for our local and regional leaders, however, is the relatively high cost of living in Central Oregon compared to other regions. Creating affordable living for workers is a complex issue that requires collaboration between government, businesses, and community organizations.
What are the key market indicators you’re watching in the months ahead?
Opinions remain varied between the eventual realization of a full-blown recession or the preferred “soft landing” that we keep hearing about in the news. Of concern is that although economic data looks good on the surface, could it really be the calm before the storm? Inflation is proving stubborn, interest rates are not coming down as analysts had predicted, and we are beginning to see weakness in consumer spending. Key factors I’m tuning into are household debt levels and delinquency rates. U.S. household debt is at an all-time high and increased delinquency rates are being reported across all age groups. Although there are many factors that need to be weighed along with these metrics in a broader economic context, a significant rise in household debt and delinquency rates has historically signaled a recession could be in the cards.
What is your view on the current interest rate environment?
Although the Fed has signaled that they still expect to cut rates later this year, frankly, I would not be surprised if interest rates remain at current levels until early 2025. Once rates do drop, the question will then become how far have economic conditions deteriorated to provide the incentive for the Fed to take action?
Gary O’Connell
EVP, Market President
Summit Bank
sbko.bank
What is your 2024 outlook on Central Oregon’s commercial real estate market?
In a recent discussion we had with community leaders about this local topic, the common outlook was that demand will continue softening in some areas such as multi-family and hospitality. Yet, prices continue to be resilient, in particular in light industrial land and buildings. There is a strong sense of “dry powder” out there – potential buyers waiting on the sidelines for lower prices to trigger deals. Adding to this, many have been waiting for a price correction for quite some time, and it has yet to happen. The result? High prices indicate that many sellers are not yet motivated, with some sitting on lower-rate financing from three or more years ago. With lower holding costs, it gives them greater capacity to ride out the cycle of buyers reluctant to enter. In summary, there are mixed signals and the struggle is to balance the short-term outlook with the long-term need. For example, take Multi-family. The market has cooled due to recent supply-side activity, but long term, the market needs more units and many remain bullish.
In comparison to other regions, how is Central Oregon faring economically?
Like the answer above, there are mixed signals. There certainly is not a one-size-fits-all answer. The difference between Central Oregon and other regions economically has narrowed somewhat in terms of the greater volatility our region has been known for in the past due to concentrations of employment in housing and tourism, for example. We suspect it is less volatile today. This is a result of job and industry diversification we have seen over time. We have seen indications of a post-Covid-19 hangover or correction in some sectors. Outdoor recreation and outdoor product companies come to mind. Contracting and the trades, a sector battered during the Great Recession 15 years ago, continue to indicate healthy forecasts and pipelines despite some expecting a correction. If we had to point out one key difference from other regions, we continue to see front-end activity about prospective employers relocating to Central Oregon. We do not, however, hear about prospective employers moving to Portland.
What are the key market indicators you’re watching in the months ahead?
Who isn’t watching interest rates? The question is, what does a business owner or investor do about it? Our advice: do not forecast interest decreases in your business or investment plan in order to get the deal to pencil out. This is a fluid topic and the outlook may change by the time this article is published. We thought we may have experienced a reduction of the Fed Funds rate as early as January of this year, a year when many businesses projected rate cuts of .75% to 2.0%. January came and passed with no change. Next, the smart money said to expect a rate cut this June. Now, that sentiment has shifted, too. A WSJ article last week suggested that we may not see any rate cuts this year whatsoever. Similarly, the long rates (such as the 10 Year Treasury) recently reached a six-month high. Higher than expected rates can increase the cost of debt capital to business, obviously. To account for this, we have seen the highest-performing businesses tighten their belts while remaining on the offensive, doing so through a heightened level of focus, discipline, efficiency and strategy. Should there be a reprieve in interest rates, they stand to benefit even more.
Besides interest rates, another indicator we keep an eye on is business merger and acquisition activity. Different factors contributing to potential business sales listings include fatigue, retirement, competitive forces, and success. And on the buy side, we see an emerging class of new and existing business owners hungry to capitalize on acquisition opportunities for the purpose of scale, efficiency and other factors.
What is your view on the current interest rate environment?
Our view is that it is not higher rates themselves that keep people awake at night. It is the dynamic nature of the changing rates markets combined with uncertainty about future expectations that keep them awake. We have seen modest signs of people adjusting to and even accepting this current rate environment. Should rates stabilize and hold steady through the end of the year, which is very possible given the stubbornness of inflation, we expect that people will continue to adapt to this new normal. One area of concern is the refinance market. There are a disproportionately large number of low-rate commercial real estate loans maturing across the country in the next year. Many maturing loans, typically of a ten-year nature and thus from the 2014-2015 vintage, have a lower rate that will now have a higher rate when rolled over to a new loan. In order for the loan to qualify for rollover to a new loan at a potentially higher rate than the matured rate, many owners and borrowers may have to re-margin (ie, pay down) their loans. While banks attempt to work with their borrowers through this dynamic, there is industry concern about the level of impact this could have in our markets along with any ripple effects. We are keeping a watchful eye on this area.
Additional Comments?
Thanks to all the bankers who contributed to this article. Our industry needs to work closely with our clients and communities over the next 12-24 to work together, and through any market adversity that we may face. Summit Bank opened our second Central Oregon Branch Office in Redmond on April 19. The timing is fortunate, as it gives the region another location to work with their local business bank. Thank you.
Kevin Cole
President /CEO
Mid Oregon Credit Union
midoregon.com
What is your 2024 outlook on Central Oregon’s commercial real estate market?
Commercial real estate in the office segment is challenging. However, demand for retail and industrial properties remains strong, and vacancies, while increasing in some areas, are not reaching levels seen in other markets. The multi-family residential sector is relatively stable, although competition is growing with more supply coming onto the market. In the long term, a more balanced relationship between supply and demand will be beneficial for the Central Oregon economy, allowing growing businesses to upgrade their premises or expand their operations. Rent stabilization will also help local companies to attract and retain employees.
In comparison to other regions, how is Central Oregon faring economically?
Central Oregon continues to be the strongest region in Oregon and lacks some of the challenges with commercial real estate that plague the Portland and Salem markets. Many people are choosing to live in Central Oregon, which is having a positive impact on the local economy. However, there are some business climate challenges specific to Bend, including a significant increase in permit fees, development charges, and a new transportation system fee on utilities. Unfortunately, the city’s funding strategy may lead to a decrease in future economic growth
What are the key market indicators you’re watching in the months ahead?
We monitor employment data at the county level as well as commercial real estate vacancy rates. There is a lot of noise in the national unemployment rate due to the number of people who hold multiple jobs and the growth in part-time jobs. This makes it difficult to accurately gauge. Additionally, room tax data and house prices are important local indicators. As Mid Oregon members represent a diverse mix of consumers and businesses in Central Oregon, we can typically assess the health of the local economy based on how they save and spend money.
What is your view on the current interest rate environment?
The inflation rate as of now stands at 3.5%. The Federal Funds rate is 5.5%, which means the “real” interest rate is 2%. This is only a slightly restrictive interest rate environment, which is why inflation is not declining more rapidly. For many commodities, insurance, food, and services, prices are still rising well above 3.5% annually. At present, the inflation data look eerily similar to the early 1980s when there was a second cycle of inflation after people believed it was going down. At this point, the risks are fairly balanced between higher and lower rates.
Additional Comments?
Mid Oregon is optimistic about the future of Central Oregon. We are currently constructing our eighth branch in the Old Mill District of Bend, which will also provide additional space for our Lending and Wealth Management teams. We look forward to being closer to our members in the South and West areas of Bend.
Where you bank matters to the local economy. When you bank with Mid Oregon, 95 percent of your deposits are loaned out to Central Oregonians and local businesses, making a significant impact on the community—especially during times when credit availability is limited.
Sandy Wagner
Central Oregon Regional Manager
SELCO Community Credit Union
selco.org
What is your 2024 outlook on Central Oregon’s commercial real estate market?
The Central Oregon market offers reasons for cautious optimism, but this is a challenging environment with many dynamic factors in play.
In comparison to other regions, how is Central Oregon faring economically?
Central Oregon faces some significant headwinds — perhaps none as strong as housing affordability. But overall, the region’s economy is robust and continues to attract investment and talent.
The sustained growth that Central Oregon has experienced certainly comes with downsides, including pressure on infrastructure. But it also puts the region in better shape than many regions in Oregon, where growth is mostly stagnant. The tourism sector has thrived and will continue to act as a buoy for Central Oregon’s economy. And other sectors, including outdoor-related businesses, continue to grow in positive and exciting ways.
What are the key market indicators you’re watching in the months ahead?
Like others, we’d like to see more movement in the real estate market, and I think we will as new construction ramps up.
Employment is always a tell-tale indicator, of course. And with summer coming, we also want to see tourism, which has become such an important part of our economy, remain strong.
What is your view on the current interest rate environment?
I think we’re in a holding period for the time being, and I don’t think we’ll see a dramatic change in rates for the foreseeable future. Even though rates are high compared with just a few years ago, they fall within the ranges we’ve seen historically
Additional Comments?
In the past couple decades, our economy has become much broader and more diverse. Despite the real issues facing Central Oregonians, we’re more prepared for economic challenges than ever before.
