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October 28, 2014

Business is booming - for industrial development

Portland Tribune

Anne Endicott

Speculative construction demonstrates high demand for space in Gresham, East County.

Analysts have been pontificating for a while that the Great Recession is, well, receding.

But if you're looking for proof that maybe, for once, they're right, cruise down Northeast Marine Drive or Sandy Boulevard and take a peek at the explosion in industrial development.

"There's a really good feeling out here - the demand has returned," said Tom Talbot, senior vice president with Kidder Mathews, a Portland-based commercial real estate firm. "Companies have to be here now because this is really the most active hub."

Talbot is referring to the industrial area east of 181st Avenue, which, thanks to a renewed surge in development, has attracted distribution centers for national companies like Frito-Lay, Staples and Firestone/Bridgestone.

Kidder Mathews is representing developers for two buildings that will bring an additional 415,000 square feet of future light industrial space.

Prior to the economy's crash in 2008, developers of speculative industrial-zoned land flocked to Gresham and East Multnomah County, figuring companies with distribution center needs would be lured by its easy freeway access and proximity to Portland International Airport.

Confidence was high among builders that businesses riding the wave of financial success would soon be expanding and the East County area was ripe for additional commercial space.

Then the recession hit and construction came to a grinding halt.

"We had more than 3 million feet built in that cycle that went on the market all at once," Talbot said. "Vacancy rates went from 5 percent to double digits. So nothing has been built in the speculative market since 2007, because it took us 6-7 years to absorb that."

But times have changed.

Kidder Mathews is negotiating with tenants for its two buildings scheduled to be completed in December or early January. The Prologis PDX site at Northeast 19200 and Riverside Parkway, has been designed to accommodate two businesses within a 207,000-plus- square-feet area. Fifty one dock doors provide transport needs accessible from the south side of the building.

In contrast, the 215,250 square foot Gateway Corporate Center, just off Northeast 181st Avenue and Sandy Boulevard, can be "divided down the spine" for multiple tenants, with dock door access from both the north and south sides of the building.

It could be viewed as risky for developers to construct mega-sized buildings, given that the safer bet might be projects geared toward smaller businesses looking to expand.

But, Talbot said, industrial space is in such demand that building 200,000-plus square foot facilities pretty much seals the deal for long-term leasing.

"The economics associated with these buildings are that they're more efficient and developers are able to offer rents that are more reasonable in the marketplace," he explained. "If you build smaller buildings, you have to charge higher rents."

While the $25 million industrial project in Gresham is a boon to the area, it's only part of $120 million in the east metro area construction pipeline.

Talbot cites a 490,000-square-foot construction project in progress near Portland International Airport. Portland-based Capstone Partners' industrial development going in behind IKEA has been fielding occupancy inquires for months.

"They have leases pending on every available space out there," Talbot said. "We knew there would be demand for this, but to be 100 percent committed before construction is even complete?"

So what's the reason for the sudden interest in industrial/distribution space in these parts?

Simple, Talbot said - economics.

"Companies are finding they can't service this area and the Northwest from distribution centers in California any more," Talbot said. "They're looking to reduce their transportation costs. We're seeing an absolute mix of local businesses that are expanding and national names that can no longer ignore the Portland market."

For its part, the city of Gresham has greased the wheels for industrial development by offering incentives that send the message the city is open for business. They recently reduced a lengthy land-use review process from the state mandated 120 to 66 days or less and employ a Rapid Response Team to work with traded sector users to make the development process more efficient.

While the city is embracing national companies and those looking to establish roots in the area, it's also hoping to revitalize interest for the shovel-ready land in the Gresham Vista Business Park (GVBP).

The 221 acre site between Southeast Stark and Glisan streets was originally owned by LSI, who intended to use the land for fabrication plant expansion. A decline in chip manufacturing caused LSI to sell their fab plant to ONSemi Conductor in the mid-2000s. The Port of Portland snatched up the remaining land in 2011 and created the Gresham Vista Business Park. Shannon Stadey, director of Gresham Economic Development Services, said the hope is the property will be a draw to other high tech manufacturing companies, like Intel and WaferTech.

"We have excellent transportation access so for the companies who are moving goods and services, having rapid access to (Portland International Airport) is huge," Stadey said. "While there hasn't been any activity on the GVBP to date, the city and the Port feel that the tide is turning. When the right user or users come along, we feel that site is prime for development."

In the meantime, the notion that Gresham and East County have been nothing to offer, outside of horse drawn carriages and dirt roads, has been dispelled by developers who are claiming the area as an industrial hub. And according to Talbot, credit goes to city leaders who have put out the welcome mat.

"The city of Gresham has been fantastic to work with," Talbot said. "We've worked on project in Wilsonville, Woodburn and Portland, but the city of Gresham has been proactive in working with the real estate market. They have great relationships with the key employers in the area and bringing them to the table. And they've streamlined their approval process to 66 days. This is just a good place to do business."

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