Checking in | The good and bad in a midyear review of the Greater Portland commercial real estate market
We’re halfway through an economically rocky 2008, and how is the commercial real estate market around Maine’s largest city holding up? Well, Portland may not have seen the tremendous peaks in the boom periods other areas of the country did in recent years, but that means during valleys like this year we also haven’t experienced the massive busts some communities are currently experiencing. For better or worse, we simply don’t have the number of people, businesses and speculative development that create those peaks and valleys.
Maine’s real estate market is more stable and a bit more predictable. This is particularly the case in the commercial real estate market, where rents and vacancy rates tend to maintain a fair amount of stability. Whether it be office, retail, industrial or multi-family housing, the market remains somewhat static. Here are some examples of current activity that may help to frame the market conditions in each sector:
Office market
During the first two quarters of 2008, the office leasing activity was fairly slow in Greater Portland and southern Maine. We continue to see vacancy rates increasing slightly as many small businesses choose to cut costs and work in smaller locations, or work remotely using home offices. While it is a good sign to see office developments under construction, such as the Intermed building on Marginal Way in Portland, we must also remember that the two anchor tenants will be vacating close to 100,000 sq. ft. of office space in multiple buildings throughout Greater Portland. Some of the larger office transactions in the first part of the year include Prudential’s lease of roughly 30,000 sq. ft. at 2 Portland Square and RBC Dain Rauscher’s relocation into that building; the call center Listen Up’s lease of 16,000 sq. ft. in Westbrook; and Patriot Mutual Insurance Company recent lease of 26,000 sq. ft. at One Cole Haan Drive in Yarmouth.
We are witnessing some increased vacancy rates in the smaller spaces throughout Portland’s downtown and suburbs. Quality spaces are still leasing, while lower quality spaces with poor management or deferred maintenance are more difficult to lease. Rates are staying fairly steady, with some minimal concessions from landlords on tenant improvements or rent. Overall, the activity is somewhat slow but deals are still getting done.
Retail market
Retailers’ seemingly insatiable demand for new stores in more locations appears to be waning. We are seeing fewer big box developments going through the approval process and fewer retail developers seeking new sites. There are some exceptions to this: Cabella’s opened with great fanfare last month in Scarborough, and several retailers like The Kennel Shop, Portland Pie and Haven’s Candies have opened in the outparcel strip. Cinemagic leased 28,000 sq. ft. and opened a new location at Clark’s Pond Shopping Center in South Portland. The drug stores are also very active. Walgreens, for example, has a few stores planned for southern Maine, including stores on Route One in Yarmouth and Forest Avenue in Portland. CVS and Rite Aid remain active in the marketplace and continue to seek two-acre sites on prime corners.
For the most part, though, retail spaces in prime locations are staying on the market longer than usual and retailers are not anxious to open new stores in questionable locations. Prime retail spaces for small users in strip centers continue to remain active, but larger spaces over 5,000 sq. ft., or spaces that are overpriced, remain on the market longer than they would have over the past four years.
Industrial market
Activity in the industrial market is also slowing. Over the past few years, we witnessed constant increases in rental rates and sale prices for industrial space. That appreciation has leveled and the pricing has come down slightly over the past nine to 12 months. Industrial users can find a number of spaces in the 10,000 to 100,000-square-foot range for $4 a square foot. During the first two quarters of the year, some of the larger transactions include Planet Dog’s 40,000-square-foot lease in the Eisenhower Industrial Park in Westbrook; Skretting Inc’s 19,000-square-foot lease at nearby Saunders Business Park; and Sullivan Tire’s 10,300-square-foot lease on Warren Avenue in Portland.
The warehouse condominium market is also slowing. A large number of condominium buildings were constructed over the past five years, and many smaller, light-industrial users purchased these units and vacated leased space. The market is still recovering from these vacancies, and landlords have reduced pricing to spur demand.
What’s it all mean?
The first half of 2008 can be characterized as slow but steady. Deals are being made and owners and users now recognize that now may be a good time to buy. Banks are aggressively lending to solid companies and rates remain at historic lows. The negativity in the national media can certainly hurt Greater Portland consumers’ perception of the market, but in my experience, we are doing a lot better than we think.
Drew Sigfridson, a commercial real estate broker with CB Richard Ellis/The Boulos Co. in Portland, can be reached at editorial@mainebiz.biz. His next column will appear in the Sept. 8 issue.
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