Photo / Renee Cordes
More than 65 exhibitors were part of the 2020 MEREDA 2020 Forecast and Conference in Portland Thursday.
January 17, 2020
MEREDA 2020 forecasters see another strong real estate year for Maine
Photo / Renee Cordes
Leslie Preston, senior economist at TD Bank, speaks at the 2020 MEREDA forecast conference Thursday in Portland. Nearly 1,000 industry members attended.
By Renee Cordes, Laurie Schreiber and Maureen Milliken
Despite snow across the state, more than 900 real estate brokers, developers and others in the industry attended Thursday’s Maine Real Estate and Development Association 2020 Forecast and Conference. That number is out of 985 who had registered, according to Shelly Clark, MEREDA’s vice president of operations.
“The forecast conference is a must-attend event,” MEREDA President Gary Vogel said in his opening remarks at the conference, held at the Holiday Inn by the Bay in Portland. Vogel noted that the conversations and connections are as important as what takes place on stage.
Vogel, an attorney at Drummond Woodsum in Portland, later told Mainebiz, “I have attended just about every one of these conferences since MEREDA began putting them on, and I was just taken by how impactful this event is and has become for everyone in real estate.
“From the quality of the presentations, which were excellent, to the connections that take place, we all get to start the year with a common understanding of the real estate market in so many segments, and the underlying business drivers in many areas.”
Industry experts went over last year's trends and their predictions for the coming year, as the downstairs exhibition hall was a beehive of activity. The exhibition hall featured more than 65 exhibitors, promoting their products and services and offering branded swag from Whoopie pies and chocolates to tape measures and golf balls.
Here are some of the highlights from the day.
Upbeat economic outlook
Leslie Preston, a senior economist with TD Bank in Toronto, was largely upbeat about the U.S. economy in 2020 and beyond despite a slowdown in global growth.
“We don’t have a recession in our forecast over the next couple of years,” she said.
She also sees the manufacturing slowdown continuing, referring to it as a sore spot. “Manufacturing is in a slump,” she said, “you could call it a manufacturing recession.”
On the plus side, the service sector is expanding and U.S. labor markets are doing “quite well,” with the U.S. economy “now on its longest streak of job creation ever.”
In Maine, with “incredibly low” 2.8% unemployment, she noted that job growth has nevertheless managed to hold up as the state attracts in-migration. Displaying a chart showing strong increases over the past four years, she called it an “incredible story.”
Later in response to a question, she said the in-migration is mainly from other states, though the data may not necessarily reflect immigrants who may have relocated from another U.S. entry point.
Heather Johnson keynote
Keynote speaker Heather Johnson, commissioner of the Maine Department of Economic and Community Development, said one goal of the state’s new 10-year economic plan is to stimulate innovation and diversify the economy, which will, in turn, stabilize supply chains and labor markets across the state.
“If we can diversify our economy, then we’ll have a broader commercial base,” she said.
Sectors where she sees opportunities for Maine include fish and farming, related to food traceability, as well as forest products, where it is now possible to make “all kinds of new things” with parts of the tree from wood fiber insulation to clothing fabrics made from nanocellulose. “Now loggers have a lot more opportunity, do how do we get people back into logging?” she said.
Johnson also noted that the economic plan is “not magic” but rather a road map. As with the plan itself, said the state would seek cross-sector input on implementation.
She assured attendees that as the state prioritizes areas to move ahead on, it will seek to ensure that “it lines up with your priorities as well.”
Southern Maine industrial forecast
In greater Portland, “prices are going up, returns are going down,” Justin Lamontagne, of NAI The Dunham Group, said. “I don’t expect that to change.”
As of December, there were 593 industrial buildings in the greater Portland market, comprising more than 19 million square feet of space, but the vacancy rate was 1.84%. “This is clearly a landlord’s and seller’s market,” he said.
Vacancy rates in the southern Maine market range from a high of 5.2% in Biddeford to a flat zero in Gorham. “Gorham is now completely sold out,” he said. “There is not a single square foot of industrial space in the town of Gorham.”
Meanwhile, average square footage rate for sales has steadily risen, from $40 a square foot in 2011, to $70 a square foot in 2019. Leases have fluctuated a little more, but have risen from about $5.50 a square foot in 2011, to just below $7 last year.
Because of the “critically low” inventory, industrial landlords can be very selective in what they allow to go into their building
Among Lamontagne's predictions for 2020: The cannabis industrial market, which drove much of the action two years ago, is back, as new retail laws kick in. He said vacancy rates will rise as new construction gets under way.
He advised those looking for industrial property: “Be aggressive, talk to your broker, do whatever you’ve got to do to get the space.”
Every year, Lamontagne ends his forecast with a New England Patriots playoff prediction. Since the team isn’t in the running this year, he instead made a prediction about quarterback Tom Brady, whose contract expires in March. “I don’t know how to finish, but I will say this guy is coming back in 2020.”
York County market forecast
The York County economy is on an upswing, with 6,622 business establishments tallied in 2017, compared with 5,300 in 2001.
But the labor force hasn’t trended up at the same pace, said Will Armitage with the Southern Maine Finance Agency. In 2008, the labor force numbered 112,858. By 2017, that number was up to only 113,381.
The unemployment rates for both Maine and York County have plummeted, in sync with each other, from 8% in 2010 to an average 2.5% in 2019.
Development in the region ranges from the reinvention of the Biddeford mill complex to the advent of Ready Seafood in Saco. There are continued opportunities with regard to factors like available acreage and mill space availability. Sanford alone has 660,000 square feet of available mill space.
Armitage predicted that this year, challenges in the region will continue to include a tight labor market, low vacancy rates and rising construction costs.
On a more upbeat note, he said that, with more than 1,900 acres of industrial land available in York County, “there’s ample room for new projects to be constructed.” That includes more than 1,600 acres in Sanford, 135-plus acres in Saco, 90-plus acres in Kittery, 33-plus acres in Kennebunk, 10-plus acres in Berwick and more than 8 acres in Biddeford.
Southern Maine residential forecast — multi-family
The Portland multi-family residential market will stay steady and strong, said Brit Vitalius, of Vitalius Real Estate Group.
In Portland, sales were down 14% from 2018 to 2019, largely because of lack of inventory, but in other markets, they soared. In South Portland, they were up 33%, in Biddeford-Saco 28%, Westbrook 19% and Lewiston-Auburn 17%.
He said, too, that the 1031 exchange, which allows capital gains to be invested in renovating residential property for a tax break, is driving activity.
In Portland, prices for three- and four-family homes, which had been rising steadily, dipped slightly this year because of lack of inventory, but two-unit prices continued to rise.
The average two-unit price was $457,000, an increase of 4% from last year; three units were $555,000 and four-unit building average sale price was $612,000, both down 6%. Meanwhile rents were generally flat in the Portland market, with the average studio renting for $1,000 a month and the average three-bedroom $1,600.
There is a sustained demand in the Portland market for updated units, and opportunities still exist to improve older units and bring rents up to market, he said.
One example was the $20 million sale of Bayside Village in Portland, where Porta & Co. is doing $11 million in renovations of 196 units to bring them up to market rate.
The Saco and Biddeford market, where multi-families are more available and affordable, will have continued strong activity as affordability and gaps between the “old market” and “new market” of in-town redeveloped mills attract investors.
Things will also stay active in Lewiston and Auburn, where there is a lot of new development. But prices and rents will not rise because of the new inventory, which will fill the higher-end rental demand, Vitalius said
Southern Maine residential forecast — single-family
The state’s single-family home price of $225,000 in 2019 was a record, Dava Davin, of Portside Real Estate Group, said, but transactions — 18,313 — were virtually flat compared to 2018’s 18,022. The price peak caps off a five-year run, the first since the sustained rise in prices from 1999 to 2005.
York and Cumberland county accounted for 40% of 2019 sales, and the $312,000 median price of the two counties combined drove the state rise. The median price for Maine’s other 14 counties combined was $169,000.
Some high-priced homes contributed to the record median — 11% of single-family homes sold in the state’s two most southern counties sold for more than $600,000, and 17.4% were between $400,000 and $600,000. More than half — 57.2% — were in the $200,000 to $400,000 range.
A trend that’s decreasing is days on the market — single-family homes for sale in York and Cumberland counties were on the market an average 15 days before they were sold. That’s been a steady decrease since 2015, when homes spent almost 60 days on the market, on average.
Mainers still make up the bulk of the buyers, with 75% being from in state. Of the other 25%, the states represented the most were Massachusetts, New Hampshire, Florida, New York and California.
New construction, with a median price of $375,000, made up only 8% of the sales in York and Cumberland counties, with the rest existing homes at a $306,000 median price.
Davin predicted prices will continue to rise in 2020, but at a slower rate, and this spring will see a hot market, with a lot of battling over homes driven by low inventory.
Central and coastal Maine market forecast
In Lewiston and Auburn, economic drivers include a substantial population of 500,000 within 30 miles, and robust health care, manufacturing and distribution, higher education institutions and recreational opportunities. These are driving the twin cities as a hub for western Maine, said Mac Simpson and Tim Millett, of Porta & Co.
That’s resulted in a strong portfolio of real estate sales, including the $16.8 million sale of a 256,000-square-foot retail building at 730 Center St. in Auburn.
Expected for 2020:
- Continued multifamily development
- Considerable solar development
- Expansion of the Auburn Agricultural Zone
- Downtown Lewiston growth at Bates I, Continental and Hill mills.
Waterville has had considerable commercial development, notably with Colby College’s campus and downtown projects, as well as other downtown developments, which is expected to continue this year. Augusta, too, will have some in-town development, particularly along commercial strip Western Avenue.
In Brunswick, development and new business activity remain strong at Brunswick Landing, where 2,000 jobs have been created since 2011. The landing’s TechPlace incubator is 90% occupied by 38 companies.
Simpson and Millett predict continued investment in 2020 in housing in Bath, Brunswick and Topsham, as well as continued tenant and business demand for the region. But Bath Iron Works remains dependent on national politics and the continued signing of defense contracts.
Bangor-area market forecast
In downtown Bangor, unique spaces and experiences are in high demand, with venues like Top of the Nine, which joined the Bangor Arts Exchange, as well as the Tarratine Club and Queen City Cinema Club in turn bringing more foot traffic for restaurant and retail experiences, said Tanya Emery, community and economic development director with the city of Bangor.
In turn, that’s resulted in continued strong growth in the restaurant and retail sector, with additions such as Tea and Tarts, Pompeii Pizza, Portland Pie Co., Pure and Simple Apothecary, Highbrow Studio and The Noble Root Aveda Salon.
There is growing demand in the office market, too, with vacancies that have sunk below 8%. Significant activities include the sale and renovation of 1 Merchants Plaza by a local developer, leading CES Inc. to relocate its headquarters to Bangor; and Thompson-Hamel’s move into the first floor of the historic Nichols Block.
Waterfront development is also strong, illustrated by the new Bangor Savings Bank campus and the continued success of Waterfront Concerts, which now has a lease through 2032, and an option for another 25 years after that. In 2020 and 2021, $7 million is planned to be invested in waterfront development.
Critical needs include industrial space and housing units. As industrial space is scooped up, vacancy has sunk to around 2% in the region, with no single community above 3%. Limited opportunities remain without new construction.
Still, there are substantial projects of regional significance, including Fiberight’s $70 million waste-to-energy facility in Hampden and two major fish farms proposed in Bucksport and Belfast.
Emery said Bangor welcomes new industrial and housing construction and, in 2020, development of existing property is expected to continue along the waterfront. Several great developer or owner-user opportunities still exist in the heart of downtown as well, she said.
Maine's vacation/hospitality forecast
Maine hospitality industry is experiencing strong numbers – better than national averages. Nationally, the average daily room rate was $131.53 in 2019. That compared with Maine’s average rate of $145.16. The Portland market average rate is $140, according to data presented by Sean Riley, president and CEO of Maine Course Hospitality Group.
By the third quarter of 2019, Maine’s construction pipeline — under construction, expected to start construction in the next 12 months, or in the planning stage — included 13 hotels, most in greater Portland, but also two each in southern and the midcoast.
Nevertheless, room occupancy is expected to decrease somewhat in 2020 and 2021. Among the national chains, occupancy at Marriott and Hilton are expected to have anemic growth in the coming three years.
The industry is undergoing changes, said Riley. Among the trends:
- Digital is transforming guest experience, both in terms of guest room entertainment and the ability to handle everything by cellphone, from finding a hotel and reserving a room to checking in via phone.
- New guestroom tech includes plans by Marriott and Hilton to offer guests the ability to control the TV, shades, music and lights from their phone; and to use personal data to services like adjusting the room heat before arrival.
- Hotels are also embracing sustainability and focusing on direct bookings — and they’re contending with the fact that Airbnb is here to stay.
Southern Maine retail forecast
Retail apocalypse. Experiential. Immersive shopping experience. Blurred lines.
These were the buzz words trending in the retail word through 2019, said Karen Rich, of Malone Commercial Brokers.
While the retail sector may be seeing an apocalypse for nationals like Payless Shoe Source, Forever 21, A.C. Moore Arts & Crafts and Olympia Sports, quite a few small, independent retailers have emerged throughout southern Maine.
New restaurants on the Portland peninsula include Flood’s, Sticky Sweet, Nura, Blue Spoon and Quiero Café, while new breweries, distilleries and wineries, such as Lone Pine Brewing Co., Grippy Tannins and Three of Strong Spirits, are in their heyday.
New retailers in the Old Port and downtown Portland include Jill McGowan and Toad & Co. The Maine Mall is luring traditional tenants like Jordan’s Furniture, as well as alternative uses like Maine Warrior Gym.
That diversification is strong in Freeport, too, with retailers like Gypsy Rags and Skordo.
All the retail market is trending toward diversification, locally owned, non-traditional and experiential. Tied to that is new investment in community arts and festivals that help boost retail patronage.
Southern Maine office forecast
In 2019, large vacancies shaped the southern Maine office market, according to data presented by Nate Stevens, a partner with Boulos Co.
Demand for downtown space remains strong, and demand is steady, with transaction volume going up and asking rents accordingly continuing to climb. But suburban vacancy rates are going up.
Significant downtown transactions included Sun Life’s lease of 77,000 square feet at Portland Foreside; Certify leased 38,072 square feet at 21-39 Commercial St. in Portland.
But there are also significant downtown vacancies, ranging from 10,000 to 40,000 square feet in Portland.
In the suburbs, significant leases ranged from 9,000 to 20,000 square feet for companies like Goodwill Industries and LogistiCare. But there’s plenty of space waiting for tenants. That’s as large as 172,180 square feet at 2211 Congress St. in Portland’s outskirts. South Portland has a number of large vacancies, ranging from 16,000 to 72,000 square feet.
All together, the vacancy rate in greater Portland’s the office market has risen from 1.64% in 1999 to a high of 10% in 2010, and is now coming back down to 7%.
Stevens predicted vacancy rates this year will level off, perhaps with even a slight increase in the coming year or two. As downtown demand continues, lease rates are expected to increase.
The suburban market will have a slight decrease or possibly a leveling out of average lease rates. Stevens said he expects new office construction to slow.
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