MEREDA conference highlights demand, but lack of inventory
Photo / Peter Van Allen
The annual Maine Real Estate & Development forecast conference, which attracted 900 people to the Holiday Inn by the Bay in Portland on Thursday, featured presentations throughout the day highlighting 2017 trends seen in the various sectors of Maine's real estate and construction sectors.
Vacancy rates are at or near historic lows in some areas, but the rents landlords are charging do not yet justify the cost of new construction. That's one of the takeaway themes of the annual Maine Real Estate & Development forecast conference, which attracted 900 people to the Holiday Inn by the Bay in Portland on Thursday.
The following is a summary of the talks throughout the day:
Southern Maine industrial forecast, from Justin Lamontagne, NAI The Dunham Group: The industrial vacancy rate has plummeted from 8% to 1.25% in the last seven years, not only in Portland, but Cumberland County as a whole, Lamontagne said. With premier space peaking at $80 to $125 a square foot, he said, “The situation is critical.” Lease prices aren’t high enough to fuel new construction, which adds to the tight market. He said speculative buying and financing, rather than building, could be a good move. Leasing will likely tick down, because many companies can’t afford the high price — despite the fact it’s a landlord’s market, affordability still matters.
Central Maine market forecast, Kevin Fletcher, KW Commercial: The Lewiston-Auburn and Augusta-Waterville markets will continue at a steady pace across all sectors. The key, Fletcher said, is knowing the market and understanding that a development that may seem small can have a big impact in Androscoggin and Kennebec counties. For instance, 23 acres being developed in the Libby Hill Business Park in Gardiner by Auburn Asphalt will make a difference in that city, just south of Augusta. In Lisbon, a mixed-use development on the site of a 49-acre former gravel pit will include both single family homes and apartments, a $10 million development in that town. The Capitol Street project in Augusta on the site of the former state Department of Transportation fleet center is another development with impact — the two lots under development have a total of 134,000 square feet. Across the street from the State House, “That’s a pretty big development right in the heart of Augusta.” He also stressed that there is continued demand in the industrial market in Lewiston-Auburn, which is less than half an hour from downtown Portland.
Bangor-area market forecast, Bev Uhlenhake, Epstein Commercial Real Estate: Bangor’s industrial real estate vacancy stands at 4.5%, down from 10% the last time the survey was taken, in 2010. “Prices for leases do not justify new construction,” Uhlenhake said. The downtown office market, which has 2.2 million square feet, has a vacancy rate of 9.7%, though the majority of that vacant space is in three buildings, including former University of Maine System offices. For the area, the elephant in the room is the Bangor Mall area, which has 3.2 million square feet of retail space (the mall itself is about half of that). The mall, which is owned by Simon Property Group and faces foreclosure, lost a 120,000-square-foot Macy’s and will lose another anchor, Sears, this spring. A number of in-line retailers within the mall have left, replaced by local operations like a day care, fitness center and even a church. Elsewhere, Bangor Savings Bank is building a waterfront headquarters, which will have 370 employees and capacity for 480. Overall in Bangor, “the mall is struggling, but we still have our mojo,” Uhlenhake said.
Economic overview, James Marple, TD Bank Group: The national economy performed well on the national level and exceeded expectations on the global level, said Marple, a senior economist with TD Bank. It was also a very good year for the Maine economy. Marple projected the recently signed federal tax bill will help the economy grow, with the expectation of increased spending by consumers and business. A major sticking point, though, is the unemployment rate, which is sinking to new lows — 4.1% nationwide. Marple predicted the national unemployment rate will dip below 3.5% in the short-term. “What that means in Maine, where the unemployment rate is lower than the national average, is that we could see the rate pushing to the twos,” he said. “That’s a pretty tight labor market. And you look at Portland, there’s virtually no one unemployed, at least by the official measure.”
Southern Maine residential forecast, Brit Vitalius, Vitalius Real Estate (multi-family), and Dava Davin, Portside Real Estate Group (single family): “We’re in a very exciting time,” said Vitalius. “We’re in a very healthy market, but we’re limited by supply.” From 2015-16, Portland’s sales volume had nearly flattened, with a mere 1% rise. Vitalius said he had expected that trend to continue, and was surprised when 2016-17 volume rose by 16%. Saco/Biddeford saw a 53% increase and Lewiston/Auburn volume rose by 27%. South Portland rose by 8%, and Westbrook dipped by 12%. That was due to lack of supply, rather than lack of interest among buyers. Median sales prices are up across the board, ranging from 1% in Saco/Biddeford to 20% in South Portland. Vitalius expects further price increases. Median sales prices range from $428,000 in Portland to $117,000 in Lewiston/Auburn. Inventory is at a record low. New units continue to come online in Portland — about 300 in 2017 — and they fill quickly. Current and planned development elsewhere in the region number over 1,000 units. Buyers are gravitating to those other markets because they’re finding Portland to be too challenging.
Among single-family homes, Davin said volume increased from $4.1 billion to $4.4 billion from 2016 to 2017. In southern Maine, “It was a great year for sellers,” with home prices in Cumberland County up. “For buyers, it wasn’t necessarily a great year.” Buyers faced low inventory and competing offers for houses, with properties quickly getting snatched up.
Southern Maine retail forecast, Karen Rich, Cardente Real Estate: The biggest project coming on the market is a 550,000-square-foot shopping center on Route 25, which will have Market Basket as an anchor. Bricks-and-mortar stores continue to play a key role, despite a shift toward “omnichannel” shopping, with consumers increasingly using apps, websites, social media and email marketing. Shoppers are increasingly using “click and connect” tactics, either figuring out what they want online and going to a store to purchase it, or simply ordering products online and picking them up at the store.
Southern Maine office forecast: Nate Stevens, CBRE | The Boulos Co.: A lack of demand is combining with the lack of inventory in greater Portland to keep movement on office space slow, Stevens said. Much of the movement in office space in the past year was local companies changing space. He said the number of office space leases in greater Portland was the lowest he’s seen since he’s been tracking those numbers, and the vacancy rate has declined since 2012. A few large transactions shaped the market in 2017, including WEX’s planned move from its South Portland space to 100,000 square feet of new construction on Hancock Street on the Portland waterfront. The biggest drop in Portland downtown inventory was in Class A space, with Class B remaining flat. There were bigger drops in both in suburban space. He said when demand increases, landlords will have to get creative in the city to meet the growth, and older, unimproved buildings, with both Class A and B space, will continue to struggle. “I think we’ll continue to see new construction in downtown Portland,” he said. “But it really depends on the demand level.”
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