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Retail Construction Slow in Puget Sound July 22, 2010

Posted by Erik Swanson in Articles, Development, Retail News.
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Last week the architecture trade group, The American Institute of Architects confirmed what most of us involved with commercial real estate have surmised for some time now… Construction spending on all types of commercial real estate (office, hospitality, retail, and industrial) is expected to decrease by more than 20% in 2010. This will be followed by a slight increase estimated at 3% in 2011.   

Kermit Baker, chief economist at the AIA was quoted in the LA Times’ Money and Company column by Roger Vincent:

“There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations,” said Kermit Baker, the AIA’s chief economist. “We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space and general unease in the international economy.” Real estate development should begin to turn around midway through next year, Baker said, with stores and hotels expected to see the strongest growth, along with new healthcare and amusement and recreation facilities. Poor conditions prevail now because there is an oversupply of commercial buildings, weak demand for space, continuing declines in commercial property values and a strong reluctance to provide credit from real estate lenders, Baker said.

Not surprisingly, commercial development here in the NW mirrors the national picture and for retail product specifically, new development is extremely quiet.  According to Andy Robinson, Kidder Mathews Valuation Advisory Group, there is less than 600,000 sq ft  under construction as of mid-year 2010.  The amount of excess space and declining rents makes new construction very difficult to rationalize and only AAA locations with AAA tenants pencil out.  But even then finding a willing lender will be a huge challange.  There are a few new projects for anchors such as Walmart (Auburn, Marysville), Kohl’s (Puyallup), Lowes (Puyallup), and Winco. However, there are few strip centers are in the works and the only new neighborhood center being built is the grocery anchored Lakeside at Canyon Park in Bothell. With little new retail product on the drawing board and signs the economy is turning the corner, there’s hope that we’ll see absorbtion turn positive in the second half of 2010.

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