Filling up quickly

A continuing strong economy in the Inland Northwest propelled the commercial real estate market in 2006, bringing new retailers to the area, driving construction projects, and gobbling up office, retail and industrial space as existing businesses expanded.

“Almost every property type in almost every location saw reduced vacancy rates,” said commercial appraiser Scot Auble, referring to Spokane County. “The net absorption of space was really great.”

If this pace continues, the big story for 2007 might be rising rental rates for office and retail space, Auble said. Rents in the office market are still at 1999 levels, said Larry Soehren, vice president of Kiemle and Hagood real estate firm.

In Spokane’s downtown core, factors contributing to the absorption of retail space were the conversion of the former Lamonts and Newberry’s buildings into the Bank of Whitman, with upper floors leased to office and retail users. In addition, the former J.C. Penney building was transformed into West 809, a high-end condominium building with ground-floor retail and a second-floor fitness club. Progress also was made leasing the 17-story Wells Fargo building.

Though some of the leasing activity resulted from existing businesses shuffling from one place to another, expansion also occurred, contributing to the net absorption of space. For example, Inland Northwest Health Services traded 43,000 square feet in the Holley Mason building for 65,000 square feet in the Wells Fargo tower.

“We’ll never recruit our way into filling office space in Spokane,” Soehren said. “Day in, day out, the absorption of office space in this market is … local. The growth of our local economy spurs office growth.”

A strong economy sparked new plans in Kootenai County as well, where several office projects were in various stages of permitting or construction. In downtown Coeur d’Alene, work continues on the 20-story commercial and residential Parkside Tower, which is slated to be complete in early 2008, said Monte Miller of Miller Stauffer Architects, the project developer.

Riverview Tower, under construction on Coeur d’Alene’s fast-growing Northwest Boulevard entrance into town, will add 56,000 square feet to the office space mix, said Steve Meyer, a partner in Parkwood Business Properties. In addition, Marshall Chesrown and John Beutler are teaming up to build Northwest Place, a pair of three-story commercial buildings at Northwest Boulevard and U.S. Highway 95.

“The demand is steady and I think it will stay that way,” Meyer said of Kootenai County’s commercial real estate market.

The county’s retail market continues to charge forward as well, especially in the sporting goods arena, with a new Sportsman’s Warehouse under construction in Coeur d’Alene and the announcement of a Cabela’s store in Post Falls.

One notable trend, Soehren said, is the growth of outside money flowing into this region, in terms of real estate investment. For example, Prium Cos. of Tacoma, which purchased Spokane’s Rock Pointe office complex in 2005, increased its presence in the market by purchasing the Wells Fargo tower downtown in 2006 and announcing plans for a condominium tower on Wall Street with ground-floor retail. Soehren attributed the outside interest to the “overheating” of the commercial real estate markets on the coast.

Historically, Soehren said, “it’s been hard to attract outside money because it’s been a market most people didn’t understand. People are looking for places to put their money where the returns are greater. Putting Spokane’s commercial real estate market on the map has been one of the significant items of the last year, year and a half.”

Dave Black, CEO of Tomlinson Black Commercial, said Spokane’s market has benefited, in large part, from the way Chesrown and others have promoted this area, primarily while marketing vacation properties in North Idaho.

“They bring in these people and they like the area and they think we’ve got to buy something up here and they bring their friends,” Black said. “It’s great for the area because it brings in new money.”