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Shopping Centers Today -> June 2002
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PORTLAND’S COMPLAINT
A city’s toughness on developers has created a demand for retail
By Dave Bodamer
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| Gresham Station, a lifestyle center, sits on the city’s new light railway. |
Portland, Ore., has hardly been a retail developer’s paradise.
Restrictive growth measures coupled with a major slowing of the city’s economy has brought retail real estate development there to a near standstill.
Given the high number of manufacturing and technology jobs clustered in Portland, the recent economic slowdown hammered the city. Unemployment has exceeded 8 percent, about two and half percentage points higher than the national average, and national retailers have stayed away.
But the economy is only partly to blame. Retailers have also been kept away by Portland’s stringent development guidelines; the city is surrounded by an “urban growth boundary,” designed to protect farmland and prevent sprawl, beyond which it is hard to build new projects.
Not surprisingly, then, these same impediments to development have also created a healthy demand for new retail. The retail vacancy rate in the city is still below 5 percent, exactly where it was before Sept. 11, according to market data from Marcus & Millichap, the real estate investment brokerage company. Portland’s retail space per capita rate is also among the lowest in the country.
“We could really use some more retail space,” said Jack Estes, a regional manager at Marcus & Millichap’s Portland office. “Well-located retail space is highly sought after by national retailers.”
But Portland’s so-called smart growth measures mean there are virtually no sites available for big-box or shopping center construction, forcing developers to focus almost exclusively on redevelopment opportunities.
One project that has been affected by both the ups and downs in the Portland economy is CascadeStation, a $400 million, 120-acre mixed-use commercial development located north of downtown Portland. The center, conceived in 1997 when the economy was still booming, was envisioned to provide 1.3 million square feet of office space, 1,200 hotel rooms, a 24-screen theater and 400,000 square feet of retail. Its developers, San Francisco-based Bechtel Enterprises and Dallas-based Trammell Crow Co., put CascadeStation “on hold” after the Sept. 11 terrorist attacks. But with $28 million already invested in the site’s infrastructure, they are looking to start moving again.
“We have messed around and redesigned the concept three or four times, but we had to stop,” said David Moore, senior vice president of MBK Northwest, the project’s Portland-based retail developer. “The timing just wasn’t right.” By late April, however, though no buildings had been built or leases signed, retailers were showing renewed interest. Moore is optimistic about CascadeStation’s getting back on track, saying that construction could start in early 2003, although he did not project an opening date.
“From an economic standpoint, there’s no question that Portland was affected, more so than many other places in the country,” Moore said. “But [given] the quality of life here and the attraction that this area holds, it’s just a matter of time before that recovery is complete.”
One of the project’s main draws is its location on Portland’s 35-mile-long Metropolitan Area Express (MAX) light-rail system, which runs across town and to the airport. The two light-rail stations that would serve the project have been finished.
Jeffrey M. Sackett, Trammell Crow’s vice president of development, said he is still bullish about the property.
“The light-rail is working great. Everybody loves it,” Sackett said. “But it is a challenge right now. Portland is not exactly what you would call a pro-business political environment — not like you’d find in Atlanta or Texas.”
Another mixed-use project on the light-rail system, Gresham Station, developed by local firm Center Oak Properties, was much further along in its development when the economy began to sour, enabling the owners to finish the first phase in 2000. It is located 15 miles from Portland’s downtown.
When fully completed, Gresham Station, which its developers describe as a lifestyle center, will feature 1,600 residential units, 350,000 square feet of office space and 650,000 square feet of retail. Center Oak says it will spend a total of $150 million to develop the center.
Gresham Station’s first phase is 98 percent leased, and some of its more high-profile tenants include Bed Bath & Beyond; Gap; Old Navy; and a QFC upscale grocery. Also included is the Center for Advanced Learning, a place where high school students can take college-level courses.
The first of the project’s two light-rail stations is situated in the middle of Gresham Station; the other is located toward the center’s south end.
“That plays a huge role in the project,” said Kim Maguire, Center Oak’s regional marketing director. “We’ve got all the commuters who come through. And it’s the same with the residential component. People can literally live, work and play right there.”
Casting Gresham Station as a lifestyle center made it more digestible to Portland’s strict planning board, its developers say. The 83-acre site is filled with pedestrian-friendly streets lined with two-story buildings offering street-level retail. It is a far cry from the big boxes and regional malls that Portland’s planners have choked on in the past.
“A majority of phase one is all street retail,” Maguire said. “Phase two is a different story. It will have residential, office and mixed-use. It will have some upper-level retail, but the core of the retail will be on the street.”
Meanwhile, in a sign that the city’s economic prospects are changing, outdoor gear and clothing retailer REI announced in early April that it would build a $20 million, 35,000-square-foot store in the city’s Pearl Street district. REI officials said they have spent the past two years looking for a site in the city. The store is scheduled to open in 2004.
But it isn’t just the economy that is looking up for retail developers in Portland. City officials are considering extending the urban growth boundary this year, which would provide more developable land within the ring.
“That will have a positive impact,” Marcus & Millichap’s Estes said. “There will be an increase in retail construction.”
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