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Sarah Weiser / Herald file photo 
(click to enlarge)
Fidel Castlo (right) and Gonza Maciel work on a four-story commercial construction site at Rucker and Pacific avenues in Everett for Synergy Construction in 2010. Potala Village, owned by Dargey Enterprises, will have more than 100 market-rate apartments in three stories above 15,000 square feet of street-level retail space. It is scheduled to open Jan. 7.
 
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Kurt Batdorf, Editor
kbatdorf@scbj.com
Published: Thursday, December 30, 2010

Some commercial real estate sectors are likely to feel more recovery

2010 was a difficult year for most commercial and small businesses in Snohomish County as those businesses not dependent on aerospace are mostly tied to an economy that contracted.

Tom Hoban, co-founder and CEO of the Coast Group of Companies in Everett, said many business owners simply “froze up” until they could stabilize their own revenues. Many of those who had leases expiring in 2010 either renegotiated their lease to a lower cost structure and stayed put or moved to space better suited for their tighter operating budgets. Others quit altogether.

Near the end of 2010, Hoban said, lease transactions began picking up after the November elections as some optimism returned to the market following the return of political balance in Washington, D.C.

The peak of demand for the commercial market was in 2005, with retail being particularly strong. Vacancy rates in 2010 were higher in most submarkets than the year prior with many businesses yielding space back to landlords under “blend and extend” lease renegotiation strategies that allowed them to remain in their current space but pay less rent, Hoban said.

Others businesses downsized into new locations while some moved up from B or C quality buildings into nicer A or B+ quality product to take advantage of the lower rent climate and landlords of these properties being particularly aggressive to land tenants, Hoban said.

“Downtown Everett still struggles to attract any office users outside of government, nonprofit or those dependent on being close to government,” Hoban said. “It will need a plan to change that. Current leadership in Everett seems unable to see the problem and is focused on other priorities, leaving landlords to battle toe-to-toe for commercial office tenants in an anemic demand environment.”

The outlook for commercial real estate isn't great, but it's better than last year, he said. The recession is far from over in some subcategories and in some submarkets outside of Alderwood mall, Mill Creek and other south Snohomish County cities and centers of commerce.

Bothell is emerging as the next city on the verge of greatness as can-do political leadership is embarking on a plan to create a town center and position that city for great things, Hoban said. A strong school district, great location to live and work, and a growing University of Washington-Bothell campus leverage their bio-tech jobs base and quality residential neighborhoods to give them a good story coming out of the recession.

Areas in north Snohomish County are likely to lag in this recovery since they depend on housing growth or a sneeze at Boeing, Hoban said. Notable exceptions are Arlington, which has all the parts to capitalize in a recovery, along with Lake Stevens, Snohomish and Monroe.

North Everett and its downtown still suffer from an island effect, with water to the west and river valley to the east and north. Coupled with a low average household income and no real economic development plan, Hoban said it may again miss the next market upturn while other areas of the county prosper.

The November 2010 elections triggered the beginning of a broader, but probably choppy, U.S. economic recovery as businesses could more easily plan now that massive government efforts, such as health-care reform, are likely to be dampened, Hoban said. For many small businesses already offering health benefits to employees, the health-care legislation and the initiative to install a state income tax were ill timed and simply delayed any recovery, he said.

Consumers have been hit hard by the loss of equity in their homes and that will have a negative long-term effect on retail spending patterns even though 2011 will be an improvement over 2010, Hoban believes.

Expect retail and office to lag other categories in the recovery as the county sees little change in joblessness in key categories during the initial stage of this economic recovery, Hoban said.

He said the shining star for Everett and Snohomish County will be aerospace and demand linked to Boeing's return of some of its component manufacturing on its 787 Dreamliner jet, and with health care linked to Providence Regional Medical Center Everett's expanded Colby Avenue campus.

Coast Group of Companies is a collection of three commercial real estate firms specializing in commercial sales, leasing, property management and investment serving the Puget Sound area and Pacific Northwest. Hoban is the company's co-founder.


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