Commercial real estate market better here than in other places.

Byline: REAL ESTATE AND DEVELOPMENT blue chip

Most individuals who track and participate in the local commercial real estate industry have opinions as to what has happened this past year and what to expect for the rest of 2009 and 2010.

There is no one specific answer, of course, but most agree that the market has softened and, in some areas, declined. Without exception, most property types have stopped appreciating, with all types leveling and most showing signs of decline.

The bright side is that, generally speaking, the greater Eugene-Springfield area has fared better than other areas in the region that have seen much more drastic changes.

There are many theories as to why. Some say it is the strong dependence on publicly funded entities, such as the University of Oregon.

Some attribute it to the lack of readily buildable commercial and industrial land, which kept the inventory of new buildings low and kept supply and demand in balance. Others attribute it to a smarter local market, where people suffered tremendously in the 1980s and "learned from the school of hard knocks."

Anyway, overall rates of return have increased for most types of investment property. This increase can signal that there is more uncertainty, that the property may potentially experience increased vacancy and credit losses. In other words, property buyers are expecting increased rates of return to take on increased risk and uncertainty. That means property values tend to be pushed down.

And while vacancies have not substantially increased here, some rents have been negotiated or renegotiated downward to allow tenants to continue operating, extend their tenancies and remain in business. But most rents have remained unchanged, and a few have seen modest increases.

It is best not to assume that your rent will increase or decrease, unless specifically set out in a contract. But if such contractual changes create a situation that the economic conditions will not withstand, it is in everyone's interests to consider a win-win meeting of the minds where both parties can survive financially until the market rebounds.

Local lenders that have had nonperforming or underperforming assets indicate that most of those are unsold subdivisions and development acreage. Many owners of these properties are either negotiating with the lenders to hold on until the market improves or they are taking steps to minimize holding costs, such as property taxes and construction loan interest.

The retail sector has seen declines in sales, and there have been closures of major national chain stores, with more expected. The biggest factor locally has been a decline in market inquiries for retail spaces.

Office spaces are experiencing longer holding periods. Consequently some owners are lowering asking rents. Most are still asking for the tenants to move up to market rent levels that were in effect six months ago within a year or two of new tenancies. There continues to be a fairly good level of market activity for good to high-end office spaces. But most plans for spec space have been put on hold until the market gains more confidence and lenders relax loan requirements for new construction.

Probably the brightest spot in the local market is a continued demand for both existing and proposed multi-family projects. If you drive from East 19th to East 13th avenues, between Mill and Kincaid, you will see a continuation of new construction that reflects a continued demand for the newer, energy-efficient housing units in close proximity to the University of Oregon. This market has not gone unaffected by the recession, however.

If layoffs continue, we may see a decrease in the tax dollars needed to operate local governments and schools.

The recently passed stimulus bill may help locally, but it is too early to tell. There is one thing for sure: We have had many recessions in the past - no two exactly alike - and we have recovered from every one. This too will pass, although it may be hard to imagine if you may be laid off or if your retirement portfolio has fallen by half. But for some reason our economy seems to be able to pull out of it. And, every time we do, many are smarter and wiser.

John Brown is a partner in Evans, Elder and Brown. To ask him a question, e-mail [e-mail].