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Industrial vacancies rising, survey finds.

Byline: CHRISTIAN WIHTOL Register-Guard Business Editor

Need industrial space? The Eugene-Springfield area has a bunch of it, courtesy of the national economic downturn and some overbuilding by speculative developers.

The metro area has 1.5 million square feet of vacant industrial buildings available for lease - factories, warehouses and the like - according to a survey released this week by Grubb & Ellis/Northland Real Estate in Eugene. That's 7.5 percent of the area's 20 million square feet of industrial space, the brokerage said.

The vacancy rate is up from around 2 percent in 1999 and 2000, according to the survey. And it will continue to rise much of next year as the local and national economies languish, predicted broker Bob Graham, who spearheaded the survey.

The glut is prompting owners to cut rents and offer special terms, Graham said. "Landlords are very willing to give incentives," he said.

Graham said it's the first time he's formally done a survey to track all industrial space in the Eugene-Springfield-Coburg-Creswell area. In the late 1990s, when the market was strong, industrial brokers were able to keep in their heads a rough tally of available space, he said.

"We ran for several years with not over 200,000 or 300,000 square feet in the whole marketplace," Graham said.

Now, however, "there's so much available" that a comprehensive list is helpful, he said.

It's not just industrial space that's glutted, Eugene appraiser John Brown said. The office market has plenty of vacancies, he said. Brown's annual survey of office vacancies comes out next spring. He's now working on his annual survey of industrial space in west Eugene, due out later this year.

The local situation mirrors the national one. Industrial and office vacancy rates across the country have been soaring since late last year, as businesses cut back their space needs and delay expansions.

The industrial vacancy rate in major markets nationwide was 8.8 percent in the second quarter of this year, the latest figure available, according to Los Angeles-based brokerage CB Richard Ellis. That's up from 7.7 percent in the last quarter of 2000. The office vacancy rate nationwide hit 11.6 percent in the third quarter, up from 7.7 percent two quarters earlier, according to CB Richard Ellis.

Graham said that as a rule of thumb, he figures an industrial vacancy rate of 3 percent to 5 percent is "healthy," giving both landlords and tenants a fair shake.

The downside of the current local glut is that owners find their rental income streams - and thus their property values - drying up.

Many are long-time landlords who have low amounts of debt on their buildings and are financially strong enough to hang on, Graham said. But someone could run into trouble if he had recently bought industrial property, perhaps overpaying for it, and now has big debt payments and scant income, Graham said.

Sid Leiken, executive director of the Eugene-Springfield Metropolitan Partnership, a business recruitment agency, said industrial property owners will have to wait for the nation to recover from the jarring effects of the Sept. 11 terrorist attacks.

Oregon and Lane County will continue to attract factory operations, including metals, plastics and high-tech, he said. The area has a plentiful work force, plus land and buildings that are far cheaper than in Seattle, San Francisco and other West Coast centers, he said.

The available space comes in many forms.

Giustina Land & Timber Co. has 34,500 square feet of industrial space it completed on speculation this fall at Garfield Street and Second Avenue in Eugene, said broker Sue Prichard, who represents the owners.

Giustina Land & Timber is "aware of the fact that the market changed in the middle of (building) the project," Prichard said. "But they have a long-term positive view."

In Springfield's Gateway area, the 38,000-square-foot former Cascade Fabrication factory has been vacant for 1 1/2 years, Graham said. The former Rubenstein furniture warehouse on Prairie Road, an 85,000-square-foot building, has also been vacant about that long, he said.

Graham said that in Eugene alone he's counted 64 industrial properties for lease, totalling 750,000 square feet. The glut has frozen all speculative industrial construction, he added.

Appraiser Brown said the industrial glut may be followed by a glut of office space in downtown Eugene in the next several years, brought on by a string of development projects. Brown said a total of 300,000 square feet of downtown office space will come on the market when the following events take place: Symantec Corp. moves from downtown to its new campus in Gateway; the law firm Harrang Long Gary Rudnick moves into a new downtown building being constructed by Guard Publishing Co.; the Eugene Library moves into its new digs; and the U.S. Bankruptcy Court moves from space it leases on Seventh Avenue into the new federal courthouse.
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Title Annotation:Business
Publication:The Register-Guard (Eugene, OR)
Date:Nov 14, 2001
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