Deal may be done soon for 400,000 square foot distribution center used by Nike in the past

Saddled with the highest vacancy rate of any industrial real estate submarket in the Portland-metropolitan area, Wilsonville had a rough go during the past few years.

But after losing such major building occupants like Nike, Joe’s Sporting Goods and Hollywood Video, the submarket now looks like it’s poised for a big return.

With a few major lease deals in discussion and a few new construction projects in the works, market activity is rebounding. A lot of industrial space is available, and the city government is welcoming business, so local brokers say the area is ripe for businesses looking to expand or locate in the Portland area.

“It’s always been a great place to be; it was just hit hard after losing three or four big users,” said Andy Kangas, a vice president and industrial broker with the Portland office if CB Richard Ellis. “It definitely seems as if people are interested in being there because of the amount of product and a business friendly climate.”

The submarket along the south corridor of Interstate 5 – defined as south of Portland and north of where the Willamette River crosses I-5 – ranks third among corridors for most space in the Portland-metro area, behind only the Columbia Corridor and the Sunset Corridor. But the south corridor has the highest vacancy rate, at 12.4 percent. Available space totaled 2.74 million square feet as of June, according to a recent industrial market report by Grubb and Ellis.

That vacancy rate is beginning to show signs of improvements, however. For example, after vacating a space in North Portland, pulp-and-paper company Georgia Pacific signed a short-term lease for a 275,000-square-foot space at the I-5 Logistics Center in Wilsonville. The space was formerly occupied by Joe’s, according to Colliers International brokers who represented the building.

Moreover, Kangas, who is listing the 400,000-square-foot, Southwest 95th Avenue distribution center space previously occupied by Nike, said the property has drawn some inquiries. A deal could be worked out by early October, he said. The building is the largest vacant industrial space in the region.

“There’s been interest from a few parties, but there’s nothing I can say about it right now, Kangas said. “We will know more early next month.”

The rumor floating around real estate circles is that Kangas is in negotiations with Pacific Natural Foods for the space. But neither Kangas nor Matthew Baker, the Franklin Properties broker who represents the manufacturer of premade natural foods, would confirm the information.

“There’ve been discussions (for potential spaces), but nothing is concrete at this time,” Baker said. “I can’t really say much more than that right now.”

Jennifer Herrick, spokeswoman for Pacific Natural Foods, said the company won’t comment on the situation at this time.

Presently in Wilsonville, as often happens when vacancy rates start to drop, construction is picking up.

Sierra Construction is working on a 90,000-square-foot speculative office/industrial space fore Beaverton-based Pacific Northwest Properties. Four buildings under construction on the 11-acre site are expected to be completed by the beginning of March 2010, said Guy Blanchard, Sierra’s Oregon operations manager.

Tom Stern, a partner with Pacific Northwest Properties, said the project, when finished, will suit medium-sized businesses looking for higher-end space. He expects between 20 and 25 businesses to occupy the buildings once they’re fully leased.

“The vacancy rate doesn’t scare us (in Wilsonville) because we have 28 business parks around the area and have a total occupancy rate of 93 percent,” Stern said. “We built the Highway Business Park off of (U.S. Route 26) a few years back in one of the hardest hit submarkets, yet it’s fully leased up.

“We think it’s going to be a good project in a good area.”

Businesses appear to be taking note of the movement in Wilsonville. Trellis Earth, a manufacturer of disposable food containers that occupies 33,000 square feet of space in Wilsonville, plans to relocate part of its overseas manufacturing to its Wilsonville headquarters. The company moved to Wilsonville from Portland in May, and while details of the expansion are sparse, company officials said it plans to spend $7 million on the build-out.

“There has been a significant uptick of business inquiries, especially for industrial space, and we are quite excited about it,” said Mark Ottenad, a spokesman for the city. “Our vacancy rate was driven by a few major spaces, and it seems as if there are some serious inquiries into leasing them.”