MARKET ANALYSIS TIMES LITHO PROPERTY FOREST GROVE, OREGON

Transcription

1 MARKET ANALYSIS TIMES LITHO PROPERTY FOREST GROVE, OREGON Prepared For: THE CITY OF FOREST GROVE JUNE, 2013 By: JOHNSON REID, LLC 319 SW WASHINGTON STREET, SUITE 1020 PORTLAND, OR / / (FAX)

2 TABLE OF CONTENTS I. EXECUTIVE SUMMARY...2 II. SUBJECT SITE...4 III. DEMOGRAPHIC & MARKET CONDITIONS...6 A. FORECASTED POPULATION GROWTH... 6 B. PERSONAL INCOME AND WAGES... 6 C. EMPLOYMENT OVERVIEW... 7 D. COMMUTE PATTERNS E. REAL ESTATE PRICING TRENDS IV. RENTAL HOUSING MARKET CONDITIONS A. FOREST GROVE RENTAL TRENDS B. DOWNTOWN FOREST GROVE RENTAL MARKET V. OWNERSHIP HOUSING MARKET CONDITIONS A. FOREST GROVE OWNERSHIP HOUSING TRENDS B. ACHIEVABLE PRICING, FOREST GROVE VI. RETAIL MARKET CONDITIONS A. RETAIL SPENDING LEAKAGE B. FOREST GROVE RETAIL AND ACHIEVABLE LEASE RATES VII. OFFICE MARKET CONDITIONS A. GENERAL OFFICE MARKET TRENDS B. FOREST GROVE OFFICE AND ACHIEVABLE LEASE RATES TIMES LITHO PROPERTY 1

3 I. EXECUTIVE SUMMARY Over the coming decade or decades, Forest Grove can expect to remain an attractive community for families, students and retirees. Population growth can be expected to rebound to a rate near the historical trend. The area s residential markets have drawn a substantial level of their support from persons employed in Hillsboro and Beaverton, which have had constrained residential markets due to supply shortages. As newer developments in South Hillsboro enter the market, there will likely be some negative impact on local demand, but Forest Grove offers a highly marketable community that should continue to attract residential growth. The Times Litho site occupies a key strategic location within the City of Forest Grove, and development of the property has the potentially to substantially impact development opportunities within the downtown area. Conversely, the current underutilization of the site is seen as a detriment to downtown development. Creating active uses on the site that are supportive of the vitality of downtown Forest Grove should be a key objective of any redevelopment program on the site. Our analysis indicates a range of prospective land uses that could be successfully marketed at the Time Litho site. As we move forward with this project, we would anticipate that the economics of development will post the most significant challenge to successful redevelopment of the site. Pricing for residential and office commercial space in the Forest Grove area is relatively low, and will limit new construction opportunities without significant public investment. Residential development types that could potentially be considered at the site include rental apartments, student housing, condominium flats and townhomes. The local market has not seen much recent rental apartment development, and current pricing is quite low. We would expect that a new residential product at the site would command top of market rent levels, but would be considered somewhat above average in terms of risk, as the ability to command these rents has not been demonstrated locally to-date. The Forest Grove area currently has a significant level of retail leakage, which is fairly typical in a community of its size. A number of retail use types require a greater demographic base for support, and local residents will have to leave the community for those uses. Potential retail commercial uses on the site would include some level of specialty grocery, as well as a range of specialty retailers. There may be some re-use potential for the existing structures on the site to be incorporated into a future retail program, reducing costs and subsequently necessary rent levels. The office market is likely to continue to be dominated by service providers, who seek locations proximate to their client base. As a result, firms in the medical and financial services sectors are expected to account for much of the local office market. Pricing is relatively low in the local market, and is likely below what would be necessary to support new construction of speculative office development. TIMES LITHO PROPERTY 2

4 Prospective program elements to be considered at the site include the following: Retail Commercial Rental Apartments Ownership Residential Student Housing Office Space Comments The location is strong for retail uses, with good access and visibility. Retail commercial uses would be supportive of the downtown core, as well as providing potential amenities for additional program elements. Utilization of some of the existing warehouse space for a larger tenant or multi-tenant space may be possible, potentially allowing for lower cost space. Parking will be a major element to consider, as these uses will likely require a significant parking element. The rental apartment market has been very strong in the metro area, although not as strong in Forest Grove. New product in a more urban configuration at this location would be expected to achieve average rent levels in the $1.10 to $1.25 range, depending upon execution. Tax credit and/or age restricted housing would also be possible, but students would not be eligible tenants. The local ownership market is beginning to show signs of renewed strength, particularly single family homes. In a more urban setting such as the subject site, appropriate product types could potentially include condominium flats or townhomes. Achievable pricing would be in the $165 to $185 per square foot range. A product specifically targeting students would be viable at this location, and could be done either cooperatively with Pacific University or by a private entity. Attention should be paid to ownership structures that may remove the property from the tax rolls. The Forest Grove area does not currently suffer from a lack of office space, but the existing office improvements may be able to provide cost effective space that can compete well within the market. Achievable pricing is expected to be in the $14 to $16 net range, which is below what would be necessary to support new speculative construction. TIMES LITHO PROPERTY 3

5 II. SUBJECT SITE The Times Litho property is a 2.68 acre agglomeration of sites within a block bounded by Pacific Avenue to the south, A Street to the east, B Street to the west and 21 st Avenue to the north. The property also includes a satellite parking lot at northeast corner of the intersection of 21 st Avenue and A Street. The property is located one block west of Main Street and one and a half blocks from Pacific University, and has a full block of frontage along Pacific Avenue. While the location is strategically important, the current lack of utilization of the site negatively impacts the commercial vitality of the downtown area. There is a wide range of physical improvements on the site, most of them purpose built and of limited re-use potential. The property includes a number of tax lots, with buildings often covering multiple parcels. The following is a brief summary of the structures on the site, which are keyed to the following aerial photograph of the site: A. Existing single story concrete masonry office building. This 6,649 square foot building occupies an important location at the intersection of Pacific and A Street, and appears to be in relatively good condition. The building would likely need to be renovated for use. B. The series of buildings housing the presses as well as prep and office spaces are of limited use in their current format, but some of the shells may have significant value. The buildings were constructed between 1947 and 1992, and include roughly 31,648 square feet of warehouse and 14,750 square feet of office space. C. Single family residential home, approximately 1,000 square feet, the interior of which has been significantly compromised. This is assumed to have no re-use potential. D. Parking lots and loading docks. The buildings have two parking lots and two loading docks. The lots would likely need to be reconfigured for any future use, but there may be some use for the loading dock at the northeast portion of the property. TIMES LITHO PROPERTY 4

6 C B D A The site has a commercial edge on the Pacific Avenue and A Street frontages, with a more residential edge along B Street. In summary, we would expect some potential for utilizing the existing office building at the corner of A Street and Pacific (A), as well as potentially the structure at the northeast corner of the press buildings, which is approximately 12,000 square feet with an adjacent loading dock accessed off of A Street. The remainder of the property has a configuration and scale that would support a range of prospective development programs. TIMES LITHO PROPERTY 5

7 Population III. DEMOGRAPHIC & MARKET CONDITIONS A. Forecasted Population Growth Since 2001, Forest Grove has observed an average annual growth rate of 1.4%, which is slightly lower than Washington County at 1.6%, but higher than the State of Oregon at 1.04%. Figure 1 shows the rate of population increase forecasted for Washington County by the Oregon Office of Economic Analysis which was applied to the City of Forest Grove. In 2010, there was a minor dip in the population of Forest Grove. This is likely attributable to the an adjustment to match census data, as intercensal estimates are based on housing stock estimates and average household size assumptions, which are adjusted every ten years to match census data. The Forest Grove area has seen a great deal of recent residential construction activity, focused in the northwest portion of the City. 31,000 FIGURE 1: OBSERVED AND FORECASTED POPULATION GROWTH, FOREST GROVE, ( ) 29,000 27,000 Forecasted Observed 25,000 23,000 21,000 19,000 17,000 15,000 Source: Portland State Population Research Center and the Oregon Office of Economic Analysis B. Personal Income and Wages In recent history, the personal income level of Washington County has been higher than both the State of Oregon and national personal income levels, but has trended similarly to both (Figure 2). The income level of residents directly correlates to the residents ability to pay rents/payments and to purchase retail products. Local wage levels have continued to increase for over the last decade and, as shown below, the wage spread between Washington County and the State of Oregon has continued grow to an estimated 133% in TIMES LITHO PROPERTY 6

8 Average Wage Wage Spread to State FIGURE 2: PERSONAL INCOME AND WAGES $45,000 $40,000 $35,000 $30,000 $25,000 $70,000 $60,000 $50,000 $40, % 132.0% 130.0% 128.0% $20,000 $30, % $15,000 $10,000 $5,000 United States Oregon Washington County $20,000 $10,000 Average Wage Wage Relative to State Average 124.0% 122.0% $0 $ % SOURCE: U.S. Bureau of Economic Analysis and the Oregon Employment Department C. Employment Overview The Washington County economy exhibited a stabilized period of growth from 2005 extending well into 2008, adding over 18,400 employees during a 36-month period. The economy then took a negative turn coinciding with the on-set of the national recession in late The State of Oregon and the Portland Metro region saw the effects of the housing crisis and the weakening of the financial industry with yearover-year job losses extending from the fourth quarter of 2008 through 2009 and into the first quarter of As the economy began to recover in mid-2010, Washington County has recorded over 2.5 years of positive year-over-year growth. FIGURE 3: YEAR-OVER-YEAR EMPLOYMENT CHANGE, WASHINGTON COUNTY, OREGON Source: Oregon Employment Department, LAUS Data Set TIMES LITHO PROPERTY 7

9 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Along with the increase in the creation of new employment opportunities, the unemployment rate has recovered as well and indicators point towards continued recovery. The State of Oregon had hit its peak of unemployment in mid-2009 at 11.6% and treaded above 10% until early These trends coincided with the recession in the economy for the past few years. During that same time period, Washington County had a spike of unemployment at 9.7%, but had fallen to 8.1% by early Unemployment continues to fall and by early 2013 were an estimated 8.2% and 6.9% for the State of Oregon and Washington County, respectively. FIGURE 4: UNEMPLOYMENT RATES 12% 11% 10% 9% United States Oregon Washington 8% 7% 6% 5% 4% 3% 2% SOURCE: Oregon Employment Department Over the past decade, industries that have had notable growth in Washington County include education and health, professional and business, leisure & hospitality, wholesale trade and local government. Even with increased employment at Intel, the overall manufacturing industry reported decline, namely in durable goods manufacturing sector. (Figure 5) As the local economy continues to improve and incomes continue to rise, Washington County will be poised for new residential development opportunities. TIMES LITHO PROPERTY 8

10 FIGURE 5: NET EMPLOYMENT CHANGE BY SECTOR, WASHINGTON COUNTY, Natural Resources Construction Computer and Electronic Product Manufacturing Non Durable Goods Manufacturing Other Durable Goods Manufacturing Wood Product Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing, & Utilities Information Financial Activities Professional & Business Education & Health Leisure & Hospitality Other Services State Government Federal Government Local Government -10,000-5, ,000 10,000 15,000 Source: Oregon Employment Department According to the Forest Grove Economic Opportunities Analysis (EOA) conducted in 2009, the highest employment in the base year of the analysis was found in the Education and Health sector (32%), while Manufacturing which includes food processing represents 24% of employment (Figure 6). The EOA forecasts growth of 5,750 jobs over following 20 years. Professional services, manufacturing, tourism, education and health care are all projected to grow at faster than average rates. FIGURE 6: EMPLOYMENT BY INDUSTRY SECTOR, FOREST GROVE Baseline Growth Scenario Base Year Employment Forecast Growth NAICS Jobs AAGR Natural Resources % Construction % Manufacturing 2,197 2,572 2,945 3,426 3,888 1, % Wholesale Trade % Retail Trade % T.W.U % Information % Financial Activities % Professional & Business % Education & Health 2,979 3,460 3,933 4,540 5,118 2, % Leisure & Hospitality ,041 1, % Other Services % Public Administration % TOTAL 9,092 10,377 11,646 13,278 14,840 5, % Source: 2009 EOA (Oregon Employment Department, local interviews, Johnson Reid) TIMES LITHO PROPERTY 9

11 In 2012, the key industries in Forest Grove continued to include manufacturing, educational services, health, and retirement services (Figure 7). Forest Grove is situated roughly 30 miles west of Portland and 5 miles west of Hillsboro, the high-tech center of Washington County, home to major employers including Intel, Solar World, and Genentech. Washington County was heavily weighted towards manufacturing and professional and business. This is largely due to the City of Hillsboro which is the preeminent employment center in Washington County. Intel alone employs over 16,000 workers and is expanding operations in Hillsboro with the development of a new R&D fab. FIGURE 7: EMPLOYMENT DISTRIBUTION BY SECTOR, FOREST GROVE, WASHINGTON COUNTY AND STATE OF OREGON, 2012 Natural Resources Construction Manufacturing Wholesale Trade Retail Trade T.W.U. Information Forest Grove Washington County Oregon Financial Activities Professional & Business Education & Health Leisure & Hospitality Other Services Public Administration 1/ Transportation, Warehousing, & Utilities 0% 15% 30% 45% Source: U. S. Census & Oregon Employment Department Distribution of Employment Over the coming decade or decades, Forest Grove can expect to remain an attractive community for families, students and retirees. Population growth can be expected to rebound to a rate near the historical trend. While local job growth is expected to continue at a healthy level, and there is the potential for larger new employers to locate in Forest Grove, the community will also continue to serve TIMES LITHO PROPERTY 10

12 as a bedroom community for workers in other parts of the Metro area, particularly for employees of neighboring Hillsboro. D. Commute Patterns Forest Grove is a community of roughly 21,500 people which has grown over time around Pacific University and supported by the surrounding Washington County businesses. The city is an important retirement, educational, and bedroom community on the western edge of the Portland Metro area. According to the 2010 Census, 19% of residents with jobs worked in Forest Grove. An estimated 21.4% worked in Hillsboro, 14% worked in Portland, and 6.6% in Beaverton. The remainder works in smaller cities and unincorporated areas. 70% of working residents work somewhere in Washington County. FIGURE 8: COMMUTE PATTERNS, FOREST GROVE, 2010 All Other Locations 2, Gresham, OR Salem, OR Aloha CDP, OR Tualatin, OR Forest Grove Residents work in... Tigard, OR Forest Grove Employees Live in... Cornelius, OR Beaverton, OR Portland, OR 1, Forest Grove, OR 1, Hillsboro, OR 1, Source: U.S. Census Bureau -3,000-2,000-1, ,000 2,000 3,000 Jobs TIMES LITHO PROPERTY 11

13 Source: U.S. Census Bureau E. Real Estate Pricing Trends Relative to other parts of the Metro area, pricing levels in Forest Grove are somewhat low. This is common in the smaller markets that are situated outside of the main employment centers, such as Portland and Hillsboro. These pricing levels will impact the range of development types that are feasible in the proposed area, making some higher density development types more difficult to achieve. However, significant density can still be added with low-rise construction types, as discussed in the following section. The range represents variation in location and quality within the community. These factors, as they pertain to the study area are discussed more in a following section. TIMES LITHO PROPERTY 12

14 IV. RENTAL HOUSING MARKET CONDITIONS A. Forest Grove Rental Trends According to the 2010 Census, the City of Forest Grove s housing units were 57.3% owner-occupied, and 42.7% renter-occupied (excluding vacant units). This rental rate is lower than Portland s 46.3%, but well above the rate in Oregon (37.8%) and the nation (34.9%). Forest Grove does not have a large stock of newer multifamily inventory. The few buildings that have been built recently are mainly affordable housing targeting working class households and student housing for Pacific University. From the surveyed rental units (Figure 9), the average rent-per-squarefoot rents ranged $0.59 to $1.04 per unit. FIGURE 9: SUMMARY OF SURVEYED RENTAL PROPERTIES, FOREST GROVE Unit Characteristics Rent Characteristics Product Name Year / Location Built Type Sq. Ft. Low Rent High Rent Avg. Rent Avg. Rent Per S.F. Karen's Korner B/1b 615 $ $ $ $ Pacific Avenue, 2B/1b 900 $ $ $ $ 0.82 Forest Grove, OR B/1b 1,000 $ $ $ $ 0.84 ` CampusView Apartments 1B 641 $ $ $ $ Cedar Street, 2B $ $ $ Forest Grove, OR Hidden Pines Apartments 1B/1b 980 $ $ $ $ th Avenue, 2B/1b 990 $ $ $ $ 0.78 Forest Grove, OR CityView Apartments 1B 641 $ $ $ $ th Avenue, Forest Grove, OR Source: Subject Properties and Johnson Reid, LLC With the lack of available new building comparables in Forest Grove, approximate rental rates can be further be derived from surveying newer multifamily developments in the neighboring city of Hillsboro. Current rates in the rental market in Hillsboro are discounted to an achievable rent range for a new multifamily building in Forest Grove. The surveyed comparables in Hillsboro were all built between the years of with the oldest building (Cortland Village) undergoing a renovation at the time of this report. Figure 10 details that the average rent-per-square foot rents ranged from $0.85 to $1.78 per unit and average project rents ranging from an estimated $0.99 to $1.48. TIMES LITHO PROPERTY 13

15 FIGURE 10: SUMMARY OF SURVEYED RENTAL PROPERTIES, HILLSBORO Unit Characteristics Rent Characteristics Project Name/ Year Vac. Unit Low - High Average Price Per Location Built Rate Total Type Sq. Ft. Mix Rent Sq. Ft. Platform 14 (Living Green) % 65 Studio/1b % $935 - $1,115 $1,025 $ NE Orenco Station Pkwy 71 1B/1b % $1,035 - $1,175 $1,105 $1.18 Hillsboro, OR B/2b % $1,380 - $2,400 $1,890 $ $1,078 - $1,437 $1,257 $1.48 Orenco Gardens B/1b 787 $1,000 - $1,000 $1,000 $ Northeast Alder Street 1B/1b 828 $1,105 - $1,105 $1,105 $1.33 Hillsboro, OR B/1b 959 $1,095 - $1,095 $1,095 $ B/1b 995 $1,210 - $1,210 $1,210 $1.22 2B/2b 1,145 $1,180 - $1,180 $1,180 $1.03 2B/2b 1,205 $1,335 - $1,335 $1,335 $1.11 3B/2b 1,231 $1,360 - $1,360 $1,360 $1.10 3B/2b 1,316 $1,470 - $1,470 $1,470 $ Nexus at Orenco Station % 47 Studio/1b % $1,010 - $1,070 $1,040 $ NE Orenco Station Pkwy 55 1B/1b % $980 - $980 $980 $1.38 Hillsboro, OR B/1b % $1,065 - $1,100 $1,083 $ B/1b % $1,035 - $1,080 $1,058 $ B/2b 1,059 13% $1,220 - $1,225 $1,223 $ B/2b 1,072 13% $1,330 - $1,330 $1,330 $ B/2b 1,120 6% $1,325 - $1,395 $1,360 $ B/2b 1,184 7% $1,350 - $1,350 $1,350 $ B/2b 1,247 9% $1,400 - $1,550 $1,475 $ B/2b 1,407 1% $1,455 - $1,660 $1,558 $ B/2b 1,500 0% $1,425 - $1,425 $1,425 $ % $1,170 - $1,207 $1,189 $1.33 Hidden Creek % 24 1B/1b % $765 - $780 $773 $ NE Hidden Creek Drive 24 2B/2b % $890 - $945 $918 $0.98 Hillsboro, OR B/2b % $890 - $945 $918 $ B/2b % $890 - $945 $918 $ B/2b % $1,115 - $1,300 $1,208 $ % $905 $976 $940 $0.99 Jackson School Village % 32 1B/1b % $790 - $820 $805 $ NE Autumn Rose Way 104 2B/2b % $925 - $940 $933 $1.04 Hillsboro, OR B/2b % $1,125 - $1,155 $1,140 $ % $967 - $990 $979 $1.04 Belmar Commons B/1b 751 $765 - $795 $780 $ NE 25th Ave 2B/1b 1,000 $890 - $910 $900 $0.90 Hillsboro, OR B/2b 1,036 $940 - $1,010 $975 $ B/2b 1,112 $1,175 - $1,190 $1,183 $1.06 3B/2b 1,267 $1,125 - $1,125 $1,125 $ Cortland Village 2000, 2013 Renov. 0% 1B/1b A 707 $961 - $1,116 $1,039 $ NE Ronler Way 1B/1b B 796 $1,068 - $1,203 $1,136 $1.43 Hillsboro, OR B/1b C 916 $1,150 - $1,270 $1,210 $ B/2b A 1022 $1,230 - $1,345 $1,288 $1.26 Source: Subject Properties and Johnson Reid, LLC 2B/2b B 1093 $1,238 - $1,373 $1,306 $ B/2b % $1,457 - $1,547 $1,502 $ TIMES LITHO PROPERTY 14

16 B. Downtown Forest Grove Rental Market There have not been significant developments of multifamily rental housing projects in the pipeline for the City of Forest Grove in recent years. The majority of the current market competition in Forest Grove is comprised of older stock and any new projects will establish itself at the top of the market. In summary, the rental market appears to sustain rent levels at the mid-$0.90 to $1.10 per square foot range for rental apartments. For a more urban product with proximate urban amenities, achievable pricing may be closer to $1.25 per square foot. C. Student Housing Opportunity The project will have the ability to market to the student population at Pacific University's Main Campus in Forest Grove. According to Pacific University, enrollment was at 3,433 during the school year with about half of them being undergraduate students and attending classes on the main campus. The graduate programs offer classes at Pacific University s Hillsboro campus for the other half of the student population. Located approximately three blocks west of the main campus, the site has the potential to target those students who prefer newer off-campus apartment units relative to what is currently available in Forest Grove for undergraduate students. From a location perspective the subject site offers a range of proximate urban amenities, and certainly student facilities. The unit mix should be comprised of studios and one bedrooms, as undergraduate students typically do not have families. The unit size would therefore be more compact relative to units found in near the Hillsboro campus, as graduate students are more likely to have a larger household size. TIMES LITHO PROPERTY 15

17 V. OWNERSHIP HOUSING MARKET CONDITIONS A. Forest Grove Ownership Housing Trends Development in Forest Grove has been led by the residential sector, followed by retail and services which support the local population and businesses in Forest Grove and neighboring Cornelius. During the past year, Forest Grove reported an estimated 400+ home sales with median sales price for detached homes at $199,000 and attached homes at $135,000 (Figure 11). The chart below details the inventory statistics in Forest Grove for the past year. FIGURE 11: SALES AND INVENTORY STATISTICS FOREST GROVE, PRIOR 12 MONTHS DETACHED: ATTACHED: FOREST GROVE, OREGON FOREST GROVE, OREGON Total Annual Sales: 383 Total Annual Sales: 23 Average Monthly Sales: 31.9 Average Monthly Sales: 1.9 Median Sale Price $199,000 Median Sale Price $135,000 Median Price/Sq Ft: $115 Median Price/Sq Ft: $84 Median Size (Sq. Ft): 1,748 Median Size (Sq. Ft): 1,479 Average Sale Price $219,731 Average Sale Price $133,120 Average Price/Sq Ft: $115 Average Price/Sq Ft: $91 Average Size (Sq. Ft): 1,948.4 Average Size (Sq. Ft): 1,384 Active Homes Available: 78 Active Homes Available: 4 Median List Price: $323,245 Median List Price: $192,000 Overall Overall 3.8 Inventory/Months: Inventory/Months: 0.2 Source: RMLS and Johnson Reid, LLC Over the past ten years, newly constructed homes in Forest Grove overwhelmingly have been detached single-family units in subdivisions. Detached units continue to be more relevant in the Forest Grove market than attached, as recorded in the sales of the past 12 month. Homes in the community followed the regional trend, tending to grow larger and more expensive in the first half of the decade before peaking in Since that time, homes have decreased in price and sales velocity has fallen, as has been the experience nationwide. Attached home sales in Forest Grove have significantly decreased after 2008 while neighboring Hillsboro has observed in increase in attached home sales (Figure 12). As the recession affected homeowners, more affordable homes that were either distressed or defaulted became available, which may have contributed to the higher volume of Hillsboro employees that purchased closer to their workplace than further out in Forest Grove. TIMES LITHO PROPERTY 16

18 FIGURE 12: ATTACHED HOME SALES STATISTICS, FOREST GROVE, Source: New Home Trends and Johnson Reid, LLC The current listings active in the market average $360,206 for an average home (detached and attached) size of 2388 square feet. The average price per square foot for current listed homes is $151 per square foot. (Figure 13) FIGURE 13: ACTIVE HOME LISTINGS, FOREST GROVE Source: RMLS and Johnson Reid, LLC TIMES LITHO PROPERTY 17

19 Sep 1996 Mar 1997 Sep 1997 Mar 1998 Sep 1998 Mar 1999 Sep 1999 Mar 2000 Sep 2000 Mar 2001 Sep 2001 Mar 2002 Sep 2002 Mar 2003 Sep 2003 Mar 2004 Sep 2004 Mar 2005 Sep 2005 Mar 2006 Sep 2006 Mar 2007 Sep 2007 Mar 2008 Sep 2008 Mar 2009 Sep 2009 Mar 2010 Sep 2010 Mar 2011 Sep 2011 Mar 2012 Sep 2012 Mar 2013 Figure 14 summarizes the Zillow Home value Index over the sixteen years in Forest Grove, including single family homes, attached/condo units and the top tier inventory. Home pricing in all three categories peaked in the spring/summer of 2007, and single family homes and top tier homes fell to a low point in the fall of Attached/condo units continued to fall well passed 2011 into early 2013 where prices appear to be recovering. Single family home prices dropped 30.1%, while attached products fell 40.5% from the height and low of the market. Home prices appear to have stabilized and show a slight upward momentum to-date in the area. $500,000 FIGURE 14: ZILLOW HOME VALUE INDEX, FOREST GROVE $450,000 $400,000 $350,000 Single Family Attached/Condo Top Tier $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Source: Zillow B. Achievable Pricing, Forest Grove As seen from the reported data, recent transactions reveal that Forest Grove s market for attached housing has been trending down with the decrease in the purchase prices of attached homes in Hillsboro. Detached homes have more relevance to Forest Grove and the attached home market would likely be limited. A new product in an urban setting has the potential of achieving pricing in the $165 to $185 per square foot range, assuming relatively small unit sizes. TIMES LITHO PROPERTY 18

20 VI. RETAIL MARKET CONDITIONS A. Retail Spending Leakage An assessment of the categories and magnitude of retail spending which is currently leaking out of the Forest Grove market can indicate what local needs are not currently being served by local businesses. A one-mile, three-mile, and five-mile radius from the subject site has been evaluated to compare the area household spending to the existing sales in the delineated region (Figure 15). In the City of Forest Grove, it appears that only about half of the household expenditure that originates from the local population is captured within the region, reflecting a near 50% level of leakage of remaining sales to other markets. (Figure 16) FIGURE 15: ONE, THREE, FIVE MILE RINGS FOREST GROVE Source: Claritas TIMES LITHO PROPERTY 19

21 Within a one-mile radius of the subject site in Forest Grove, there was an estimated $94 million of annual retail leakage. This leakage is over half of the area household spending of $181 million. Retail leakage indicates that Forest Grove is unable to capture half of the spending that can be attributed to local households and these households travel outside of the region to spend money elsewhere. The retail categories with the greatest amount of leaked sales are Motor Vehicle and Parts Dealers, General Merchandise Stores, and Food Service and Drinking Places. Within the three-mile radius of Forest Grove, approximately $205 million in retail leakage in annual spending was reported. As with the one-mile radius, this amount is nearly half of the local household spending at $431 million. The retail categories with the greatest amount of leaking sales are Motor Vehicle and Parts Dealers, Non-Store Retailers, Food Service and Drinking Places, and Building Material and Garden Equip Stores. Within the five-mile radius of Forest Grove, an estimated $284 million of retail sales is leaked outside of the region. This leakage is more than half of the area household spending of $561 million. The retail categories with the greatest amount of leaked sales are Motor Vehicle and Parts Dealers, Food Service and Drinking Places, Non-Store Retailers, and Building Material and Garden Equip Stores. Overall, Forest Grove is leaking close to half of the area household spending to other areas outside of the region. This may be attributable a lack of established local retail businesses to meet household needs but also, in part, to the growing trend of purchasing goods online. FIGURE 16: RETAIL LEAKAGE/SURPLUS, FOREST GROVE RETAIL SPENDING LEAKAGE, FOREST GROVE (1-mile) Area Household Area Spending Existing Area Sales Spending Leakage / (Surplus) NAICS Category 441 Motor Vehicle and Parts Dealers $29,615,471 $3,330,437 $26,285, Furniture and Home Furnishings Stores $3,501,923 $667,192 $2,834, Electronics and Appliance Stores $4,103,585 $3,312,634 $790, Building Material, Garden Equip Stores $16,189,578 $10,417,176 $5,772, Food and Beverage Stores $24,321,184 $21,161,632 $3,159, Health and Personal Care Stores $9,042,484 $5,562,564 $3,479, Gasoline Stations $18,094,479 $9,834,460 $8,260, Clothing and Clothing Accessories Stores $8,866,188 $746,443 $8,119, Sporting Goods, Hobby, Book, Music Stores $4,079,871 $6,064,247 ($1,984,376) 452 General Merchandise Stores $23,797,159 $9,775,127 $14,022, Miscellaneous Store Retailers $5,188,709 $2,471,988 $2,716, Non Store Retailers $14,672,923 $5,027,065 $9,645, Foodservice and Drinking Places $19,766,361 $8,452,200 $11,314,161 Totals: $181,239,913 $86,823,166 $94,416,747 TIMES LITHO PROPERTY 20

22 RETAIL SPENDING LEAKAGE, FOREST GROVE (3-mile) NAICS Area Household Spending Existing Area Sales Area Spending Leakage / (Surplus) Category 441 Motor Vehicle and Parts Dealers $70,289,085 $11,064,395 $59,224, Furniture and Home Furnishings Stores $8,448,611 $772,701 $7,675, Electronics and Appliance Stores $9,206,842 $8,066,832 $1,140, Building Material, Garden Equip Stores $39,962,711 $17,302,185 $22,660, Food and Beverage Stores $58,871,375 $50,117,652 $8,753, Health and Personal Care Stores $22,358,781 $17,239,756 $5,119, Gasoline Stations $42,347,112 $29,644,633 $12,702, Clothing and Clothing Accessories Stores $21,081,879 $2,264,256 $18,817, Sporting Goods, Hobby, Book, Music Stores $9,001,945 $7,662,718 $1,339, General Merchandise Stores $57,259,161 $51,653,519 $5,605, Miscellaneous Store Retailers $11,955,241 $4,614,219 $7,341, Non Store Retailers $33,960,865 $6,022,700 $27,938, Foodservice and Drinking Places $45,791,357 $18,367,190 $27,424,167 Total Retail Sales Incl Eating and Drinking Places $430,534,963 $224,792,755 $205,742,208 RETAIL SPENDING LEAKAGE, FOREST GROVE (5-mile) NAICS Category 441 Motor Vehicle and Parts Dealers $92,266,295 $16,725,797 $75,540, Furniture and Home Furnishings Stores $10,988,608 $1,538,591 $9,450, Electronics and Appliance Stores $11,840,549 $10,679,788 $1,160, Building Material, Garden Equip Stores $52,676,136 $25,842,623 $26,833, Food and Beverage Stores $76,979,554 $53,608,596 $23,370, Health and Personal Care Stores $29,059,105 $18,960,662 $10,098, Gasoline Stations $55,126,023 $40,460,504 $14,665, Clothing and Clothing Accessories Stores $27,725,716 $3,103,377 $24,622, Sporting Goods, Hobby, Book, Music Stores $11,541,210 $8,211,734 $3,329, General Merchandise Stores $74,920,556 $64,699,374 $10,221, Miscellaneous Store Retailers $15,482,987 $5,547,039 $9,935, Non Store Retailers $43,907,223 $6,918,481 $36,988, Foodservice and Drinking Places $59,364,122 $21,031,281 $38,332,841 Total Retail Sales Incl Eating and Drinking Places $561,878,084 $277,327,849 $284,550,235 Source: Claritas Inc. and Johnson Reid, LLC Area Household Spending Existing Area Sales Area Spending Leakage / (Surplus) Forest Grove, as shown from the data, has been unable to capture over half of the retail expenditures of its population base. This suggests that a larger city, as residents shop in larger communities with higher commercial concentrations and greater retail options. Forest Grove reports the highest retail leakage in Motor Vehicle and Parts Dealers. This type of retail would not be considered desirable for the subject site, as these types of businesses typically are found in clusters and are most successful when other motor vehicle related retailers can collectively draw customers. With considerable leakage in Forest Grove s Food and Beverage category, specialty markets, such as Trader Joe s or New Seasons, could potentially capture a large portion of the near $8 million in leakage from a 3-mile radius from the subject site. Specialty markets typically look at market size, growth potential, lifestyle and education levels when determining a new location. The area s traditional grocer needs are served by local grocer such as Safeway, Fred Meyer and Wal Mart, but a specialty grocer targets a market niche not well served by these retailers. The demographics in the Forest Grove area have not traditionally been consistent with specialty grocer targets, but the new residential developments have been changing the demographic composition of the area over the last decade. Food Service and Drinking Places is another category which should be considered for this site. With over $27 million in spending leakage within a 3-mile radius, strategically signing of restaurants that would TIMES LITHO PROPERTY 21

23 attract not only the students at Pacific University, but also the residents of Forest Grove, has the potential to create the synergy necessary for the subject site. B. Forest Grove Retail and Achievable Lease Rates An evaluation of market comparables provides an indication of current market rents as well as a basis for establishing a basis for a price range that a new development may garner. Currently retail rates in Forest Grove range from $8.52-$16.44 per square foot (NNN 1 ) and in Hillsboro $11.52-$26.00 per square foot (NNN), depending on the location within the city (Figure 17). Achievable ground floor retail rents for new construction in Forest Grove are expected to be $15.00 to $17.00 per square foot NNN. 1 Triple Net, or NNN, rents require the tenant to meet most or all costs in addition to rent, including utilities, insurance, maintenance and property taxes. NNN rents are most common for retail space, and less common for office space. TIMES LITHO PROPERTY 22

24 FIGURE 17: RETAIL COMPARABLES, FOREST GROVE & HILLSBORO Name/ Address Market Year Built Available Rents ($/SF/year) Photo Ingles-Porter Building 2036 Main St Forest Grove $10.36-$12.00 NNN Forest Grove Center Pacific Ave Forest Grove 1966 (Renov 1991) 7314 $13.00 NNN 2030 Main St Forest Grove 1891 (Renov 2012) 4950 $8.52-$16.44 NNN Ballard Towne Square 3010 Pacific Ave Forest Grove $16.00 NNN E Main St Hillsboro $11.52-$12.18 NNN 230 E Main St Hillsboro $ $13.20 NNN Shute Park Plaza SE Tualatin Valley Hwy Hillsboro $14.00-$15.00 NNN Orenco Station Town Center NE 61st Ave Hillsboro - $18.00-$26.00 NNN Tanasbourne West Annex NW Imbrie Dr - Bldg A Hillsboro 2006 $17.00 NNN Hillsboro Promenade SW Baseline Rd Hillsboro $19.00 NNN 276 E MAIN St Hillsboro $19.44 Modified Gross Sunset Oaks Baseline Rd - Bldg B Hillsboro $22.00 NNN Source: Costar and Johnson Reid, LLC TIMES LITHO PROPERTY 23

25 VII. OFFICE MARKET CONDITIONS A. General Office Market Trends The office market in Forest Grove is comprised of older inventory with some historic structures. The demand for office space is correlated to the growth of industries that require this space for its operations. As reported in the Forest Grove EOA, industries that support the office market are projected to be on a growing trend. Average annual growth rates are estimated at 1.7% for Financial Services, 4.7% for Professional and Business Services, and 2.7% for Education and Health Services (Figure 18). FIGURE 18: EMPLOYMENT BY KEY INDUSTRY RELEVANT TO OFFICE MARKET, FOREST GROVE Baseline Growth Scenerio Base Year Employment Forecast Growth NAICS Jobs AAGR Financial Activities % Professional & Business % Education & Health 2,979 3,460 3,933 4,540 5,118 2, % Forest Grove- Total 9,092 10,377 11,646 13,278 14,840 5, % Source: 2009 EOA (Oregon Employment Department, local interviews, Johnson Reid) Assuming an average space need of 250 square feet per employee, the projection would translate into a need for approximately 34,000 square feet of private sector office space per year. Much of the office spaces in Forest Grove are older and are considered to be between Class B or Class C level stock. Pricing for office space in Forest Grove is $6.50-$12.00 per square foot (NNN). There has been more activity in Hillsboro in recent years relative to Forest Grove. Thus, the newer inventory is able to command higher rents at $16.00-$ per square foot (NNN). The summary of some selected projects leasing office space in Forest Grove and Hillsboro (Figure 19). TIMES LITHO PROPERTY 24

26 FIGURE 19: OFFICE COMPARABLES, FOREST GROVE & HILLSBORO Name/ Address Market Year Built Available Rents ($/SF/year) Photo 2813 Pacific Ave Forest Grove SF Class C $6.50 Modified Gross 2318 Pacific Ave Forest Grove SF Class C $12.00 Modified Gross 2328 Pacific Ave Forest Grove SF Class B $12.00 NNN 2004 Main St Forest Grove SF $12.96 Full Service Maywood Professional Plaz 2031 Hawthorne St Forest Grove 1974 (Renov 1999) 2772 SF Class C $12.00-$14.50 Modified Gross Elm Street Commerce Center SE 75th Ave Hillsboro SF Class B $9.00 Modified Gross Orenco Station Town Center NE Cornell Rd - Bldg 3 Hillsboro 1999 Class B $22.00 NNN Colonial Plaza 1049 SW Baseline Hillsboro 1985 (Renov. 1992) 5800 SF Class C $12.00-$16.00 Modified Gross The Mercantile Building- Hawthorne Farms 4950 NE Belknap Ct (Suite 105) Hillsboro SF Class B $16.00-$16.50 NNN Source: Costar and Johnson Reid, LLC As characteristic in most markets, medical offices in the Forest Grove/ Hillsboro charge higher rents than other office spaces. This is because of the level of specialization required for tenant improvements. Rents in the Forest Grove area we found to be around $12.00 to $15.48 per square foot (Modified TIMES LITHO PROPERTY 25

27 Gross) and in Hillsboro at the high end, a Class A product is renting for $26.52 (Full Service). A summary of our findings are in the below Figure 20. FIGURE 20: MEDICAL OFFICE COMPARABLES, FOREST GROVE & HILLSBORO Name/ Address Market Year Built Available Rents ($/SF/year) Photo Cole Carter Building 1904 Elm St (Medical Space) Forest Grove SF Class C $15.48 Modified Gross 1951 Oak St (Medical Space) Forest Grove SF Class B $12.00 Modified Gross Tuality Seventh Avenue Medical Plaza 333 SE Seventh Ave (Medical Space) Hillsboro SF Class A $26.52 Full Service Source: Costar and Johnson Reid, LLC B. Forest Grove Office and Achievable Lease Rates In the current Forest Grove market, office lease rates fall in the range of $6.50-$12.00 per square foot (NNN) and medical offices fall within $12.00-$15.48 per square foot (Modified Gross). As part of a newer mixed used development in downtown Forest Grove, the subject site would be at the higher end of the market and could expect to achieve lease rate of about $12.00-$14.00 per square foot (NNN) and medical office rents would be approximately $16.00 per square foot (Modified Gross). TIMES LITHO PROPERTY 26