Rents rising as vacancy rates drop

Downtown, Bakerview, Barkley all bursting at the seams even as new projects come on-line

Statistics show city rents are rising as vacancy rates drop. According to a recent study by Windermere commercial real estate agent Bill Henshaw, most vacancy rates per commercial/retail/industrial type were under the 5 percent norm, meaning that supply was tight and rents correspondingly high.

Krista Grunhurd
   Thanh Le and his wife, Nancy, located their business, Phase 2 Nails, in the Blossom Commons building off the Guide Meridian because they wanted a retail space with high traffic volumes and high visibility. Tanya Nielsen and Katy Rothert said they chose downtown for their hair salon, Calypso, because of the high volume of foot traffic and all of the new growth in the area.
   The decision on where a business should locate is one of the most important choices an owner can make. With the revitalization of areas such as downtown and Fairhaven combined with the growing areas of Barkley and Bakerview, Bellingham has more office, retail and industrial areas then ever before, giving business owners more options for ideal locations.
   According to Ken Reinschmidt, general manager of Saratoga Commercial Real Estate, the commercial, retail and industrial areas of Bellingham have gone through many changes over the last 15 years, including the addition of Bellis Fair mall in 1988, the effort to revitalize the downtown and Fairhaven districts and the growth of the Barkley, Irongate and Bakerview areas.
   “As the Guide Meridian started to develop, the downtown lost businesses, resulting in a high amount of vacancies,” Reinschmidt said. “About 1995, downtown began to pick up speed again slowly, steadily and successfully. Meridian has become more of a place for large places like Costco and Wal-Mart, large businesses that need plenty of space and traffic, where downtown provides an abundance of office space and caters to smaller local businesses.”
   Reinschmidt also said that he thinks many different areas of the city will continue to grow and develop.
   “I think you are going to see quite a bit of activity on Bakerview,” he said. “But you are going to see the most interest in downtown and on the waterfront. More residential is being built and more people are living there, so naturally there will be more need for retail and commercial businesses.”
   Brian Finnegan, president of Westcom Properties Inc., predicts growth in the downtown and Bakerview areas, but also along the I-5 corridor, Barkley District and Fairhaven.
   “There are some exciting developments going on right now,” Finnegan said. “For top-end office, retail and medical space, Barkley Village is thriving. The new retail going in on Bakerview will also bring in new activity. Fairhaven has shown considerable growth as well. Even all the industrial areas in the city have been steady, with new stuff in the Irongate area being built.”
   However, Finnegan does see future obstacles in Bellingham’s development.
   “There are tremendous barriers in Bellingham,” he said. “Geographic barriers such as the border, the mountains and the water will prevent growth,” he said. “There is also a prevailing feeling among staff and the City Council that development needs to be kept in check. I’ve heard from a number of people that it’s incredibly difficult to develop here.”
   According to Bill Henshaw, Windermere Real Estate agent and chairman of the Bellingham Real Estate Report, this lack of development has created a sharp spike in rent for Bellingham businesses.
   “Five-percent vacancy rates are normally considered equilibrium, with supply and demand in balance.” Henshaw said. “If rates are less than 5 percent, rents will go up significantly and it will be harder to attract businesses to the area.”
   In Bellingham, the citywide vacancy rate is around 4 percent, even with the new growth. This is about 2 percent less than five years ago. For office space, this number is even smaller, with approximately 3 percent vacancy, a figure that is down 5 percent since 2002. Industrial space has had the most vacancy space available with about 6 percent, four percent less than 5 years ago.
   Henshaw said he expects to see vacancy rates in all three areas — industrial, retail and commercial — stay at around four percent in upcoming years. For businesses, this may mean continued high rents.
   “There is a lack of available land,” Henshaw said. “There are a lot of retail stores that want to come, but many of those businesses won’t fit into the bottom of a high-rise condominium building. The city has made it very difficult for businesses to move into this area.”
   While rents continue to increase, there are specific areas of the city that have much higher rents than others. The most expensive areas in the city to put retail or office space are the Fairhaven and Barkley areas, which have rents in the mid-twenty dollars per square foot. The Sehome, Happy Valley and downtown areas range from the low teens to low twenties, and the Northwest and Iowa Street areas have the lowest retail and office rents at about $11 per square foot.
   While Henshaw is optimistic about the 50,000 square feet of new retail and office space being developed this year, he still doesn’t think it’s enough.
   “The policies the city has taken mean that more companies are moving elsewhere,” he said. “Early reports on land-supply inventory indicate that we will be 200 to 400 acres short on a commercial level by 2022. Lack of the ability to develop, combined with costs of building are the reason housing and land prices have gone up 20 percent every year for the last few years.”
   “Even with all the barriers, the market is showing growth,” Finnegan said. “Bellingham is as strong or stronger than comparable areas in the state. We have great institutions here. We also have an atmosphere that has a great entrepreneurial attitude. With 98.9 percent of all businesses in Bellingham having 50 employees or less, I think we will continue to see this entrepreneurial attitude here, and that will continue to generate growth.”

— Krista Grunhurd is a recent journalism-department graduate from WWU. This story, and the interactive map that goes with it ( were her internship projects.



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