February 28, 2002

Spokane: A study in steady growth

  • While Puget Sound struggles with a slow market, Spokane keeps chugging along
    Spokane Area Economic Development Council

    Photos courtesy of Spokane Area Economic Development
    Experts predict commercial real estate in Spokane will continue its steady performance, with current commercial vacancies at 8.7 percent.

    Commercial and residential investment continues to steam consistently ahead, and local real estate and economic development leaders expect more of the same is on the way in this eastern Washington region of 418,000.

    Plans for a downtown high-rise and work on suburban business parks are among the upgrades to Spokane’s amenities that have made the region an increasingly attractive place to do business and live.

    Renewed interest in restoring neighborhood retail centers to their previous glory has helped carry momentum generated by the office building projects into the residential market, which kicked off the year on an upswing.


    Spokane’s commercial real estate opportunities that cater to the local economy’s blend of old-economy businesses and intriguing new brand of high-tech and biotech companies were among the trends and forecasts offered by industry experts at the recent Spokane-Kootenai County Real Estate Market Forum.

    Job opportunities are being generated in the high-tech, biotech, financial services and health care industries. Already this year, a handful of companies have announced relocations and expansions, which will bring more than 150 jobs to the area.

    Also prominent of late has been a solid retail community, which has seen timely improvements to every major mall in the Spokane area, including Shadle Center and Franklin Park Mall, two neighborhood shopping centers in north Spokane. Most of those projects have caused a ripple effect of further commercial development or residential investment.

    Development tools

    Spokane investors have been touting two relatively new tools to promote even more expansion and new development. The Spokane Community Empowerment Zone (CEZ) and Tax Increment Financing (TIF) each offer tax incentives to encourage development.

    The CEZ, which includes most of the city’s West Central, East Central and Hillyard neighborhoods, provides tax benefits to new or expanding manufacturing, research and development, and software-related businesses located within the zone or that hire residents of the zone.

    Spokane’s real estate market has weathered much of the widespread economic woes because its makeup differs significantly from larger metropolitan areas.

    Sales and use tax exemptions on construction costs to new and expanding businesses and business and occupation tax credits are among the incentives offered under the CEZ program.

    Willow Wind Organic Farms, a producer and processor of frozen foods that announced plans to move its headquarters to downtown Spokane, is among the firms seeking CEZ benefits.

    Washington’s new Tax Increment Financing program encourages developers to partner with local government to fund projects. The TIF tool allows local government to capture a portion of the local increase in tax revenue stimulated by developments in a specific geographic area and utilize those funds to build public infrastructure, such as roads, sewers and parks, which encourage and facilitate economic activity in the area.

    Local observers believe Spokane’s real estate market has thus far weathered much of the widespread economic woes because its makeup differs significantly from larger metropolitan areas, where economies quickly become dependent on emerging industries. Real estate markets in cities like Seattle chase significant industry demand and typically have long development times, causing dramatic peaks and valleys that mark an economic cycle.

    A blend of old-economy businesses and high-tech/biotech is predicted for Spokane's future.

    “In good times that makes it very enviable, in bad times it makes it unattractive,” said Mike Livingston, a broker with Kiemle & Hagood Co. “Spokane is just the opposite.”

    Real estate and economic development leaders anticipate Spokane, which currently has a commercial vacancy rate of 8.7 percent, will continue to perform as it has historically — relatively steadily — a trait that makes the region attractive.

    While the region also shows real growth in such emerging industries as technology and biotech, those sectors have developed more methodically, and the economy has not become disproportionately dependent on them for success.

    Buyer’s market in retail

    Retail space has experienced slightly higher vacancy rates. In east Spokane County, vacancy rates are about 10 percent, which has driven leasing rates down.

    “It’s a buyer’s market right now,” said Tomlinson-Black Real Estate’s Joel Crosby, who attributes the slowdown to the lagging national retail market. “People are putting things on hold. They make national decisions that affect us locally.”

    Accordingly, development projects have moved ahead conservatively. The result has been only a slight increase in vacancy rates.

    Expect that to continue, said Livingston, who anticipates the city will continue to float at a commercial vacancy rate of 7 to 10 percent. He also forecasts a modest increase in rental rates and a marketplace where behavior is driven by the needs of a modest number of big tenants.

    Absent the hefty demand for office space that Seattle and Portland experience at their peaks, a big supply is not as necessary, Livingston said. A new project or two a year, the largest of which can be built to accommodate the needs of large tenants, suffices.

    “You don’t see vacancy rates get abnormally low and you don’t see vacancy rates get abnormally high,” Livingston said.

    Growth areas

    central business district
    A new $50 million, 19-story highrise is expected to rise in Spokane's central business district later this year.

    Ironically, some of the opportunities for growth currently lie more with speculative developments located near Spokane County’s extreme eastern and western boundaries. Technology companies have begun carving a niche in Liberty Lake, a recently incorporated city about 15 miles east of Spokane, where a handful of office building projects have commenced without major tenant commitments. To the west, development near the Spokane International Airport includes speculative commercial space like the 110,000-square-foot office building planned as part of the Pacific Northwest Technology Park.

    The tech park recently became the state’s first tax-increment financing district when Spokane County commissioners authorized the issuance of $3.4 million in general obligation bonds for roads, sewer lines and other infrastructure needs at the 224-acre site. The tax-increment financing district will use increases in property tax from the development to pay off the bonds.

    Substantially less expensive office and manufacturing space in Liberty Lake and on the West Plains make both areas attractive to technology companies. The tech park’s proximity to the airport makes it attractive to biotech companies in Seattle and San Francisco looking to relocate portions of their operations, Livingston said.

    Biotech companies typically look for communities with affordable developable or developed land near an airport, an available skilled and productive workforce, and ease of travel between their headquarters in major metropolitan areas and secondary sites, he said. Spokane is the largest health care center between Minneapolis and Seattle, and has more than 300 clinical trials in progress on any given day.

    “They can open up (auxiliary) operations and very easily visit them by flying into the airport,” Livingston said.

    Spokane’s low cost of doing business and research community made the city an ideal location for MatriCal Inc. The biotech instrumentation company earlier this month announced plans to move its headquarters and open a manufacturing facility in Spokane, a move that will bring 100 new jobs over the next three years.

    Pacific Northwest Technology Park
    One of Spokane’s growth areas: Vandervert Developments is building a 110,000-square-foot office building near the airport as part of the Pacific Northwest Technology Park. Council

    However, speculative projects are exceptions to the rule. Iron Bridge, a 20-acre office campus with 400,000 square feet of suburban-style office space planned along the Spokane River near the Gonzaga University campus, has taken the more traditional wait-and-see approach. Demand willing, space at Iron Bridge could be available as early as 2003.

    “It’s kind of a build-to-suit marketplace,” Livingston said. “There’s not a lot of speculative development.”

    Residential markets

    Spokane’s residential real estate market, where the median home price is $104,200, has been the beneficiary of the commercial and retail activity.

    Home sales increased 7 percent in January over the same period last year, accounting for a total volume of $30.9 million, according to the Spokane Association of Realtors. New and existing home sales on Spokane’s south and northwest sides and in the Valley accounted for nearly three-quarters of the dollar volume, and resale value appeared solid.

    The CBD

    Development also is planned in the city’s central business district. Kiemle & Hagood, in partnership with developer Wendell Reugh, is seeking tenant commitments for a 19-story, 232,000-square-foot high-rise to be known as the Riverside Centre. Plans also include a five-story, 529-stall parking garage, retail shops and restaurants in the $50 million high-rise. Construction is scheduled to begin this year.

    That investment in Spokane’s central business district follows on the heels of a major retail project, known as River Park Square, that has revitalized the city’s downtown core. Several downtown blocks once vacant are now busy with activity since the opening of the $115 million specialty shopping, dining and entertainment center two years ago.

    In the 28 months since River Park Square opened, $370 million in new downtown investment — more than 50 projects — has been announced, is under way or has been built. Among those projects:

    • A $50 million restoration of the historic Davenport Hotel by Walt and Karen Worthy scheduled to reopen later this year

    • The modernization of the Holley Mason Emerging Technology building into a mixed-use facility in the Terabyte Triangle

    • Wiring a 30-block section of downtown with about a half-dozen different providers of DSL and fiber-optic Internet connectivity to nurture the region’s fast-growing software, digital and information technologies industries

    • The recently completed $28 million renovation of the Northwest Museum of Arts and Culture

    • A $10 million transformation of the Fox Theatre into a home for the Spokane Symphony

    Nationally, retail should begin to improve during the latter half of the year, Crosby said. Spokane’s will follow.

    “In (many) ways it’s a good time to invest” in Spokane, Crosby said.

    Mark Turner is president and CEO of the Spokane Area Economic Development Council, a community-based, nonprofit organization that provides leadership in the attraction, creation and retention of quality jobs. For more info, visit the Web site

    Other Stories:

    Copyright ©2009 Seattle Daily Journal and DJC.COM.
    Comments? Questions? Contact us.