Oregon Public Broadcasting

The Bend real estate market is preparing for some bad news.

One of the area’s biggest commercial real estate firms is due to release its quarterly survey of office space soon.

The report will show vacancy rates at or near record highs.

Central Oregon correspondent Ethan Lindsey reports.

Want to know what a cliché sounds like?

[SHOE DROP SOUND]

That was the thud of my other shoe, dropping.

And that moment in radio sound was brought to you by the commercial real estate business.

After the residential market cratered in central Oregon, commercial real estate has been labeled the ‘next shoe to drop.’

Now this is what the struggling commercial real estate market actually sounds like.

Bruce Kemp: “Alright, so this is essentially a shell space, studded walls, no sheet rock, open ceilings with sprinkler systems.”

That’s what it sounds like to be commercial real estate broker showing off an empty office building on Bend’s eastside.

Bruce Kemp is a broker and partner at Compass Commercial.

He says the shoe analogy is the right one – it’s just too late.

Bruce Kemp: “People don’t realize it, but it already has dropped. It’s just a matter of how long its going to last.”

For the past three months, 17-percent of local office space stood vacant. 

That’s an unhealthy number, especially considering the area’s vacancy rates stood at 3-percent during the boom.

Kemp says the commercial real estate market always lags consumer spending.

Bruce Kemp: “When the consumer stops spending either because they are fearful or they lost their job, then it ripples into the retail sector. And when that suffers, where do they get their product? They get it from the manufacturers. So it ripples through the entire economy but it all starts from the individual consumer.”

It may be hard to believe, but many analysts think Kemp is too optimistic.

Across the state and the country, commercial loan defaults are rising, and delinquency rates are expected to increase through the end of the year.

Bill Valentine is an investment manager in Bend.

He says a big difference between residential and commercial real estate is perception.

Bill Valentine: “The guy with the office building that is sitting with a 30% vacancy? He doesn’t get the sympathy. You hear, we have to save homeowners! But you don’t hear, we have to save the commercial real estate investors.”

As an example, in Bend, a brand new retail mall opened south of town less than six months ago.

In fact, I reported then on the opening on the anchor tenant, the California-based retailer Gottschalks.

Today, Gottschalks is going out of business and liquidating its stores.

Dorothy Thomas drove an hour, from Madras, for the twenty-percent off discounts the store is offering.

Dorothy Thomas: “I bought a scarf for a friend, and a pair of little summer shoes/Did you get a good deal?/I surely did, I wouldn’t buy ‘em if I didn’t. It’s a nice store, I’m sorry to have it leave.”

Thomas says the empty retail stores are everywhere in Madras, too.

When Gottschalks goes down in Bend, the only tenants left in the large strip mall will be a Subway, a coffee shop, and a sports bar.