Here’s why Bellingham commercial spaces show surprising results during the COVID-19 pandemic
While the COVID-19 pandemic upended Bellingham’s economy in many ways, demand for commercial property hasn’t suffered here as much as elsewhere.
The vacancy rate for retail stores in the first quarter of 2021 in Bellingham increased slightly since 2015, according to Ryan A. Martin, co-owner and broker at Pacific Continental Realty in Bellingham. Martin was a volunteer analyst for several years for the Whatcom Real Estate Research Report, which tracked commercial property vacancy rates until it was discontinued in 2015. He compiled Bellingham commercial real estate data for what will be a regular Pacific Continental Realty report on market conditions.
With slightly more than 10.2 million square feet of retail space, Bellingham had a vacancy rate of 3.7% at the end of March, according to Martin’s report. One of the highest vacancy rates in the city is in the Bellis Fair area, which had more than 104,000 square feet of available space and a vacancy rate of 11.3%.
Across the U.S., the retail vacancy rate was 10.6% in the first quarter for spaces not in malls, according to a recent CNBC article. The vacancy rate at regional malls across the U.S. was 11.4%.
The major retail districts that have some of Bellingham’s lowest vacancy rates include the West Bakerview area, which had only 1,000 square feet available out of more than 429,000. The Lakeway/Lincoln area was also very low, with only 285 square feet available out of more than 475,000.
Demand for commercial retail space in the coming year will be difficult to judge because there are so many competing pressures as we try to move beyond the pandemic, said James McCafferty, co-director at Western Washington University’s Center for Economic and Business Research. Some studies indicate that consumers plan to stick with online shopping/curbside pickup, while other studies note people are itching to get back into brick-and-mortar stores.
In Whatcom County, Canadian cross-border shopping is also a factor. As of now, the border is restricted to only essential travel through Wednesday, April 21, but those restrictions are expected to be extended as Canada, particularly British Columbia, deals with a surge of COVID-19 variant cases.
When the border opens could be a big factor in whether new retailers decide to open new stores here. Even the different types of retail have different pressures, McCafferty said, noting that restaurants will have different pressures compared to a retail store.
It’s also worth noting that the 2015 benchmark in the report was a time of retail reset, said Hart Hodges, co-director of the research center. It was when the U.S. and Whatcom County were recovering from the global financial meltdown that took place around 2008.
“(In 2015) several smaller retailers had closed and when asked what advice they would give to new business owners — many of the ones I talked to said they felt they had a good business but needed half the space given the way business was changing,” Hodges said in an email.
Bellis Fair bounce back?
The 11.3% vacancy rate may appear a bit low for some who have visited the mall lately, given that around 40 spaces are empty and create the impression that the mall is nearly half empty. However the main anchor spaces remain full, occupied by Macy’s, JC Penney, Kohl’s, Ashley Furniture and Dick’s Sporting Goods, which Martin points out comprises most of the mall’s overall square footage.
Bellis Fair’s current vacancy rate is much different compared to 2015, showing the shift that has taken place in mall retail. Martin’s data indicates that in 2015 the vacancy rate at Bellis Fair was 0.2%. In 2015 there was less online shopping and many more Canadians, with the borders open and a strong loonie that was at around 89 cents compared to the U.S. dollar.
Martin said they’ve seen an uptick in the number of inquiries for general retail space, so he would expect the small spaces at the mall will begin to fill again.
“The wildcard will be some of the anchor tenants feeling the pressure from the accelerated shift from brick-and-mortar to online sales,” he said in an email, adding that what happens with the border restrictions will have a major impact on Bellis Fair’s occupancy rate.
Mall managers did not respond to requests for comment.
Downtown rate remains steady
Despite being hit very hard with the COVID-19 restrictions, the downtown Bellingham vacancy rate is about the same today as it was in 2015, hovering around 7%.
Downtown was among the areas hardest hit by COVID-19 restrictions because of its mix of businesses, with restaurants, live music venues and bars. Martin pointed out that the downtown area is less dependent on Canadian cross-border traffic, so many who were able to adjust to the restrictions could rely on local sales.
Alice Clark of the Bellingham Downtown Partnership noted that since the beginning of 2020, more retail businesses have opened than permanently closed.
“Downtown has weathered the pandemic storm very well, with creative, adaptable, and determined business owners (and a supportive community),” Clark said in an email.
She added that they are hearing many new leases are in the works for several of the empty spaces with plans for summer openings. These include retail, food/beverage and service-oriented businesses. Also, the trend started during the pandemic of increased outdoor seating on streets and sidewalks is expected to continue this spring and summer, with some possibly becoming permanent additions, Clark said.
Office space
Downtown is also seeing interest from office tenants, said Bob Hall, co-owner of Daylight Properties. He said they are receiving inquiries from out-of-town businesses looking to add either office or retail and are on the verge of signing several new leases for large spaces.
“Judging from all the people moving to our area and the huge apartment complexes being built downtown we are feeling very positive about the future,” said Hall, who has lived here for about 50 years and owns quite a few downtown Bellingham buildings, including the Herald Building, Bellingham National Bank and Bellingham Hardware buildings. “I’d say Bellingham is in boomtown mode, for the foreseeable future.”
Perhaps one surprising finding is that the vacancy rate for Bellingham office space was lower in 2021 compared to 2015, despite the trend of more people working from home during the pandemic. The current rate is 4.4% out of 4.4 million square feet, down from 4.8% six years ago.
That’s a much lower rate compared to the U.S. average. According to data from Moody’s Analytics published on the online site Seeking Alpha, the U.S. office vacancy rate is predicted to hit 19.4% in 2021. The effective lease rates are not expected to return to pre-pandemic levels until 2026.
One possible reason for this is that most of the office market is made up of local and small regional users, Martin said. Smaller office users might be less likely to terminate a lease and go completely work-from-home compared to a larger user reducing space by eliminating a floor.
“I would expect to see office vacancy rates slightly reduce in Bellingham as conditions for office space continue to improve. I don’t see office vacancy rates rising in the near future in Bellingham,” Martin said.
McCafferty doesn’t expect to see much change in terms of office space growth, but believes there will be a lot of change in how office space is used. Companies will look into hoteling features — with workspaces and conference rooms available for employees to reserve or use during the workday, instead of the traditional permanent seating. Other changes could be more private offices and smaller ones distributed throughout an area, he said.
Industrial space
A lack of industrial space has been an issue in Bellingham for a number of years. According to Martin’s data, Bellingham’s vacancy rate for industrial businesses was less than 1%, down from 3% in 2015. Put another way, out of the more than 8.3 million square feet in Bellingham, only a little over 80,000 square feet were available.
According to a report from the real estate firm Cushman & Wakefield, the vacancy rate for industrial space in the U.S. is around 6%.
Martin said one problem is that commercial lenders do not typically have an appetite to loan money for industrial buildings unless a company has already agreed to move in.
“As a result, Bellingham’s industrial inventory only increases when the Port (of Bellingham) builds more buildings, or when a company builds more buildings for their own use,” Martin said.
