It’s ‘not doom and gloom’ on Lake Oswego’s Kruse Way
However, a 23 percent vacancy rate exists for offices
Submitted photo
Shorenstein Properties owns 20 buildings in the Kruse Way corridor. The new Kruse Oaks III building, which opened in 2009, is not shown in this photo.
Kruse Way has seen better days. A recent market report by Norris Beggs and Simpson showed that the Kruse Way corridor offices have a 23 percent vacancy rate. And the newest building, which opened in 2009, echoes for lack of tenants.
Shorenstein Properties, which owns about 80 percent of the office space in the corridor, still thinks Kruse Way has it better than other suburban office space. The crown jewel of Portland metro office spaces, Kruse Way still dazzles more than other locations, said Matt Cole, leasing representative for Shorenstein.
Shorenstein owns 20 Kruse Way office buildings that are home to 250 tenants, who lease space ranging from 1,000 to 60,000 square feet. In total, the complex has 1.75 million square feet.
“It’s still a desirable location in Portland,” said Cole. “We’re not gloom and doom. We feel we have great assets in a great location.”
Still there is lingering shell shock from the economy’s sudden downturn in 2008. Ever since Kruse Way opened in the early 80s, it’s been “bullet proof,” said David Squire, executive vice president at the office brokerage firm Grubb and Ellis.
Historically, the vacancy rate has been between eight and 10 percent, said Cole. A peak would have been five percent.
“Even in the dotcom bust in 2001, Kruse Way stayed very healthy,” said Squire. “You fast forward into this recent downturn and recession, all of a sudden, the very foundation that Kruse Way built itself on basically collapsed.”
Kruse Way has built its tenant base from housing-related tenants, mortgage companies and Fortune 500 regional offices — all of which have taken a hit in the recession.
“… What has happened is their core base has either gone out of business or shrunk by 50 percent,” said Squire.
According to Cole, its tenants are not trading in keys to Kruse Way for a less-expensive option in another part of the city. Parent companies have simply closed a branch, he said.
The only exception is Northwest Evaluation Association, which recently moved to downtown Portland.
The new Kruse Oaks III building is empty, but holds some appeal as it earned the LEED Gold certification for high environmental standards.
“It’s going OK. It’s slower than we would like,” said Cole. “That’s not surprising being that we delivered a brand new building in the middle of a difficult market.”
Regionally, the story isn’t a whole lot different. Vacancy rates are down in most suburbs. Portland suburban areas averaged 21.93 percent vacancy, according to the Norris Beggs and Simpson report. Central Portland is at 12 percent vacancy.
But Cole continues to remain positive.
“Other people still choose Kruse Way over other suburbs,” he said. “Our overall perspective is yes things are not great right now, but we believe long term in the future of Kruse Way. We’re a long-term holder, and we’re going to get through this cycle just like we’ve gotten through other cycles. The fundamentals of the location, the flexibility of the building, proximity to housing, transportation, all those fundamentals are still good.”
Things are better than they were a year ago, he added. Cole hosts four or five tours a week.
“We think activity is up. More people are interested,” he said. “We hope we’re chipping away at that vacancy month by month. We’re chasing every tenant that is out there that makes sense to be in our buildings.”
Jane Blackstone, the new economic development manager for the city of Lake Oswego, said that the city’s role is to support Shorenstein’s recruitment efforts however it can.
The city’s recent investment in a marketing strategy could be a tool for the commercial real estate market, said Blackstone. A market plan, due to be out this summer, will create a “brand identify that sends a message to prospective tenants for Kruse Way that sends the message that Lake Oswego is a great place to have your business,” she said.
Squire continues to see potential in the Kruse Way market picking itself up again.
“Where would you rather own real estate? 10 out of 10 folks will still say Kruse Way,” he said.
Kruse Way will recover faster than other office complexes, he said.
“Kruse Way is struggling right now, but Kruse Way doesn’t have space that’s been vacant for six or seven years,” like some office complexes along the Sunset Corridor.
But until the unemployment rate picks up, the office vacancy rate will stay where it is.