• Mon. Apr 12th, 2021

Pandemic creates winners and losers in Maine’s commercial real estate market

A “for lease” sign stands outside a building at Monument Square in Portland on Wednesday. Although many commercial real estate sectors appeared to be in dire straits last spring, some, such as industrial and residential buildings, are more in demand now. Derek Davis/Staff Photographer

Tim Soley closed on three Old Port buildings Wednesday, two on Middle Street and another on adjacent Canal Plaza. They represent his first commercial real estate purchases in more than a decade.

The president of East Brown Cow Management, Soley bought his first commercial property in 1989. He said he looks for long-term value, particularly during periods of recession.

“This is an on cycle for me,” he said. “When people are yelling ‘Fire!’ I’m running into burning buildings to buy them.”

As a commercial landlord, Soley has worked with tenants on rent deferrals or reductions, on finding resources and support. He said very few people are making money right now and the vast majority are not.

“The pain that has been experienced by so many as part of the pandemic is without question,” he said. “And the economic impacts of this medical event are likely to be felt most distinctly for the next 12 months.”

Even so, he said, he’s optimistic about the future and sees opportunity in Portland’s commercial real estate market “to set a trajectory for the city that hasn’t existed for more than a century. Urban centers, such as New York City, are now considered risky. And smaller, tertiary cities, especially those offering authenticity and amenities as Portland does, have become more attractive.”

Changing pandemic landscape

Ten months into the coronavirus pandemic, Mainers are still adapting to a shifting economic environment. Amid a second wave of infections, and with vaccine relief seemingly within reach, the effects of the pandemic are becoming more clear.

In a typical January, the Maine Real Estate and Development Association (MEREDA) would hold its annual forecast meeting before a crowd of a thousand at Portland’s Holiday Inn by the Bay. Experts would opine about their various sectors and specialties. Booths would be set up downstairs for a trade show. Bankers, brokers, architects, engineers, attorneys, buyers and sellers would mingle and network.

A “for lease” sign hangs on an empty storefront on Federal Street in Portland on Wednesday. Derek Davis/Staff Photographer

This year, that annual event takes place Thursday in a virtual format. Presenters taped their spiels earlier this month at O’Maine Studios on Danforth Street. Shannon Richards of Hay Runner and Craig Young of The Boulos Company – vice presidents of MEREDA – will serve as hosts.

Organizers had sold more than 500 tickets as of Wednesday afternoon.

“We could see it was going to be a painful eight hours in front of a screen if someone wasn’t there to string it together with some modicum of relationship with the viewer,” Richards wrote via email. “There were many awkward moments for me while we were filming, and I’m grateful we hired a top-notch local production studio to help us (and me) out. I’m excited to see the finished product.”

Hannah Pingree, director of the Governor’s Office of Policy Innovation and the Future, will deliver the keynote address. James Marple, managing director of TD Bank Group, will offer an economic overview and be followed by nine forecasts for various real estate sectors and geographic regions of the state.

“I think people are really going to like the message,” Young said. “The real estate market as a whole is healthier than you might imagine.”

The industrial sector looks particularly strong, said Justin Lamontagne, partner of NAI/The Dunham Group, who is presenting on that topic for a 10th consecutive year.

“If you think about it, most industrial businesses and uses are essential in nature,” he said. “Everything that we relied on, especially during the early days of the quarantine, (involved) food production and distribution and warehousing and stockpiling of goods. So the pandemic really drove a lot more demand this year.”

Add in the still-evolving cannabis industry along with biomedical efforts led by Abbott Laboratories and Idexx Laboratories and the result was a vacancy rate in Greater Portland of only 2.44 percent, according to the survey Lamontagne’s firm conducts each year. That survey also revealed a rise in average lease price to close to $8 per square foot and an average sales price of $75 per square foot of industrial space.

New construction is easing the burden slightly, Lamontagne said, but adding a few hundred thousand square feet to a market of 20 million is unlikely to make a huge impact.

“The cost of construction is still extremely high,” he said. “There’s no speculative real estate going up. It’s all owner-user-driven new construction, somebody that’s going to build a building that their business is going to occupy.”

Hospitality and retail sectors of the real estate market have been hit hardest by the pandemic. Pete Harrington of Malone Commercial Brokers said the current outlook isn’t nearly as dire as in the early weeks last spring, when it appeared the online arena might swallow up brick and mortar operations.

“The human being did not evolve to sit in a room by themselves,” Harrington said, “not without losing their mind.”

Among the notable aspects of Harrington’s retail presentation are the rippling effects from a strong residential market into the home improvement environment. Purveyors of furniture, exercise and outdoor equipment also did well and contractors had no shortage of work.

Harrington also takes a look at the Maine Mall, where a dozen stores have closed and another nine are unsure whether they’ll be able to stay open through 2021.

“The mall will find a way,” he said. “There are big retailers that still aren’t in this market.”

As for office space, a recent survey indicated that plenty of uncertainty remains. Nate Stevens of The Boulos Company noted that the vacancy rate went up in Greater Portland but down in suburban areas. He said he foresees businesses having the same amount of space, but fewer people in them because of flexible work-from-home arrangements and more podding.

“Instead of having 100 people in one big space, maybe you have 10 people in 10 smaller spaces,” he said. “It’s all about making the employee more comfortable to be back in the office.”

There’s plenty you can’t do in the middle of a pandemic. However, one thing you can do is change parking garages.

Andrew Cook, senior vice president of Skowhegan Savings Bank, discovered that in September, when some of the garages that had quoted five-year waiting lists when he had inquired 10 months earlier, had immediate availability.

Now, instead of walking half a mile to his office on Commercial Street, Cook can park within half a block.

“We’ve obviously seen some stuff that isn’t great through the pandemic,” said Cook, “but there’s a lot of light at the end of the tunnel.”


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