Commercial real estate stalls in Sisters


Last updated 9/12/2023 at 10:28am

Work began in 2022 on several large-scale commercial buildings in Sisters. Expectations were high that as Bend might be reaching saturation with fewer options for light manufacturers and service sector industries, businesses would be drawn to Sisters. Now as these projects have completed they stand mostly empty of tenants, with a few exceptions.

Sisters does not mirror the national commercial real estate market where remote workers have decimated much of the office building sector. But Sisters does reflect the national mood deflating commercial realtors, depressed by soaring interest rates.

It’s a double-edged sword The Nugget learned in an interview with Eric Strobel, EDCO’s Sisters area director., Economic Development for Central Oregon, is a nonprofit founded in 1981 to create a diversified local economy and a strong base for middle-class jobs.

Sellers are feeling the pain of high interest in their carrying cost of the bare land. When interest rates were 2 or 3 percent, even 4, but values were growing 5 to 10 percent a year, it made sense to sit on the property. When carrying costs are 6, 7 or as much as 10 percent, and valuations are growing at only a few percentage points or are flat, then out come the for-sale signs.

You can see that all over Sisters where realtors’ signs are popping up on lots. Strobel says sellers are not in a panic, but are wondering if they were too late to the party. Economists’ projection are bearish on commercial real estate for the next year, with several predicting a recession and little easing of inflation.

While the rate of inflation is coming down, inflation itself is not. Basically something that cost $1 in 2021 costs $1.13 today and borrowing rates for commercial property generally exceed that for residential real estate, the former being of higher risk to lenders. Regional banks and credit unions are the main source of commercial lending in Deschutes County. Rates vary between 6.75 percent to 10.5 percent.

EDCO doesn’t see any deals happening soon in Sisters. There are prospects and some “tire kickers” but nothing that will fill the approximately 100,000 square feet of unleased space.

The other edge of the interest sword is would-be tenants unable to afford a move to newer or expanded space. What’s more, regional banks are under pressure following the collapse of Silicon Valley Bank and First Republic Bank, the second largest bank failure in history.

Spooked depositors have been pulling funds from smaller regional banks at an alarming rate, putting a pall over lending. Adding to the distress, many projects started in 2021 and 2022 in Sisters will reach loan maturity in the coming months and if renewed will be at rates double at least.

The ongoing labor shortage among skilled trades workers means projects take longer to complete, adding to the cost burden and dispiriting new investment.

A look at listings for light industrial buildings in Bend shows a good selection of offerings at $12 per square foot per year. A 6,000-square-foot property in Bend would fetch $72,000 in annual rent. In Sisters, the same 6,000 feet will cost $90,000 on average. When you add in lack of workers and commuting distance with $4.75/gallon gas, Sisters is looking less competitive.


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