After two years of unprecedented increases in the dollar volume of construction and five years of growth in the number of homes sold in the Spokane area, both numbers are declining so far here in 2006.


Industry sources point out, however, that despite those decreases from last year, both indicators are moving ahead at a historically strong pace, and some types of leaseable commercial space are being absorbed at a healthy rate.


I think well see a continued decline through the end of the year, Wayne Brokaw, executive director of the Inland Northwest Associated General Contractors, says of construction dollar volumes. Well still have a very, very good year, but its not going to be the ending we had hoped or projected.


Brokaw says the primary reason for the slowdown is that construction-material costs continue to escalate. Consequently, he says, some projects are being shelved, just as construction-industry officials have feared would happen in recent years.


Also, he says, increased prices for petroleum-based products are taking a toll on contractors. In addition to rising gasoline costs hurting contractors that operate dump trucks and other heavy machinery, the price of oil used in asphalt products has tripled in the last month, Brokaw says, putting a strain on some road projects.


Through the first five months of this year, Spokane County and the cities of Spokane and Spokane Valley issued building permits valued at a total of $348 million, down 9.5 percent compared with $384.7 million in activity through the first five months of 2005. While this years volume is off somewhat from last year, its substantially higher than the first five months of 2004, when the cities and county issued permits valued at a combined $270 million.


Despite the decline in overall volume, some big projects were launched in the first half of the year, the largest being a $59 million renovation and expansion at Rogers High School, in northeast Spokane, and the $40 million Tower at the Davenport Hotel, in downtown Spokane.


A few other big projects started before 2006 and are continuing through this year. The biggest portion of the $89 million Spokane Convention Center expansion, the Group Health Exhibit Hall building, was completed earlier this month, but improvements to the old convention complex will continue through the rest of this year and into 2007. Also, a $23 million, 264-foot-tall air-traffic control tower is being erected at Spokane International Airport and is expected to be functional in October of 2007.


In addition, the Washington state Department of Transportation, Spokane County, and cities here either have started or are scheduled to start $85 million in road projects this year. Those include an estimated $12 million to $15 million in new bridges on the North Spokane Corridor, a $9.5 million widening of Bigelow Gulch Road, and a $7.5 million eastbound Interstate 90 reconstruction.


In single-family home construction, permit activity is off of last years pace, but not by much. Through the first five months of this year, the county and the cities of Spokane and Spokane Valley issued permits valued at a total of $156.9 million, down just 1.6 percent from $159.6 million during the year-earlier period.


Home builders had predicted late last year that the level of activity wouldnt meet the pace set in 2005, but still would be healthy.


In the residential real estate arena, the number of home sold through the first five months of this year was down, but due to property appreciation here, the volume of home-sales activity was up, according to the Spokane Multiple Listing Service.


The number of home sales reported through the MLS through the first five months was 2,683, down 2 percent from 2,741 sales in the year-earlier period. With continued home-price appreciation here, though, the total volume of sales reached $498.8 million in the first five months of this year, up from $420.8 million in the year-earlier period.


Vic Plese, broker at Plese Realty LLC and president of the Spokane Association of Realtors, says that so far this year, home-sales activity is staying closer to last years pace than he would have expected.


It was going to be hard to match what the market has done, he says. I was expecting the numbers to be off more than they were.


He says mortgage rates have risen this year, but not yet to the heights Realtors feared earlier this year that they would. Those rates arent high enough to deter most buyers at this stage, Plese says.


The median sales price through May was $164,950, up 23 percent from the year-earlier period. Plese says values likely will continue to rise, but he expects them to level off late this year or early in 2007.


In the commercial real estate market, office and retail vacancy rates have fallen over the past year in part of the metropolitan area; the major exception is in suburban markets, where office and retail vacancy rates have increased in some instances, according to a vacancy survey completed recently by the Spokane-based Auble Jolicoeur & Gentry real estate appraisal firm.


Scot Auble, president of Auble Jolicoeur & Gentry, says, Looking at economists predictions, we should continue to have good, positive absorption of all major property types.


In February 2006, the month in which the most recent Auble survey was conducted, the overall office-vacancy rate in the Central Business District stood at 15.7 percent, down from 21.8 percent a year earlier. The vacancy rate for Class A, or premium, office space declined to 17.2 percent from 24.4 percent, while the Class B vacancy rate fell to 14.9 percent from 20.2 percent. Class C vacancies tumbled to 14.4 percent from 24.6 percent.


Beyond downtown, office vacancies continue to climb, though the increase was steeper in some parts of town than in others, the Auble survey says.


On the periphery of downtown, the office-vacancy rate rose to 9.9 percent, up from an even 9 percent a year ago. On the South Hill, the vacancy rate increased to 11.2 percent from 6.5 percent, and on the North Side, it hit 14.7, compared with 10.9 percent a year earlier. The office-vacancy rate in the Spokane Valley inched up to 20.9 percent, from 20.2 percent a year earlier.


In the retail market, the Auble survey says, vacancy rates fell downtown and on the North Side, to 11.8 percent and 6.5 percent, respectively, from 13.8 percent and 6.8 percent.


Retail vacancy rates in the Valley and on the South Hill rose to 14.4 percent and 3.8 percent, respectively, from 12.5 percent and 1.5 percent.


The periphery of downtown, which has only a few retail properties, remained unchanged, with no vacant space.


In the industrial market here, the overall vacancy rate fell to 6.9 percent, from 8.2 percent a year earlier. The most substantial space absorption occurred in the Central Business District, where the percentage of vacant space fell to 1.8 percent from 9.4 percent. In the western portion of the Spokane area, the vacancy rate fell to 1.8 percent from 4.3 percent.


While space marketwide continues to be absorbed, Auble says average rental rates havent moved significantly yet.


Were on the cusp of seeing that, but the timing is contingent on continuing job creation and an improved economy, Auble says.


Contact Linn Parish at (509) 344-1266 or via e-mail at linnp@spokanejournal.com.