Demand for small retail spaces is picking up here, offering signs of rising business confidence following a long soft spell, commercial real estate specialists say.


Some partially filled retail centers that saw new leasing activity grind almost to a halt after the economy softened earlier this decade now are fully occupied or nearly so, they say.


Also, prospective tenants are signing letters of intent with less hesitation, they say, and the upswing in activity is spurring some developers to move forward with projects to build additional retail space.


To be sure, the market still has a lot of lost ground to recover. Discounted lease rates have yet to begin firming up, and some market sectorsolder, less well-located properties, for example, and a long stretch of Sprague Avenue in Spokane Valleyhave shown little or no improvement.


The signs of an upswing have been numerous enough to make some commercial agents almost jubilant.


Theres all kinds of little businesses popping up all over the place, claims Spokane real estate broker and developer Marshall Clark, owner of Clark Pacific Real Estate Co. We personally dont have any vacancies in our centers.


He points to retail centers near Sprague and Bowdish and Sprague and McDonald that have leased remaining vacant spaces, and to an 87,400-square-foot former Kmart Corp. store building at 15033 E. Sprague that had been vacant for a year, but now is filling up rapidly. He says a buffet restaurant, which he declines to name, is negotiating for a 15,000-square-foot space there.


Meanwhile, emboldened by the positive signs, Clark is pursuing a few projects of his own. He says he plans to begin building shortly a 7,000-square-foot, multitenant strip center on the pie-shaped, former Two Swabbies store site at 6630 E. Sprague, at the west end of the Spokane Valley couplet. He estimates the total cost of that project, including the cost of the property, at more than $1 million, and says he expects the building to be completed by this fall.


Another project he cites as evidence of the turnabout is a $3.5 million retail center that WAM Enterprises Inc., of Spokane, is developing near the Wal-Mart Stores Inc. outlet at 9212 N. Colton, on the North Side. Clarks company is marketing space in the planned 12,000-square-foot building, which is scheduled to be completed this fall.


Months in the making


He first noticed retail leasing activity begin to pick up last November, Clark says.


I think most of it is that people are feeling confident. Theyre not scared any more. Theyre tired of sitting on the sidelines and watching the world go by. The timing is right, he says.


Such change doesnt occur quickly, though, he adds, comparing the improvement in the economy to a big ship changing course.


It takes awhile for it to turn bad, he says, and it takes awhile for it to turn good.


Guy Byrd, part owner of Byrd Real Estate Group LLC, of Spokane, says, Within the last year what weve seen is some of the buildings that were developed a couple of years ago lease up after they had sat for 12 or 18 months with little or no activity.


Ive got three new projects going now, and what used to be the case was we could hardly get a letter of intent written, he says. Prospective tenants now are showing more willingness to sign letters of intent before new retail centers are completed and, in some cases, before theyre started, which is rare here, he says.


Byrd says he already has several signed letters of intent for a 10,000-square-foot multitenant retail center that a company led by longtime Spokane businessman Cyrus Vaughn recently began developing on 57th Avenue, across from the Cedar Canyon Shopping Center.


Prospective tenants showed the same sort of resurging interest, he says, in a similar-sized retail center that a company headed by Vandervert Construction President Dick Vandervert developed last year west of Vaughns project.


Byrd marketed that property as well and says he didnt have any letters of intent on the space there until the project got under way, but had more letters than we actually had (space) available by the time construction was completed.


That center now is home to a Washington Mutual Bank branch, a Starbucks coffee shop, and a few other tenants.


A Starbucks outlet and another tenant already have agreed to lease space in another new retail building that Byrd is marketing at the northwest corner of the intersection of Second Avenue and Division Street, and he says he has several letters of intent for one remaining space there.


Byrd also is marketing space in a retail center going up at 509 N. Sullivan, in which Farmers & Merchants Bank will be an anchor, and he says interest among prospective tenants appears strong there as well.


Its been the last year that weve been inking the deals. The reinvigorated interest maybe began 18 months ago, but it takes time for that interest to translate into bricks and mortar and signed leases, he says.


Typically, developers expect a new retail center to take around 18 months to lease up, or mostly so, but at the current level of activity, Were seeing that happen easily within about 12 months usually, Byrd says.


Location, location, location


Location is a crucial factor, though.


Smaller retail centers that do well are in close proximity to larger blocks of retail or on heavily trafficked streets, he says. He adds, though, that, Were even seeing some second-generation centers that are benefiting from the demand for more space, such as Opportunity Shopping Center, near Pines and Sprague.


Mark Pinch, president of Tomlinson Black Commercial Inc., of Spokane, says, We have definitely seen a rebound in small-bay retail. It has been somewhat localized, however.


He says, for example, The North Side has come alive. We have leased every bay at Heritage Village (at the Division Y). Were 100 percent full there now. Weve had a lot of retail proposals we havent been able to fill because of lack of space.


Similarly, in Spokane Valley, the areas around the Spokane Valley Mall and along the Sullivan Road corridor have been retail hotbeds recently, he says.


The 800-pound gorilla is what are they going to do with Sprague Avenue, Pinch says.


The conversion of a four-mile stretch of that thoroughfare to one-way traffic several years ago as part of the Spokane Valley couplet project is blamed partly for a decline in commercial leasing activity there. Sprague became the westbound leg of the couplet between Thierman and University roads, and Appleway became the eastbound leg.


Long-range plans developed by Spokane County called for the couplet eventually to extend all the way to Appleway Road in the eastern Spokane Valley and thereby provide access to the Liberty Lake area. The Spokane Valley City Council, now holding control over that route, is studying alternatives for the couplet, one of which would be to keep Sprague a two-way street and Appleway one way east of University.


The retail market is holding its ground because without assurance that traffic is going to have access going both ways, businesses just arent going to make a decision (to lease space there), Pinch says.


One of the problems, he says, is that people on their way home from work will stop at retail stores along the way to make purchases, but the same isnt true of people on their way to work.


On the going-to-work side, its the kiss of death, he says. Most businesses want to be on the going-home side.


Spokane Valley real estate broker Sam Campbell, owner of Campbell Co., echoes Pinchs concerns, saying, Were seeing a very soft retail market, extremely soft, due partly to Sprague-related issues.


Theres no action on the couplet because no one knows whats going to happen. Property values are stagnant, he says.


An impact study on the one-way traffic on Sprague is being done by the Gonzaga University School of Business for the Spokane Valley Business Association is expected to be released in about two weeks and should provide helpful insights, Campbell says.


Some sectors still hurting


Carl Guenzel, an associate broker with Spokanes Kiemle & Hagood Co. who does a lot of retail work, says leasing activity appears to be picking up, but he is restrained in his enthusiasm.


Were not where we were five years ago, and its possible the market wont ever get back to that level of activity, he says. Before that, We were just under-retailed. There were a lot of (chain-store) big boxes that werent in Spokane. Everybody came to Spokane, and they all came at one time.


Now, he says, What we are getting is a lot of movement. People are upgrading. People are moving to new locations. He adds, though, that, The rising tide isnt necessarily lifting all boats right now. Second- and third-tier real estate is hurting bad. If youve got a good piece of real estate, youre having good success in filling it up.


He says he felt confidence begin to turn around about a year ago, and that it has been on a gradual upswing since then, but, Graduals not bad.


Its going to take time for some of the larger vacant retail spaces to fill up, he says, because theres still not a lot of demand for it, and were down about as cheap as you can get. I think weve hit the bottom.


He estimates Class A retail space is leasing mostly for around $19 to $23 a square foot, with Class B space trailing well back at around $12 to $14 a square foot and Class C space at $8 to $9 a foot. That price gap between Class A space and Class B and C space has widened from what it was before the economic downturn, he says, adding its possible there are some sectors that, without some transformation, wont be healthy ever again.


Available statistics bolster anecdotal observations that the retail resurgence thus far has been spotty, and in some areas nonexistent.


A spring 2004 real estate survey of competitive office and retail space here showed a retail vacancy rate of 30.5 percent in the central business district, the highest recorded in more than 20 years. During that span, though, the amount of surveyed space downtown has tripled, growing to more than 1.6 million square feet from less than 400,000 square feet.


Vacancy rates for suburban retail space surveyed earlier this year ranged from 3.5 percent on the South Hill to 7.6 percent on the North Side and 17 percent in the Valley. The South Hill vacancy rate is the lowest in a couple of years; the North Side rate is at its highest level in recent yearsthough up minimallyand the Valley vacancy rate has shrunk from a peak of 17.7 percent a year ago.