The boom in computer software and hardware manufacturers has brought stability to the region, dubbed the Silicon Forest.

Retail development in the Pacific Northwest states of Washington and Oregon has been complicated by both the exit of some once high-profile names and strict land use policies. However, steady, modest growth in both population and per captia income has translated into an ongoing healthy atmosphere for retailers.

Economic upswing One of the main factors influencing population shifts in the Pacific Northwest is the rebounding California economy. As jobs become more plentiful, workers who had moved north just a few years ago are returning south to find housing prices often more affordable than when they left. At the same time, the boom in computer software and hardware manufacturers in the so-called "Silicon Forest" of Oregon and Washington has contributed to a stable and generally well-off consumer middle class.

>From a 1995 population of 3.14 million (the most recent Census data available), Oregon is expected to grow to approximately 3.23 million by 1998, an increase of nearly 3 percent. Per capita income, which was reported at $21,530 in 1995, is projected to reach $22,400 by 1998 -- an increase of 4 percent.

Throughout the late 1990s, unemployment in non-farm related businesses and industry has remained under 5 percent, while The Oregon Employment Department has projected some rosy employment numbers for the millennium. Retail sales positions also are expected to grow nearly 34 percent from 1995 to 2005, to 62,000 within approximately seven years.

According to the U.S. Census Bureau, Washington is expected to grow by almost 4.3 percent to 5.66 million in 1998 from a 1995 population of 5.43 million. Per capita income, which in 1995 was reported to be $23,708, is expected to reach $25,076 in 1998, an increase of nearly 5.8 percent. Median household income in the Seattle metropolitan area counties of King and Snohomish was a significantly higher $44,893 (in 1996).

While non-farm unemployment in the state is higher than its neighbors to the south at 6.4 percent, a vibrant computer-related job segment combined with a healthy aerospace component has made for a booming economy in Washington.

Weeding out competition Despite a healthy economy, a number of once highly visible retailers exited the region in 1997. These closings were apparently caused not by a lack of consumer demand, but by increased competition from newer and more focused retail concepts. Retailers leaving the market include Ernst Home Improvement, Lamonts, Best Buy, Olympic Sports, Silo, Smith's Home Furnishings and Best Products.

Best Products had constructed two new stores as part of its move into the Portland area. The first, located in Tanasbourne power center in Hillsboro, Ore., had been occupied for approximately six months before the company filed for bankruptcy. Its second facility, in north Portland, although built and ready to go, was never occupied.

"The problem with Best Products is that they are an obsolete concept," says Robert Dunn, first vice president in the downtown Portland office of Los Angeles-based CB Commercial Real Estate Inc. "They're selling everyday items that you can get in catalogs just about anywhere, not to mention going into Target or Payless, for the same if not better price."

Ernst Home Improvement, which had been in the market for at least the last five years, was "getting battered by Home Depot and Home Base, in that order," says Dunn. "Home Depot is the king of the hill -- they were twice the square footage and a much more efficient operation. I think natural causes just drove Ernst under."

Similar market forces were at work on Lamonts Apparel Inc., a Kirkland, Wash.-based, family-owned chain of clothing stores. Once a widely visible chain, Lamonts closed down all but one store within the last year. "Lamonts just never found its niche," says Dunn. "They were kind of an in-between retailer -- in between Mervyn's, and Meier & Frank, and Nordstrom."

The resulting vacant square footage was quickly taken up by a number of consumer electronics, housewares, and specialty decor stores, reflecting the buying preferences of maturing baby boomers. Newcomers to the market include Restoration Hardware, Pep Boys, Babies "R" Us and Sleep Train, while retailers with an existing presence in the market, including Barnes & Noble, Borders Books & Music, Banana Republic, Pottery Barn, PetsMart, Petco, Sears Homelife, Circuit City, The Good Guys, Home Depot, Outback Steakhouse, and Q.F.C., continue to expand.

New construction Between the influx of new retailers and relatively strict land use policies, land for new development is in short supply in the major metropolitan areas of Washington and Oregon. New construction was only slightly up from 1996, but down significantly from 1995, and overall vacancy rates remained at or near historical lows. The result is an upswing in redevelopment and renovation.

"The name of the game is going to be redevelopment -- trying to find beat-up old centers and trying to rehab them, which perhaps also includes buying some land next to them in order to expand," says Dunn.

"We are still underretailed in this area as far as square footage to population," says David Moore, vice president of marketing for Irvine, Calif.-based MBK Northwest.

In with the old A key result of this lack of "raw" land is that selling prices for older properties with redevelopment potential are on the rise. According to Reynolds Haas, director of the Seattle office of the Financial Services Group for Cushman & Wakefield, the better-located shopping centers in the Puget Sound area of Washington are being traded at or above replacement value.

A key factor helping to make existing space so attractive to buyers in Washington is the Growth Management Act, which, like its counterpart in Oregon, limits the land available for new construction in suburban areas. Instead, retailers are being channeled to the metropolitan downtown area.

"Seattle downtown retail is finally going to be what it should be for a city its size," says Constance Wilde, associate broker for the Retail Services Group in the Seattle office of Northbrook, Ill.-based Grubb & Ellis. "It's going to start to rival places like Chicago."

Major buyers for the properties are REITs, foreign buyers, high-wealth individuals and family trusts. "The REIT presence is extremely interested in purchasing stabilized property in the Pacific Northwest," Moore notes.

"The buyers are looking for seasoned properties with dominant anchors in their respective market areas, with good histories of sales growth and little chance of offsetting those properties by other locations that would come available in the future," says Hass.

"If we have quality properties brought to market, we normally have in excess of 15 qualified buyers, the majority of which are all cash and from very recognizable players of acquisition in this market," Hass continues.

This represents a quadrupling of qualified buyers from just three years ago, he notes. "I don't think it can get any better," he says. "Now is a very good time to sell."

Oregon In Oregon, Portland is the focus of most activity, and thus the source of most developing trends. While there are pockets of growth and retail development in Bend (on the eastern side of the Cascades) and Medford (in south-central Oregon, just above the California border), retail expansion in these areas typically lags two to three years behind growth in the Portland metropolitan area.

Throughout Oregon, but particularly within the cities of Portland, Corvallis, and Eugene, Urban Growth Boundaries land use legislation has made new construction especially difficult. Within the Portland metropolitan area, for example, the goal is to promote infill development along the service routes of the developing light rail system rather than suburban expansion.

As Dunn points out, "Instead of insisting on a 5-to-1 parking ratio, they are lowering these things to 2.5-to-1, which is, in my opinion, ridiculous. Who's going to go to Costco on a bicycle or a bus and walk out of there with 40 pounds of groceries? I think that is one pressure that is forcing these big-box retailers to go to the smaller communities where they can get the space."

Dunn notes that big-box retailers move into these smaller communities with a smaller footprint and a more restricted inventory. "In Medford, for instance," he says, "instead of 140,000 sq. ft., they'll put in 80,000 sq. ft. -- the same layout, but fewer items. There are a couple of scaled-down Costcos on the Oregon coast that are doing well."

Major retailers new to Oregon in 1997 include HomePlace, Staples, Linens 'N Things and Future Shop. Retailers that undertook expansion into secondary cities such as Eugene, Bend, and Medford include Office Depot, Barnes & Noble, and Circuit City.

According to MBK's Moore, quality restaurateurs are vying for premium space in regional malls and power centers in Oregon as well.

"For example," he says, "Claim Jumper has targeted the Pacific Northwest. We did the first deal for the Damon's Group out of Ohio -- they have an individual who has purchased the southwest Washington, Oregon territory and has a very aggressive expansion planned."

Washington As in Oregon, the main focus of activity is in the state's primary population center, the Puget Sound region, which includes the Seattle metropolitan area and extends roughly from Olympia in the south to Bellingham in the north, and from Redmond to the Kitsap Peninsula.

According to Susan Zimmerman, retail specialist in the downtown Seattle office of CB Commercial, two of the more active retail categories in the last year have been home furnishings and sporting goods. "Although, in the home furnishings category, I would include stores such as Restoration Hardware and Pottery Barn," she notes. "We are also seeing some interest among tenants who had left the market to re-enter with new concepts, such as HomePlace and Pacific Linen."

Already in or coming soon are retailers such as NikeTown, Planet Hollywood, Tiffany and Montblanc. Wolfgang Puck has opened two new restaurants in the area, and Seattle is the home of a new Gameworks entertainment concept.

The Puget Sound region is playing "catch-up" with other parts of the country, says Wilde of Grubb & Ellis. "Retailers on a national expansion will typically go to Portland before they come to Seattle, partly because Portland is a less expensive market to be in both retail-wise and advertising-wise."

As a result, she says, retail penetration in Seattle often trails Portland by as much as two years. "We are still seeing the tail end of a lot of the category killers that have been in California for four or five years."

According to Moore, the watchword for the rest of the 1990s is "rightsizing." "I think eventually there will just be two players in just about every category," he says. In Portland, he notes, the market is prime for one or two players to pull out, particularly in the categories of electronics, office supplies, and home furnishings.

Bob Bruce is a Wilsonville, Ore.-based freelance writer.

Washington * MBK Northwest, a division of Irvine, Calif.-based MBK Real Estate Ltd., has completed renovation of Meridian Village in Bellingham. In addition to new paint and signage, the center received a new parking lot overlay, exterior canopy and roof.

In addition, MBK has demolished 37,000 sq. ft. of existing space and acquired 6 adjacent acres to accommodate the addition of Home Depot. Scheduled for completion next month, the 105,000 sq. ft. store will bring the center's total GLA to 206,000 sq. ft.

* Seattle-based Winmar Co. Inc. has completed Redmond Town Center in Redmond. The 1.3 million sq. ft., open-air "lifestyle center" is configured on an urban grid, with streets that connect the project to downtown Redmond. The project's design combines retail, entertainment, office and residential space amid tree-lined pedestrian boulevards, fountains and outdoor kiosks. The 400,000 sq. ft. retail component includes Borders Books & Music, Cineplex Odeon, and Eddie Bauer. Additional development phases are planned. The contractor for the project was Bellevue, Wash.-based SDL McCarthy.

* Cincinnati-based Madison Realty Partnership is renovating 601 Pine Street in downtown Seattle. The interior of the 80,000 sq. ft., urban specialty center, which is anchored by Old Navy Clothing Co., Music Seattle and Gene Juarez salon, will be demolished, and new interiors and store fronts will be constructed. The center's exterior also will be upgraded to complement the surrounding urban entertainment and retail district. The project will be managed by Minneapolis-based Madison Marquette Realty Services when it is complete this spring.

* Seattle-based University Village Imp. L.P. is renovating and expanding University Village in Seattle. Last May, the 30,000 sq. ft. West Building, which housed a Q.F.C. grocery store, was redeveloped to accommodate Restoration Hardware, Pottery Barn and Banana Republic. In addition, renovation began last summer on the Northwest Quadrant. The 41,000 sq. ft. building is being renovated and two new pavilion buildings and a gazebo are being added to accommodate local tenants such as Miller-Pollard, Channel 9 Store and Juice Plant. The contractor for the project is Bellevue, Wash.-based SDL McCarthy. A May 1998 opening is anticipated. The 400,000 sq. ft. community shopping center is anchored by Barnes & Noble, Eddie Bauer, The Gap, Q.F.C. supermarket, and Bartell Drugs.

* A grand opening was held in August by Salt Lake City-based JP Realty Inc. for Spokane Valley Mall in Spokane. The 750,000 sq. ft., two-level, enclosed regional mall is anchored by The Bon Marche, JCPenney, Sears and a 12-screen, Act III theater complex. Plans for phase II expansion are currently under way, which will bring the center's GLA to more than 1 million sq. ft. when complete.

* Ground was broken in November by Seattle-based Marquis Properties for phase II expansion of Peace Arch Factory Outlets in Blaine. The 92,950 sq. ft. outlet center will grow 25,000 sq. ft. this spring. Approximately six stores will join the tenant roster, which already includes Mikasa, Levi's Outlet by Most and Springmaid-Wamsutta. The center also features the "Peace Train," a 1/3 scale replica of the 1863 C.P. Huntington steam train, which not only is a children's attraction but also shuttles shoppers from the parking lot around the circuit of stores.

Oregon * Chicago-based General Growth Properties is expanding Gateway Mall in Springfield. The 667,000 sq. ft. shopping center will grow to 744,000 sq. ft. in fall 1999 with the addition of a 77,000 sq. ft. Cinemark theater. The project is anchored by The Emporium, Sears and Target.

* Salt Lake City-based JP Realty Inc. has expanded Division Crossing in Portland. An Act III theater complex was added adjacent to the 94,640 sq. ft. community center in December. The center is anchored by Food Connection and Payless Drug Store.

* The Rouse Co., Columbia, Md., is expanding Pioneer Place in Portland. Next spring, a 370,000 sq. ft. retail and entertainment pavilion will be added to the 220,000 sq. ft., mixed-use center. The project is anchored by Saks Fifth Avenue.