By Jon Peterson
A Salem property sale will test the interest from commercial real estate investors as the market in Oregon works toward a new normal. Newton, Mass.-based RMR Group is offering up for sale the Capitol City Business Center in Salem, Oregon located at 4600 25th Avenue Northeast. The pricing guidance on the offering is approximately $40 million, according to sources familiar with the property.
The real estate firm has chosen CBRE to be the listing agent on the transaction. Among those working on the marketing efforts are Paige Morgan, an executive vice president in the firm’s Portland office, and Tom Pehl, an executive vice president in the company’s Seattle office. CBRE declined to comment when contacted for this story.
The office asset has strong income, and its occupancy is reaching 87 percent. The property has three tenants, all companies that work closely with various state agencies in Oregon. They support the significant operations for the Departments of Human Services, the Employment Department and the Department of Justice. The in-place leases have a weighted average lease term of 6.4 years.
The single-story office building was first developed in 1957 and was last renovated in 2011. The total amount of land for the property is 29.67 acres. Included in the property is a parking operation that has a total of 1,128 spaces.
The potential sales price on the property would be quite attractive when compared to its presumed replacement cost. If the asset sells at $40 million, this would amount to $171 per square feet, and industry experts have seen replacement costs for similar product topping out at $340 per square foot. This figure has been going up with construction costs continuing to increase due to supply chain shortages and inflationary pressures.
The Salem office market is showing very strong operating fundamentals. According to CBRE, the direct vacancy in the Salem region has steadily compressed from 12 percent in 2015 to 5.9 percent in the second quarter of this year. As a comparison, vacancy in Portland now tops 17 percent. Rental rate growth for the Salem office market is expected to fully recover by mid-2022, achieving three percent rent growth by 2023 or later. The market has no new development projects on the near-term horizon.