Quick Summary- Click here!
- Retail leasing picked up in 2025 as smaller-format deals drove volume, while landlords and tenants paid closer attention to pass-through costs like security and taxes.
- Salem’s multifamily market showed signs of stabilization, with modest rent growth, vacancy trending toward balance, and transaction activity recovering from 2024 lows.
- Residential construction stayed constrained by affordability and buildable-land dynamics, with “middle housing” growing but still not producing enough units to meet regional targets.
- Across sectors, speakers pointed to time and cost friction in tenant improvements and permitting, with timelines that once measured in weeks now stretching into months.
- Panelists urged earlier coordination with city staff and tighter up-front planning to avoid costly surprises late in a project.
FAQs- Click Here!
What is the main theme of the forum’s 2026 outlook?
A “steady-but-cautious” view: demand is holding in several segments, but decisions are increasingly shaped by higher construction costs, longer permitting timelines, and affordability limits.
Is retail in Salem growing or shrinking?
Speakers described retail activity as improving in deal count, with momentum in smaller suites and more local or regional tenants filling spaces that used to be held by big national brands.
Are apartment rents still rising in Salem?
The forum’s multifamily presenter said rent growth has been modest but positive, and forecasts suggested a gradual path upward as new supply slows.
Why are permitting timelines such a big deal for commercial leases?
Because tenant improvements and occupancy approvals can determine whether a tenant can actually move in on time. Several examples shared at the forum suggested delays can add months and unexpected costs.
Is middle housing solving Salem’s housing shortage?
Speakers said middle housing is helping and is growing as a share of new production, but it is not large enough, on its own, to close the gap between current output and long-term needs.
What are businesses doing differently right now in leases?
They are looking harder at “all-in” occupancy cost, not just base rent. That includes triple-net expenses, taxes, and new items like security.
What needs to change for new apartment development to pencil again?
The multifamily presenter pointed to a combination: higher rents, lower vacancies, and improved financing conditions, plus project-specific advantages like lower land basis or cost-saving construction methods.
Salem’s economic picture, as described Thursday at the Capacity Commercial Real Estate Economic Forum, came through as a blend of stability and constraint: steady demand in parts of the market, limited new supply in others, and a common warning that timelines and costs, especially for tenant improvements and permitting, are reshaping what deals can realistically get done.
Mayor Julie Hoy framed the event as a call for cross-sector collaboration, telling attendees that “regional economic strength does not happen by accident,” and arguing that sharing data and ideas helps the region respond faster to change. “By sharing data, ideas, and challenges in forums like this, we accelerate our collective ability to respond to change and seize opportunity,” Hoy said.
The forum’s format centered on sector presentations, followed by audience questions. Retail, multifamily and residential construction drew some of the most pointed discussion, as speakers connected day-to-day project decisions to larger constraints: security costs showing up on expense sheets, construction budgets that can break a deal, and a permitting timeline that can make even straightforward tenant moves unpredictable.
Retail
Retail activity in Salem, as presented by Capacity Commercial’s Nick Williams, leaned toward a cautiously optimistic read: more leasing deals were completed in 2025 than the year before, average starting rents moved higher, and a major share of small deals came from The Forge, a multi-tenant project that Williams described as a major driver of the year’s numbers.
Williams told the room that 2025 saw 91 lease deals in the market, compared with 66 in 2024, while “the average starting rent increased from about twenty dollars a foot to over twenty two dollars a foot,” a roughly 10% jump. He credited much of the deal count increase to The Forge, which accounted for 27 of those 91 deals, and noted it was nearing full occupancy.
He also highlighted a downtown example he said would show up in next year’s dataset: El Torito Market at 435 Liberty North, where the tenant is funding a grocery buildout in exchange for below-market rent. He described it as a structure that traded rent rate for investment and activation, while also pointing to a $300,000 downtown urban renewal grant request tied to the project.
But Williams’ longer-term message was less about raw deal counts than about what tenants are watching more closely now than five years ago: the extras.
Asked what tenant patterns he is seeing today, Williams pointed to the growing influence of pass-through expenses in triple-net leases. “We’re seeing a new line item in the expense column for property owners, which is security,” he said, adding that owners who pay for security can still end up passing those costs along when deals are structured as NNN. He also flagged widening differences in property taxes by subarea, arguing that tenants are increasingly making location choices based on the “all-in” cost of occupying a space, not just the base rent.
That cost sensitivity, he suggested, is showing up even as Salem Center’s tenant mix changes. Williams said the mall is shifting from large national tenants toward local and regional users, consistent with broader national trends, and he described staffing and security concerns as a growing driver of tenant decisions.
Multi-Family
If retail’s story was higher deal volume and tighter scrutiny of expenses, multifamily’s story was stabilization, with modest rent growth, vacancy trending toward balance, and a development pipeline slowed by feasibility challenges.
Portland appraiser Patrick Barry, presenting on Salem’s multifamily market, described 2025 as a year where the market “shows clear signs of stabilization,” even if the recovery has been gradual. “Rent performance in Salem has been modest but notably resilient,” Barry said, citing rent increases of about 1.4% in 2024 and 0.7% in 2025, with average rents “just over fourteen hundred” per unit.
On vacancy, Barry said the market is hovering around 5.9% when including properties in lease-up, and he suggested forecasts point toward roughly 5% as new supply slows. “The key takeaway here is balance,” he said, describing a shift from expanding vacancy toward a more stable environment where rent growth becomes more predictable.
A major driver, Barry argued, is a drop in construction volume. He said only about 315 units were under construction at the end of 2025, while annual deliveries are expected to fall below 400 units per year near term after roughly 630 units delivered in 2025. His message was that the slowdown is not about a lack of interest in Salem, but a gap between replacement cost and asset values, with financing constraints limiting what can get built.
Sales activity, Barry said, improved in 2025 from 2024 lows. He cited a long-term average of roughly 36 apartment transactions per year for properties with five or more units, compared with 16 transactions in 2024 and 26 in 2025. Values, he suggested, appear to have found a floor after a pullback from peak pricing earlier in the decade.
During Q&A, Barry was direct about what must change for apartment development to work again. “We need to see increasing rents,” he said. “We need to see vacancies come down,” and he added that financing conditions matter too, including the possibility that lower interest rates could compress cap rates and lift values. He also noted that the projects he is seeing pencil right now tend to come with “a catch,” such as unique cost advantages, modular methods, tax exemptions, or an exceptionally low land basis.
Housing
Residential construction, as described by Home Builders of Marion and Polk Counties CEO Mike Erdman, is not collapsing, but is operating under tight margins and affordability limits, with production levels falling short of regional goals.
“The new construction market has been softening for really several years now,” Erdman said. “It is definitely not collapsed, but it is very much under strain.” He pointed to price sensitivity, elevated mortgage rates, and high construction costs as gatekeepers that are pushing builders toward caution.
Erdman said 2025 residential sales finished essentially flat, while housing starts were down about 5%. Single-family starts, he said, were down around 15%, partly offset by an increase in middle housing such as duplexes, triplexes, fourplexes and cottage clusters.
Middle housing, Erdman said, is rising as a share of production. He told the forum Salem built 91 middle housing units in 2025, about one-third the volume of single-family construction, and he described it as both a necessity and a market adaptation. But he also emphasized the limits: most middle housing, he said, is being delivered as rentals, not for-sale units, because condo or land-division paths can add months of delay and additional costs.
“Nearly all the middle housing units that were built last year were rentals,” Erdman said, tying that outcome to the time and expense of land division processes and utility agreements. In a later discussion about community outcomes, he argued that expanding homeownership options still matters. “We want to encourage home ownership,” he said, linking ownership to long-term neighborhood investment and family wealth building.
Erdman also raised a land-supply concern that he said is getting more urgent. He noted Salem’s housing needs analysis is more than a decade old, and he described the city’s developable land as concentrated in areas that can be costly to build. Much of the remaining supply inside the boundary is “south and west,” he said, where topography and constraints can drive up lot costs and push finished home prices above what many local buyers can afford. East Salem, he suggested, has been the more affordable focus, but builders are watching that land inventory shrink.
The larger context, Erdman said, is that Oregon’s land-use framework limits sprawl, which means affordability does not improve without producing more supply inside the rules. He cited a target of about 2,000 new units per year in the Salem–Keizer urban growth boundary area, adding: “This past year, we barely built forty percent of that.”
A Shared Pressure Point: Time, Cost, And Permitting
Across the forum’s segments, speakers repeatedly returned to one practical reality: timelines and costs, especially around tenant improvements and permitting, are changing how projects get negotiated and executed.
Kurt Arthur, presenting earlier on the office market, said construction costs have become a deal-breaker, not just in office but across property types. “The cost of tenant improvements is just so damn high,” he said, describing deals that have fallen apart when buildout costs force rents to levels tenants cannot support.
Arthur recommended setting tenant improvement expectations early using a simple benchmark: “a dollar per square foot per year of term,” which he described as a way to establish a baseline allowance and reduce late-stage surprises. In that structure, a five-year lease would support a $25 per-square-foot allowance, with options to extend the term or amortize additional costs if the buildout budget comes in higher.
Permitting was described as a second choke point, especially when use, occupancy, or code-trigger issues surface late. Arthur contrasted older timelines with current experiences, saying permits that once came in about three weeks can now take “six to nine” months in some cases, particularly when occupancy determinations or added requirements extend the process.
The forum’s sponsor representative, attorney Parker Markoy, urged earlier involvement by professional teams and earlier engagement with city staff. “Hire early and deploy a team of professionals,” Markoy said, arguing that preparation tends to produce smoother outcomes and fewer surprises.
In a panel exchange about navigating the City of Salem’s processes, Markoy described a strategy of early collaboration and selective escalation: bring staff into a project early enough that they can help shape solutions, and escalate only when a true “brick wall” threatens a well-constructed project. Arthur echoed that approach from a leasing standpoint, describing a shift toward initiating conversations with the city earlier in a lease timeline so use-related issues are surfaced before deadlines become emergencies.
Taken together, the forum’s picture of Salem’s economy was not a boom narrative or a bust warning. It was a more practical read: steady fundamentals in several sectors, but with a growing premium on predictability, full-cost budgeting, and early coordination, because the calendar itself has become part of the cost structure.