Salem’s new Costco is ready, the parking lots at our area shopping centers are practically full, and our residents seem to have returned to normal after the COVID-19-induced decline in many retail sectors, particularly the foodservice industry.
Undoubtedly, the reality is much more complex than meets the eye, and this has never been truer in the commercial real estate retail sector. Let’s analyze some macroeconomic data by zip code in Salem.
97301, which comprises downtown and its immediate vicinity, has zero retail currently under construction. This comes as no surprise as there is very little land to develop a retail building on. This should place upward pressure on rents, but when adjusted for inflation we see a decline in year-over-year rents of 4.5%. Vacancy has ticked up year over year as well, 4.5% a year ago and 5.3% today. Mind you, this is still exceptionally low.
The 97302 ZIP code is a benchmark for commercial real estate, with a vacancy rate of 0.9%, down from 1.6% the previous year. Rents, adjusted for inflation, are down 4.2% compared to 2021. There are currently 6,600 square feet of construction underway, which is good news for our South Salem market, and we have seen positive net absorption (product absorbed by new occupants) of 187,000 square feet. Economic demographics are strong in this ZIP code, which bodes well for occupancy and rents.
97304 commands the highest rents in Salem with an average rent per square foot of $18.57 annually. This translates as well into the highest average sale price per square foot of $208. Vacancy has remained flat year over year at 1.4% and positive absorption of 8,200 square feet. Again, economic demographics are particularly strong here and West Salem tends to be somewhat of its own economic engine with the river barrier keeping much of the commercial activity acutely local.
97305 currently has zero product under construction but has remained relatively flat from an absorption standpoint with retail spaces only giving back 142 square feet year over year. Population density is high in this section of Salem, and rents are strong at $16.58 per square foot per year, but down 3.8% when inflation is adjusted. You can buy more building for a dollar here, with the average sale price being $168 per square foot. Vacancy again is flat, remaining at 2% year over year.
District 97306 is another economically strong area in the community and will continue to grow as the housing supply aligns with the buildable land supply in South Salem. The vacancy rate is very low at 1.1%, and market rents average $17.80 per square foot per year. Sales prices follow the rents, and we see high value per square foot, averaging $192 per square foot.
