For its latest episode of Elevating The Conversation, the Journal sat down with Alicia Barbieri, co-president of Spokane-based commercial real estate company Goodale & Barbieri, to discuss the commercial real estate market here.

The Elevating The Conversation podcast is available on Apple Podcasts, Amazon Music, Spotify, and elsewhere. Search for it on any of those platforms or the Journal's website to hear the entire conversation, but for now, here are five takeaways — edited for space and clarity — from the episode.

1. There are reasons to be optimistic about Spokane’s commercial real estate market, but some segments are performing better than others.

I think most people would be surprised to hear that retail is actually doing pretty well. People are looking for experiences, and retail has adapted really well to post-COVID. You have retail in small neighborhood commercial zones. You have retail in high-traffic zones. You have retail still in your malls. Depending on what you're looking for, retail is performing pretty well.

Industrial is still a solid investment. We've had a lot of new product that has come on the line over the last couple years, and that's kind of leveled off, so the competitiveness isn't necessarily there because we have the product online. But there are still some great opportunities. For the large industrial, newer industrial, it's more about attracting the businesses here.

Certain segments of office are doing really well. Medical office is probably your strongest office use around the area, and growing. Part of that is the baby boomer population getting older. There are more medical needs that are needed. Meeting people where they are for medical versus taking long trips, I think the medical world is adapting to that, which is great.

Traditional professional office space has changed since COVID. That one's the tougher one, and that's just because you don't have call centers, for example. Call centers aren't really a thing anymore. So, people want smaller office spaces and better experiences for their employees.

I think companies are trying to adapt to what that means, and for landlords or property owners, they're trying to decide, “How do I meet people where they are or businesses where they are?” And businesses are trying to determine, “How do I meet my associate where they are so that I can compete from a workforce development standpoint?”

2. Downtown Spokane’s high office vacancy rate is driven in part by two large vacant buildings.

 For the most part, I'd say that the vacancy is seen in certain areas of town more than others. For Class A buildings, I think that specifically has to do with a couple buildings.

Everyone thinks, "Oh, well, 30% vacancy, so every office building has 30% vacancy," and that's not the case. You have a couple buildings that are 100% vacant because it hasn't been the right time — from a financing standpoint and a construction standpoint — to redevelop the property, so owners are in a hold stage.

We have two buildings like that downtown. Most of the other buildings aren't seeing that kind of vacancy.

Move a little to the southeast of downtown, and they are having a harder time leasing spaces. They’re significantly older buildings, but the safety concerns in those neighborhoods are preventing that experience for employers and employees.

3. Building owners can upgrade their facilities to attract and retain tenants, but they must determine whether high costs make doing so worth it.

 There's so much more to leasing a space than just finding a business for it, because often one business's needs are different than someone else’s.

Someone might have all of their workers on phones 24/7, and they need private offices. Or, they have clients that they're meeting with and have to have private offices. Others are maybe creative design, and they need open space. Trying to modify spaces for business needs is really hard to judge ahead of time.

Then, on top of that, an owner's got to decide, “Is it gonna cost me too much to build out?”

When you say what inflation has done to cost, when I got into this business like 20 years ago, it cost about $25 a square foot to renovate a space. We are now at about $100, $110 to renovate a space. It's one where owners are having to really question if it's worth it.

4. Multiple areas in the Spokane region appear primed for more growth in the near future.

 I think we're seeing a lot of that growth already in Airway Heights and Liberty Lake, and even Post Falls. A good part of that's been on that I-90 corridor, and those will continue to be growth areas.

Up north, past the "Y," where Mead Works is, will be a real big growth area on housing, on commercial, and all of it.

If I were to pick a neighborhood, for Spokane at least, I would probably pick Hillyard. Even if you were to look up what's for lease, or what's for sale in that area on the commercial side, there’s not a lot. I know people hate the word, but it'll be your next gentrified area. You can get homes really affordable in there. So, you're gonna start seeing more house flippers in there. 

I think the commercial investment that's happening in there is going to be great. It has easier access. It used to be just a rail yard that cut it in half, but now you have a freeway, so access to all around town is going to be easier and better. It already has a great industrial zone over there. 

If I was a betting woman, I'd say that one is gonna be your new Perry District area.

5. Multiple factors are influencing the commercial real estate market.

 Policy is a challenge certainly — both local and state. That's going to continue to be something that owners or investors have to navigate that affects tenants. 

Another big one, considering our current fires, is going to be insurance. We used to be a safe area for insurance — no earthquakes, no big floods. But, with the last couple years of fires in Spokane County, I think we're going to get the pinch on insurance unfortunately in those areas. And that'll kill deals. That'll kill new builds. Just because it may not pencil.

The rest is financing. While deals can be done with higher interest rates, they're not as advantageous. You've got to look at an asset from beginning to end. We're getting deals done certainly at the higher interest rates, but I think as those fall, we'll start seeing more done here because it pencils better. At the end of the day, when you're trying to finance a project, whether it's a new build or a redevelopment, it comes back to what's predictable.

I think those are gonna be some of the bigger challenges just for our region in general. We need to stabilize from a predictability standpoint.