Five years ago, Bend's economy—largely based on tourism and a housing boom—fell apart. What had been a blessing—a giant leap forward in housing prices—suddenly seemed like a curse as residents fell behind on mortgage payments, and the region's biggest economic driver was more of an economic anvil than advantage. And, with people across the country similarly suffering and unemployment soaring, tourism also slowed, doubling-down Bend's losses.
But as the national economy has regained traction over the past year—pushing down unemployment and pushing up housing prices—Bend, once again, is seeing positive signs for economic growth and opportunity. But, it is a complicated economy. How are the various economic sectors fitting together? Are all the indicators adding up to long-term stability and growth? Who stands to benefit? Who stands to lose? The Source staff talked with local experts—about housing, tourism, and the beer industry—and tries to piece together the big picture for Bend's future.
What's brewing? Tourism...that's what.
The beer industry is evolving and growing faster than any other in Central Oregon, exploding from five breweries in 2005 to 26 in total this year. It's a no-brainer that the craft beer industry has been a huge contributor to the post-recession boom and to Bend staying afloat at its low points. Local attractions built on beer, like the Bend Ale Trail, have drawn thousands of thirsty tourists to the area; since 2010, more than 12,000 people have completed the Bend Ale Trail and Visit Bend said it will distribute 80,000 Bend Ale Trail Atlases in 2014. To put that in perspective, Doug La Placa, Visit Bend executive director, told the Source that Visit Bend only distributed 100,000 Bend Visitor Guides and said that there may soon be a day when Visit Bend distributes more Ale Trail maps than visitors' guides.
"In terms of activating local tax dollars to create a meaningful return on investment for local businesses, I think the Bend Ale Trail has been a big winner," said La Placa. "And it's not just the local breweries that are benefitting from the Bend Ale Trail. Bend's beer tourists stay in hotels, buy gas and groceries, hire guides, shop, and spend money throughout our community."
So how does Bend continue to grow this flourishing beer economy and cash in on the beer bubble? Garrett Wales, owner of 10 Barrel and one of the founders of the Central Oregon Brewer's Guild said the key is to keep quality of product high.
"The industry seems to be in a state of continuous change," he explained. "When you look at the big picture, craft beer is really still in its infancy. Our market segment is getting much larger, our customers more educated, and there are new players popping up by the week. Without a doubt there is one major factor: quality. As a collective whole we must keep quality standards and performance very, very high. There was a time when people assumed that just because a product is local, makes it good. That couldn't be further from the truth and in today's market here in Central Oregon and the northwest as a whole, our consumer is much more educated than that. Quality is king, no doubt." (BB)
Leading industry indicator: beer
There has been a certain hubbub that there is a "beer bubble" and that after the enormous and strident growth of the craft-beer industry, it will eventually burst. Certainly, looking at the numbers in isolation, it is hard to imagine that the local beer industry can continue its confident growth—some two dozen new breweries opened in the past five years, and not a single failure.
Yet, in a larger context the numbers add up: The market share of craft beer is only 6 percent, a number that has nearly doubled in the past 10 years and also a number that shows a remarkable capacity for further growth as drinkers mature from PBRs to IPAs.
Even so, the overall job creation from the beer industry is minor, and the wealth distribution isn't what Howard Zinn would pencil out.
While it seems as if the craft beer industry will continue its growth, the overall positive and broad impact on Bend's economy is less certain. In total, breweries claim just one percent of Oregon's private sector jobs. Yes, that number has grown by 10 percent over the past year, far outstripping the 2.7 percent job growth in Oregon's private sector, but the majority of that job growth (roughly three-quarters) came from brew pubs (meaning menial jobs). Stated more directly, the average annual pay in the industry is roughly $28,000, significantly less than the overall private sector average annual pay ($44,000); meaning, someone is getting rich, but there may not be an overall significant addition to the job market. (PB)
Between Bond and Wall
In an interview with the Source this spring, longtime Bendite Bob Woodward remembered a time in Bend during the late '70s after the mass lumber mill closures when one "could roll a bowing ball down Wall Street and not hit a car." That's certainly not the case today, and for our money, the vibrancy and business of downtown is a sure indicator of economic success in the region, a comeback indicated by an occupancy record set this summer with six new businesses opening in downtown and a five-year high of 98 percent business occupancy.
"It means stability," said Chuck Arnold, president of the Downtowners Association. "People still want to come and do business downtown and are investing in downtown and that is a really good sign."
Arnold also points to a growth in what he calls "heads in beds," hotel occupancy numbers which have been dramatically on the rise. The July lodging occupancy rates from the last decade tell a familiar story, a low point at 71.4 percent in 2007 increased 13 percent to a glowing 84.4 percent in 2013.
"We know from survey data that many of those tourists are going to come downtown during their trip to Central Oregon," said Arnold, referring to The Bend Area Visitor Survey conducted by Visit Bend in 2013 that found that 54 percent of visitors to Central Oregon went to breweries, 50 percent went to the Old Mill District and 45 percent went downtown. "The more of them there are, the better for downtown." (BB)
New sport facilities
With two new major facilities on schedule to open in the next year or so—a public ice skating rink for the winter, and a wave park in the river for the summer—as well as the newly opened downhill mountain biking runs at Mt. Bachelor, the sporting attractions in Bend are widening their already big appeal.
"The region's recreational assets continue to be a primary driver of tourism," explains Doug La Placa, Visit Bend executive director, "but now they are also attracting new residents and new companies to the area." He adds, "While it's not always a ton of fun to share our favorite trails and rivers with visitors, outdoor recreation will continue to be a primary catalyst for the in-migration of new investment into our community."
More specifically, La Placa explains that the additional facilities help prop up some of the points during the year when tourism sags. "From a tourism perspective," he says, "the enhancements to winter recreation are very important. Bend's tourism industry during the summer months is booming, but we still have a lot of room to grow during the winter months. Having a covered sheet of ice for hockey tournaments, figure skating, curling, and other on-ice activities should present new tourism development opportunities for the region." (PB)
Leading industry indicator: real estate and construction
In a survey of nearly 400 housing markets, last year Bend was ranked number two, with predictions that housing prices will start to climb again at a brisk annual rate of 11 percent (compared to a modest national average of 3 percent). And, just about as soon as the news was delivered, it seems as if the previous five years of memories and lessons from a burst and flat-broke housing bubble were washed away.
So much of the local economy has been driven (both wild, and then into the ditch) by the housing market (both house sales and construction of new homes) and by the housing industry, with an estimated one out of five jobs tied to housing.
At first blush, it would seem promising that housing prices in Bend surged 20 percent last year. But with unemployment in Bend at a stubborn 7.3 percent, a full percentage point higher than the rest of the state, these numbers predict a notable division between the have and have-nots—the ones who can afford to purchase homes, and those who cannot.
Adding to these divisive forces is an oncoming tsunami of population growth, with predictions that Bend's number will grow by 50 percent over the next decade. This is primarily driven by what the U.S. Census Bureau calls "domestic migration"—or, people moving into the district; a number that has doubled almost on an annual basis.
On a simple supply-and-demand consideration, such population growth would seem to fuel another housing boom—and, certainly it may and already seems to be doing so. But, like a quick sugar fix fueling the economy, that may have long-term trade-offs—like a big dip in the long run for Bend's low-key quality of life and long-term affordability. (PB)
No room in the inn-tire City
As Bend's population continues to climb, the rental market is on the verge of bursting like a water balloon, sending low-to-middle income residents spilling into outlying communities in search of not just affordable housing, but any housing.
City of Bend Affordable Housing Manager Jim Long puts it plainly: "Overall, rental housing market conditions in Bend could best be described as grim."
Sounds hyperbolic? Check the stats. According to the Central Oregon Rental Owners Association's (COROA) 2014 survey, the regional vacancy rate is just 1.4 percent. Zoom in on Bend and the chances of finding a rental are considerably slimmer. The overall vacancy is a mere 0.7 percent (0.4 percent if you remove single family homes from the equation). At any given time, there are no more than 17 or 18 "available" units in town. Long says the actual number may be even lower, considering the number of properties effectively off the market due to renovations, repairs, or simply turnover. And it doesn't seem likely to improve soon.
"In addition to the lack of available rental properties, the rents for those that are not currently under contract are increasing at an alarming rate," Long points out. "Combine this with a hospitality-based economy, with its attendant low wage structure, and also consider the coming construction of a four-year university, and Bend has significant difficulties to address to meet demand."
In addition to a steadily increasing population (about 1.5 percent per year), the market is also challenged by a dearth in the construction of new rental properties. Long says that the construction of multifamily units, as measured by the number of units permitted, has gone from about 500 a year from 2000 to 2007 to none issued (yes, zero) from 2010 to 2013. That said, things are starting to look ever-so-slightly up, with 155 permits issued for multi-family units in the last year, but it still won't be enough to meet demand. For instance, OSU-Cascades expects at least 1,000 students in its first post-expansion wave (despite only planning for a 300-resident dorm facility).
The key question, Long asks: "Do you want affordable housing or do you want to be a resort community like Aspen?" (ER)
Making the (economic) grade
With oft-quoted statistics about the increased earning potential of college graduates, the link between education and the economy seems to be a no-brainer (or would that be a big-brainer?). But the reality is a bit more complex than that, at least in Bend.
The perks of being a (two) college town go beyond an educated workforce. According to Christine Coffin, director of communication and outreach for OSU-Cascades, the presence of a college campus benefits the local economy in three major ways: through direct spending (hiring staff/faculty, purchasing materials and utilities, etc.), indirect benefits (more baristas and booksellers, please!), and induced benefits (that is, the buying power of campus employees in the community).
Coffin says that with a student population of 2,000, that would translate to $37 million in direct spending as well $5 million in indirect benefits and $21 million in induced benefits (for a grand total of $65 million).
"In addition to producing skilled graduates for local companies, a university can also attract companies to the area," Coffin explains. "We hear from Roger Lee at EDCO that companies looking to relocate and considering Central Oregon, or who are looking to remain in Central Oregon, seek the resources of a four-year, research university for innovation and partnership opportunities, as well as for the cultural and education opportunities for family members."
She adds that the tech industry in particular is awaiting the arrival of educated, qualified workers—with an estimated 140 open computer science jobs in the region. And OSU-Cascades has been intentional about designing programs with the local economy in mind, focusing on majors including: Tourism and Outdoor Leadership, Energy Systems Engineering, Computer Science – Web & Mobile App option, and a pending Hospitality Management degree.
"The goal is to create degrees that provide students with real-life learning opportunities through local companies, and to provide the companies with skilled interns and employees, and to support the region's economy," Coffin says.
Still, in many industries, there is a bit of a catch-22. Until companies respond to the resource that an increased academic presence provides, there will be shortage of jobs in Bend for people with college degrees, says Eric Spieth, a member of Central Oregon Community College's business faculty and the team lead for COCC's Center for Entrepreneurial Excellence and Design (CEED).
"We need to redouble our efforts and accelerate business creation in the traded sector, local services and experiences," Spieth says. "Without significant business development we will simply be exacerbating student loan debt, high cost housing and unemployment." (ER)
The perks and pitfalls of doing business in Bend
For all the hubbub about start-ups and angel investors, Economic Development Central Oregon (EDCO) Executive Director Roger Lee says the City of Bend's business-friendly policies are still a work in progress.
"They're working on it and we're working with them on that," Lee says. "We're not there yet, but heading in the right direction."
He says that city staff and council have been increasingly responsive to the concerns of the business community—as evidenced by the continued funding and support of the Business Advocate position, currently staffed by Carolyn Eagan, and a position Lee says has legitimate authority and influence.
"The whole purpose of that is to improve the climate," he says—in other words, to both put out and prevent fires. "That's starting to happen."
In terms of incentives, Lee says most of the ones being taken advantage of by local businesses originate at the county or state level and tend to account for less than 10 percent of a business's total costs. Still, they have impact.
Take enterprise zones. These are areas in Bend where, if a business starts up and meets certain salary and other requirements, it may qualify for the temporary waiver of property taxes. Lee says that with enterprise zones and other government incentives, the payout is typically about $1,000-$2,000 per staff position, but it can bridge the gap between failure and success.
"I think we have right now about 48 companies across the region participating in five zones," he says. "About 45 percent of those are in Bend."
According to EDCO's 2013 Bend Profile, the costs of doing business (what incentives can help offset) include leasing costs of 45 to 55 cents per square foot for industrial, 75 cents to $1.50 per square foot for commercial, and 95 cents to $2.25 for retail. Land costs range from $3.50 to $6 for industrial and construction costs are about $50 to $75 per square foot. There's also a $50 City of Bend business licensing fee. However, the city does offer some financing programs to assist businesses that can't pay all the fees up front.
Overall, Bend benefits from a number of statewide perks, including the lack of sales or inventory tax and the lower overall cost of doing business (as compared to other states, according to EDCO's report). The primary challenges, Lee says, come not from the City's policies, but from the workforce. Finding skilled technical labor, as well as front-line workers who can pass a drug test (put down the blunt, brah) and maintain regular attendance, he says, can be a challenge. (ER)
The health of the economy
St. Charles is Central Oregon's largest employer with 3,400 caregivers in Bend, Madras, Redmond, Prineville and Sisters and more than 350 additional active medical staff and 200 visiting medical staff.
And the hospital is growing rapidly. In the spring of 2014, the hospital opened a new $5.5 million dollar hybrid operating room, filled with all manner of techie equipment and deemed one of the best operating rooms in the northwest.
In June, St. Charles opened a $13 million, 16,000-square-foot cancer center, the Les Schwab Medical Oncology Wing and the Picchetti Family Radiation Oncology Wing. According to St. Charles, as the region's population continues to age, the Central Oregon cancer volume is expected to increase 50 percent by 2025. The newly built cancer center will help accommodate those future needs.
Start-up seeds yield techie crops
Shortly after visiting Bend, venture capitalist Dino Vendetti fell in love with the city's "mojo," according to a January 2014 interview with Forbes. He saw the potential for a thriving regional tech hub and brought his toolbox filled with start-up skills to the high desert.
"Job creation in Bend is everyone's business. People who make the move typically need to start a business to have a job," Vendetti told Forbes. "Bend is the 16th largest metro area in the country for high-tech startup density [according to an Aug. 2013 report from the Kauffman Foundation]. Pretty amazing for a town with fewer than 100,000 people."
Vendetti is fertilizing the rich startup soil with a number of projects including a 12-week program for startups called FoundersPad, an "angel investor" group called Seven Peaks Ventures, a long-distance networking program called The Big Bend Theory that builds connections between out-of-area entrepreneurs and local startup executives, and the development of a computer science program for OSU-Cascades.
The list of local startups that have graduated from FoundersPad include CiviData, CrowdStreet, droplr, Good Peeple, Instant Mobile Solutions, JettStream, Kardio, Nouvola, RallyCause, Signalfy, Solstice Supply Company, and ziPede. (ER)
Taking flight: Drones
For the two decades prior to the economic collapse of 2008, in Central Oregon, one of the most exciting and steadiest segments of the local economy had been producing small airplanes. As the Air Force understood in the 1940s, the area, with its wide-open spaces, is a prime testing area. Starting in the mid-80s, a number of manufacturers began to settle into the area, and that industry grew.
But the economic collapse hit airplane manufacturing hard: Production of single-engine planes plummeted from some 14,000 annually in 1980 to fewer than 700 last year, according to the General Aviation Manufacturers Association.
"Over the previous 20 years, we'd built a national and even international reputation for producing composite small aircraft," explains Roger Lee, Executive Director for Economic Development for Central Oregon. "We did not want to lose that talent—engineering, design, fabrication—from the region." In response, EDCO huddled and over several months landed on a reasonable plan to focus on the production of drones—or, as Lee prefers, UAVs, unmanned aerial vehicles.
"What we did not know then," he continues, "but are learning today, is that the airframes (most are very small, less than 55 lbs) part of the UAV industry is really only the 'tip of the iceberg.' Many more jobs and innovation is being created around sensors, software, robotics, controls, data management and interpretation."
Quite fortuitously, a year ago, the Federal Aviation Administration (FAA) selected Warm Springs as one of the testing areas for UAV.
"This all looks very promising," Lee says, "but it is a very young industry and still heavily regulated by a federal agency [FAA] so it is not yet a job driver in our state and region."
Even so, Lee predicts that the opportunity and probability for job creation with the UAV industry is immense in the region. "We've been racing to the starting line to position our region and the entire state to be a center of excellence for all things unmanned, but we're not there yet."
His assessments are backed up by Mark Morrisson, executive director for SoarOregon, a nonprofit that manages civilian uses of UAV. "In a nutshell," Morrisson considers, "with a fully functioning test range just up the road at Warm Springs, it would not be unreasonable to expect dozens of companies (including training and educational institutes) hiring in the several hundreds in Central Oregon." (PB)