Quarterly Eastern Washington CRE Market Intelligence

I. Executive Overview

Eastern Washington’s commercial real estate markets entered Q1 2026 navigating the same macro crosscurrents that shaped national markets—but with distinctly local dynamics that create both resilience and risk. The Federal Reserve held the federal funds rate at 3.50–3.75 percent at both its January and March meetings, while the Iran oil shock that began in late February sent Brent crude past $100 per barrel and U.S. gasoline prices up more than 20 percent in a single week. Construction input prices were already running at a 12.6 percent annualized rate through the first two months of the year before the full energy shock registered. In Spokane, commercial sales are recovering from a roughly 50 percent decline in 2024, with cap rates needing to rise above 6.5 percent for investors to achieve positive leverage against 6.5–7 percent commercial loan rates. The Tri-Cities economy received a significant boost from a record $3.2 billion Hanford cleanup appropriation for fiscal year 2026. For lenders, investors, and brokers in Eastern Washington, the quarter’s central message is that cost-to-cure assumptions are perishable, underwriting must account for energy-driven cost escalation, and thorough property condition assessment is the most reliable tool to anchor deal execution in verified facts.

II. Market & Economic Conditions

Rates & Lending

The Fed held rates steady at both Q1 meetings, with the March dot plot projecting only one cut for 2026 and another in 2027. PCE inflation projections were revised upward to 2.7 percent, and GDP growth was revised to 2.4 percent. The war in Iran introduced what the International Energy Agency called the “greatest global energy security challenge in history,” complicating the Fed’s already narrow path to further easing. Markets are now pricing in at most one to two rate reductions for the year.

In Eastern Washington, commercial mortgage rates range between 6.5 and 7 percent according to Spokane-based Kiemle Hagood. At these levels, cap rates need to rise above historical norms for investors to achieve positive leverage. Historically, Spokane cap rates have ranged 6–7 percent but compressed to 4–5 percent during the low-rate environment of 2021. The repricing process is underway but incomplete—commercial property prices have not come down as much as expected because limited inventory constrains supply-side adjustment.

Nationally, CMBS delinquencies surged to 7.55 percent in March, up 90 basis points year-over-year. Office CMBS delinquencies hit an all-time high of 12.34 percent in January. More than $100 billion in securitized commercial mortgages are maturing in 2026, with payoff rates projected well below recent norms. Close to $25 billion in CMBS loans are past maturity without resolution. The SBA updated its 504 program effective January 1, 2026, expanding buyer eligibility and waiving fees for manufacturing borrowers through fiscal year 2026—a positive for owner-user transactions in Eastern Washington’s manufacturing and industrial sectors.

Construction & Development

Construction costs escalated sharply in Q1. According to Associated Builders and Contractors, nonresidential construction input prices rose at a 12.6 percent annualized rate during the first two months of 2026, driven by energy, copper, lumber, and steel—before the Iran-driven oil shock fully registered in the data. Tariffs on imported steel and aluminum reaching 50 percent under expanded Section 232 authority are adding 5 to 25 percent to affected material categories. JLL estimates aggregate construction costs could rise roughly 8 percent under current policy conditions. The industry needs approximately 500,000 additional workers nationally, with 94 percent of contractors reporting difficulty filling positions.

In Spokane, new industrial warehouse development continues. Two separate projects with a combined valuation of nearly $15 million are proposed or under construction in Spokane County, with warehouses expected to be available for lease by summer 2026. A 26-unit light industrial complex estimated at $3 million is planned south of Spokane Community College. Single-family building permits in Spokane County dropped sharply to 146 in 2025 from 317 in 2024, though multifamily permitting has increased—reflecting the broader shift toward density. In the Tri-Cities, building permit activity in January 2026 included a $725,000 commercial addition at Columbia Mall, multiple commercial remodels, and new commercial construction. Hanford-related infrastructure projects continue, including completion of excavation for a new disposal cell at the Environmental Restoration Disposal Facility and installation of roof steel for the High-Level Waste Facility at the Waste Treatment Plant.

Transaction Volume & Investor Activity

Transaction activity in Spokane picked up in Q1 after a subdued 2024. Kiemle Hagood reported sales trending “much higher than we were in 2024,” with the $12 million sale of the Riverpoint One building to Spokane Public Schools in January as the quarter’s most notable transaction. NAI Black reported a successful start to the year supported by a mix of leasing, subleasing, and sale transactions. Investor appetite remains selective, with cap rate compression limiting returns against elevated borrowing costs. The lack of new commercial inventory has prevented the price corrections that many market participants expected, creating a standoff between seller expectations and buyer return requirements.

In the Tri-Cities, the record $3.2 billion Hanford cleanup appropriation for fiscal year 2026 underpins continued employment stability and commercial demand. Nonfarm employment in Benton and Franklin counties is projected to grow from approximately 126,000 to 129,000 jobs by 2026, supported by Hanford operations, PNNL research activity, and private sector expansions including ATI and Framatome in Richland, a Rockwool plant in Wallula, and Darigold and Amazon projects in Pasco.

III. Property-Type Highlights

Industrial

Large industrial properties in the Spokane market have several million square feet available, reflecting the absorption of significant new deliveries completed during 2024–2025. Nationally, industrial CMBS delinquencies remain the lowest of any major property type at 0.65 percent. New industrial warehouse construction continues in Spokane, with two projects totaling nearly $15 million under construction or proposed. The slowdown in new construction starts nationally positions the sector for potential tightening in late 2026 if demand remains steady. For due diligence, industrial properties require careful assessment of flat roof condition, drainage adequacy, clear height, loading dock functionality, power infrastructure, and fire suppression systems—particularly as tenant expectations for modern Class A specifications raise the competitive bar for older product.

Office

Downtown Spokane office vacancy is approximately 28 percent according to Kiemle Hagood’s 2025 Market Review, reflecting persistent hybrid work adoption and public safety concerns that have dampened demand in the central business district. Demand is stronger on the periphery—Liberty Lake, North Spokane, and South Hill—where parking, safety, and amenities are less constrained. Nationally, office vacancy hit a record 21 percent in Q1 according to Moody’s, and CMBS office delinquencies reached all-time highs. Some downtown Spokane properties are being explored for residential conversion, which could help the office market by removing excess inventory. For underwriters, office due diligence must address HVAC system capacity for modern tenant requirements, electrical infrastructure for technology loads, and functional adequacy for contemporary workplace configurations.

Retail

Eastern Washington retail conditions are bifurcated. In Spokane Valley, retail vacancy has improved dramatically from 12–15 percent a decade ago to 4–5 percent currently, reflecting strong suburban fundamentals. Downtown Spokane retail, however, continues to struggle as it depends heavily on daytime office occupancy to generate foot traffic. New tenants are entering the Spokane area and competing for prime retail spaces. In the Tri-Cities, commercial permit activity in January included new retail construction and remodels. For due diligence, aging retail shells require assessment of roof condition, HVAC systems, electrical capacity, and ADA accessibility pathways—capital needs that can materially affect cost-to-cure assumptions even in tight-vacancy environments.

Hospitality

The lodging CMBS delinquency rate nationally fell to 5.56 percent in January before spiking 137 basis points to 7.31 percent in March, likely reflecting uncertainty from the Iran conflict and its implications for travel costs. Eastern Washington’s hospitality sector benefits from the Tri-Cities’ steady government-contractor workforce and Spokane’s regional event calendar, but faces headwinds from elevated fuel costs that could dampen leisure travel and RevPAR growth through summer 2026.

Mixed-Use

Mixed-use development activity in Eastern Washington remained limited in Q1. In Spokane, some downtown office properties are being explored for residential conversion, though the cost and complexity of converting modern office buildings remain significant barriers. The Tri-Cities’ development pipeline is more active, supported by Hanford-related employment stability and population growth projected to add 3,000 nonfarm jobs by 2026. For mixed-use projects, due diligence must address the intersection of commercial and residential building codes, fire separation requirements, and ADA compliance across multiple occupancy types.

Multifamily (Lender-Relevant)

Nationally, multifamily CMBS delinquencies reached a new record of 7.15 percent in March, rising 171 basis points year-over-year. The multifamily market is stabilizing with modest rent growth of approximately 1.1 percent and steady vacancy rates of about 8 percent nationally. In Spokane County, multifamily permitting has increased even as single-family permits dropped sharply. For lenders, multifamily due diligence should focus on building envelope condition, mechanical system remaining life, and the adequacy of unit-level electrical and plumbing infrastructure—particularly in older properties where deferred maintenance can significantly affect operating expenses and debt service coverage.

IV. Notable Regional / Local Developments

Spokane Metro

Commercial sales at Kiemle Hagood are trending higher than 2024, with the $12 million Riverpoint One sale to Spokane Public Schools as the quarter’s largest transaction. NAI Black reported a successful start to the year across leasing, subleasing, and sales. Two industrial warehouse projects totaling nearly $15 million are proposed or under construction. Single-family building permits dropped to 146 in 2025 from 317 in 2024, but multifamily permitting increased. The 2026 Real Estate Market Forum reported 30-year mortgage rates dipping below 6 percent, with speakers noting a “fundamental supply problem” in housing. Spokane County housing inventory has risen to 3.3 months. Downtown CBD office vacancy remains approximately 28 percent, with demand stronger in Liberty Lake, North Spokane, and South Hill submarkets. Spokane Valley retail vacancy has improved to 4–5 percent.

Tri-Cities (Richland, Pasco, Kennewick)

The Hanford site received a record $3.2 billion cleanup appropriation for fiscal year 2026, an increase of more than $200 million from prior years. The vitrification plant at Hanford is now operational, transforming radioactive waste into glass—a historic milestone decades in the making. HMIS cut 40 staff positions despite the funding increase, as workforce size exceeded operational needs. Infrastructure projects advancing include a new ERDF disposal cell and High-Level Waste Facility roof installation. Nonfarm employment in Benton and Franklin counties is projected to grow to 129,000 by 2026. Private sector expansions include ATI and Framatome in Richland, a Rockwool plant in Wallula, and Darigold and Amazon projects in Pasco. January building permits included a $725,000 Columbia Mall commercial addition.

Other Eastern WA / Adjacent Context

In the Lewiston-Clarkston market (adjacent context), Five Below will open its first Idaho location in Nez Perce Plaza in summer 2026. The new Chick-fil-A in Moscow opened March 12, potentially employing up to 120 people. The University of Idaho purchased a downtown Moscow property for $1.6 million to connect its campus to the downtown core. Clearwater County declared a state of emergency due to flooding and rock slides in mid-March.

V. What This Means for Calibre’s Clients

For Calibre’s clients operating in Eastern Washington, Q1 2026’s convergence of energy-price shock, construction cost acceleration, and elevated CMBS distress makes thorough, current due diligence more consequential than at any point since the post-2008 cycle. Cost-to-cure estimates are perishable in an environment where construction input prices are rising at a 12.6 percent annualized rate—and that was before diesel costs surged with the oil shock. For industrial assets absorbing new supply, confirming building competitiveness through assessment of clear height, power, loading, and roof condition is essential to underwriting realistic lease-up timelines. For office assets in a 28 percent CBD vacancy market, condition and systems adequacy directly determine whether a building can compete for the shrinking pool of tenants demanding Class A specifications. For retail, tight vacancy in Spokane Valley does not eliminate the capital needs hidden in older shells.

A thorough ASTM E2018 Property Condition Assessment, Phase I ESA, and ADA study performed early in the transaction timeline reduces re-trade risk, accelerates lender approvals, and anchors underwriting in verified facts. In Eastern Washington’s current market, that clarity is the difference between deals that close on terms and deals that stall.