Portland market update CBDoffice development has shifted vacancy from 10.2% two years ago to11.8% in fourth quarter 2019.

|

PORTLAND, OR—To be sure, there are shifts taking place in thismarket across most property types. For the first time in a longwhile, new industrial supply has outpaced demand. Moreover, newoffice development in the central business district has causedvacancy to increase from 10.2% two years ago to 11.8% as of fourthquarter 2019, according to a report by Cushman & Wakefield.

|

On the flip side, inclusionary housing along with state andlocal new housing policies have slowed down interest in multifamilydevelopment. And, albeit relatively stable, retail continues toface pressure from e-commerce.

|

But for now, the building boom continues in the Rose City.

|

"Using the popular baseball analogy, people used to ask, 'whatinning are we in?' to gauge how much time was left in this realestate cycle. No one really asks that anymore, as it just keepsgoing and going," says Jim Lewis, senior director of capitalmarkets at Cushman & Wakefield.  "We are a far cryfrom 2010 when there was a lone crane in the downtown skylinecasting shadows over Pioneer Square. That project, Park AvenueWest, eventually kicked off construction in 2013 and was completedin 2016. Fast forward to today, there are currently 30 cranesoperating just within the city of Portland, not including thesurrounding areas. San Francisco by contrast has 23 cranes and NewYork, 27."

|

While development has been broad-based among the variousproperty types, there have been some notable trends by propertytype during the last 10 years, according to the Cushman &Wakefield report.

|

Some 8.8 million square feet of new office construction hascompleted including significant renovations.  While therehave been some significant additions in the suburbs during the last10 years such as the Intel and Nike campus expansions, most of thefocus in the office market has been downtown and the close-insubmarkets. Class-A rent in the CBD has increased 45.3% during thelast decade while suburban class-A rent grow has been less thanhalf of level at 21.2%.  In previous cycles, the CBD andsuburban markets tended to move in lock step.

|

Nearly 50% of all new commercial construction during the last 10years has been multifamily housing to the tune of 44,300 new units.Historically speaking, single-family building permits have beenabout double multifamily permits in any given year. However, sinceabout 2013, multifamily permits have at least equaled single familyevery year and from 2017 to 2019, multifamily permits have soaredwell above those for single-family homes.

|

At 22.8 million square feet of new industrial flex construction,the industrial market has been on a tear for several years now withrecord low vacancy and surging rent, up 30% during the last 10years. One of the biggest trends during this period has been thegrowth in size of new warehouses. In Portland, a250,000-square-foot warehouse used to be considered a "big bomber"but now there are regularly 500,000 and 1 million-square-footboxes.

|

Despite all the headlines about the demise of retail, the markethas posted considerable growth with 6.6 million square feet of newconstruction and vacancy remains near historic lows at 3.4%.However, major new mall developments have been missing in the last10 years and are not likely to reappear anytime soon. Newconstruction has primarily been grocery-anchored shopping centersand large format freestanding stores as retailers continue toexpand in the suburbs.

|

Hotels are second only to multifamily in terms of percentagegrowth during the last 10 years. With 4,066 new rooms, the Portlandregion has posted an increase in the total number of hotel roomsincluding the long-awaited 600-room Hyatt convention centerhotel.

|

"By now, most investors have bought into the Portland story butit's pretty astonishing to look at the raw numbers and see just howmuch growth there has been," Lewis tells GlobeSt.com. "The 85million square feet of new construction is almost equivalent torebuilding Portland's entire office market in just 10 years. Withanother 16 million square feet currently under construction,broadly speaking, we expect growth to continue. Portland has a lotof great things going for it in terms of an educated workforce,excellent transportation network, high growth industry clusters,affordable housing and easy access to the outdoors. We are alsoright in the middle of two hyper-dynamic job creators in the BayArea and Puget Sound region. Companies in those areas areincreasingly looking outward for talent and Portland is near thetop of the list for expansion options."

|

Amid these changes, Lewis points out that some things haveremained squarely the same.

|

"Indeed, much has changed in the Portland commercial real estatemarket over the last decade, but that beloved Portland vibe andauthenticity remains the same for the most part," says Lewis. "Andwhile growth has cooled from the blistering pace of a few yearsago, from a real estate standpoint, fundamentals remain excellentand our near-term outlook bright. We enter this next decade on muchstronger footing than where things stood 10 years ago. We have jobgrowth, population growth and a low interest rate environment. Thisfavorable combination should help continue to propel the Portlandmarket forward."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.