Cost of Business Bodes Well for Portland

PORTLAND-“The local labor force is well educated and the cost of doing business is significantly less expensive than California and Seattle, which bodes well for the long-term outlook.” That is according to a recent Portland Multifamily snapshot report from Jones Lang LaSalle.

According to the report, “Growth within high-tech and a rebound in professional services will accelerate job growth and fuel population migration into Portland. While multifamily deliveries will slow the current fast pace of absorption and rent growth, the supply constrained market will continue to perform well into 2017.”

Area employment is expected to expand an average of 2.5% annually into 2017, the report notes and population growth will average 1.4% into 2017. “After a stall in 2013, personal income growth is expected to resume; averaging 5.3% annually over the next three years.”

In terms of fundamentals, Portland's economic recovery continues its slow and steady progress as all of the metro's employment sectors, with the exception of government, have expanded. Nearly 30,000 jobs were added over the last 12 months with notable gains of over 4% occurring within information, other services and leisure & hospitality

The metro's foundation of high technology companies has been an important catalyst for expansion following the recession, the report says. Intel, for example, is a large and growing employer and significant capital investor in area start ups and infrastructure improvement projects.

High tech employment generally offers higher wages, spurs above average population in migration, increased consumer spending and housing recovery; all of which have occurred in Portland over the last 12 months, the JLL report says.

At 41.7%, Portland has a very high percentage of renters compared to the national average. Additionally, nearly 19% of Multnomah County's population is between the ages of 25 and 34, which is the fastest growing and largest renter demographic cohort, says JLL. “This is the 18^th highest countywide percentage of this age cohort in the US. As a result, multifamily fundamentals in the metro are solid and heavy rental demand has reduced vacancy to 2.9%; the lowest level since the mid-1990s. Additionally, Portland has the third lowest vacancy in the country and is ranked fifth in terms of annual rent growth, which reached 4.2%.”

According to the report, 4,800 units are under construction and expected to be delivered over the next three years. Even as deliveries have slowed the pace of absorption in recent months, the market's annual average absorption of 1,800 units will support healthy fundamentals into 2017.

Portland's rents, the report says, are the lowest of the Pacific metros (California, Oregon and Washington) and 37.3% below the Pacific average; however, the area's per capita income is in line with the US, which bodes well for affordability and the long term prospects for expansion.

Transaction velocity

A combination of strong apartment fundamentals and an economy on the verge of sizable expansion have kept investor demand competitive for quality product, says JLL. “While year-to-date sales volumes through the third quarter were down 19.4% from 2012, volumes are right at their 10-year average.”

And, according to the report, cap rates remain fairly stable, hovering around 6% across the metro. “While non-core product has been more susceptible to recent interest rate fluctuations, cap rates for core assets have held steady.”