Despite Potential Problems, Industrial Market Looks Solid Heading Into 2001

PORTLAND-Semiconductor makers and their suppliers made 2000 a solid year in the industrial real estate market, and 2001 should be just as good given a continued supply of skilled workers and relatively inexpensive housing. This is the summation of Grubb & Ellis, the first real estate services company to come out with a 2000 Review/2001 Forecast report for the greater Portland area, which includes the so-called Silicon Forest west of the city and southwest Washington State.

“We approach 2001 with cautious optimism in the Portland metro area as the Oregon high-technology sector predicts robust growth in the coming years,” concludes the report. “However, most economists agree that the rapid expansion of the last several years is slowing down and leading economic indicators seem to confirm this.”

If land and labor continue to provide viable opportunities, the trend toward low vacancy rates and new development will continue. Industrial vacancy rates are at their lowest level since 1995. The vacancy rate in warehouse and manufacturing space dropped four full points in 2000, net absorption posted an all-time high of more than five million sf, and rental rates were up.

Rental rates in all product types should continue to increase, according to Grubb & Ellis. Current average warehouse rents for new construction are pushing 35 cents per sf per NNN. “Class A flex in the Sunset Corridor gave class A office a run for its money with asking rental rates jumping to $1.10 per sf per NNN to $1.15 per sf per NNN, four per thousand parking ratios and $20 per sf to $25 per sf tenant improvement allowance,” states the report.

Looking ahead to 2001, the success of Oregon’s industrial market appears inexorably tied to Intel, which has its largest chip manufacturing plant in the state. Intel recently purchased 142 acres for development of a West Union campus, which could accommodate some 6,600 workers by 2015.

“Add this to the seven existing major Intel facilities (including Intel’s nearby 92-acre Ronler Campus in Hillsboro) in the Sunset Corridor and the tremendous number of spin-offs and suppliers the company supports and you have the makings of a record-setting year,” states the report. “All this growth will create an enviable high-tech knowledge base, but issues to watch for include an educated and available workforce, housing affordability and the ever-growing strain on the region’s transportation and educational infrastructure.”

Meanwhile, don’t expect too much speculative warehouse construction. Such development has come to “a screeching halt” in part due to a lack of land, states the Grubb & Ellis report. Many existing users have bought the land and are banking it for their own future uses, leaving little land left on which developers can speculate unless they want to pay asking rates of between $5 per sf to $7 per sf. With current shell rates of 35 cents per sf per NNN, the math does not pencil out in favor of the developers, according to the report. Unless shell rates get closer to 40 cents per sf per NNN, there will be no speculative development, concludes the Grubb & Ellis report.

Meanwhile, concerns about a lack of industrial land are becoming more audible. A recent industrial lands study found only 2,300 acres available and suitable for development. Of that, more than half is across the Columbia River in Clark County. Moreover, the total adds up to only a seven-year supply of such land that already has utilities and is close to major transportation corridors.