Portland Apartment Market Update

November 28, 2016
Authors: Greg Frick, HFO Investment Real Estate
Publishers: HFO Apartment Investor Newsletter

Vacancy Rates
In the Fall of 2015, Multifamily NW reported that Portland/Vancouver MSA vacancy hit an all-time low of 2.87%. Since that time, vacancy rates have begun creeping back up and currently stand at 3.71%, up from 3.53% in April. The Greater Portland vacancy rate remains below the 5% threshold that indicates a balanced market.

The recent vacancy rate increase is due largely to the completion of many new apartments in the past year. Although most submarkets are seeing increases in vacancy rates, others are experiencing rapid declines. Areas where vacancy rates have decreased are suburban markets such as:

  • Tigard
  • Troutdale | Fairview | Wood Village
  • Outer SE Portland
  • Wilsonville/Canby – vacancies have dropped to 4.04% since April.
  • Inner & Central NE Portland
  • Outside of Portland, the Eugene/Springfield Metro Area has seen its vacancy rate decline from 4.5% to 2.94% over the past 6 months.

Of the 20 Portland metro area submarkets, the areas with the highest overall vacancy rates are:

  • NW Portland, with an overall vacancy rate of 5.38%
  • Oregon City/Gladstone where vacancies rose from 4.06% to 4.97% over the last 6 months
  • Downtown Portland, where vacancies rose from 3.86% to 4.64% as a result of several new projects in lease-up
  • SW Portland 4.11%
  • West Vancouver 4.09%

Trends in these neighborhoods are indicative of the importance of attracting new development to Greater Portland, in order to work towards having enough supply to achieve market balance.

Rent Growth Per Square Foot*
According to Multifamily NW, the average rent per square foot has increased 10.5% for the MSA in the last 12 months, and is currently $1.47, up from $1.40 in April. The Troutdale/Fairview/Wood Village submarket saw the highest increase in rents per square foot, with a 15% increase from $1.06 to $1.22 since the Spring. North Portland/St. Johns and Outer NE Portland both saw 12% increases over this period, with rent per square foot currently at $1.84 and $1.14 respectively. Per square foot rent for a studio apartment is highest in NW Portland, where it is currently $2.88, and lowest in Wilsonville/Canby, where it is $1.00. It is important to note, however, that in Multifamily NW’s survey, only one studio unit was included in the Wilsonville/Canby submarket. The only major Oregon market in which rent per square foot decreased was Eugene, which saw a 2% reduction in per square foot rents over six months from $1.18 to $1.16. This per square foot rent figure is still higher than Fall of 2015, when the average for Eugene was $1.13.

Transactions - $10m+
In 2015, there were 45 transactions valued at $10 million or greater in the Portland Metro Area, representing a transaction volume of $1,514,224,265. This represents an increase in the number of sales of approximately 32% over 2014, when there were only 34 transactions. As of September 2016, there have been 33 transactions valued over $10 million, with a total volume of $1,155,024,131. Although this pace is slower than 2015, it is still more market activity than 2014.

Transactions – Private Client
In 2015 there were 164 transactions priced under $10 million in the Portland Metro Area, with a total sales volume of $424,494,456. As of September 2016, there have been 130 non-institutional (private client) sales, amounting to $385,611,674. Although there has been a bit of slowdown in sales of larger institutional properties, the private client market has been extremely robust. The greatest number of transactions in the Portland Metro Area have occurred on the Outer Eastside with 41 transactions amounting to $100,702,501. This is the same number of transactions in that area in all of last year. The average price per unit for private client sales in the Outer Eastside this year increased from $79,676 in 2015 to $99,485 in 2016. For transactions over $10 million, average price per unit decreased from $132,228 in 2015 to $122,748 in 2016.

Construction of new apartment units has been continuing at a strong pace. Since Spring 2016:

  • 3,000 units have been completed*
  • 4,200 units have broken ground*
  • 10,314 total units were under construction in October 2016*
  • HFO’s research staff has determined that there are currently 27,592 totlal units under construction and planned, and an additional 8,707 additional prospective units with early assistance or design advice requested from local governments.
  • In the next 2 years, 12,000-16,000 new units will come online in the Portland Metro Area.* Through August 2016, 4,734 apartment permits have been issued.
  • Construction is still concentrated in urban areas, though Clackamas County is seeing a sharp uptick in permitting; in fact, the number of permits issued in the county is the highest it has been since 1997, with almost 1,000 permits issued year-to-date.
  • Some of the increase in permitting activity in 2016 can be attributed to developers arming to start on projects before inclusionary zoning takes effect in Portland.
  • 2016 has seen an uptick in permitting activity as developers anticipate the upcoming adoption of inclusionary zoning policies in Portland. Axiometrics forecasts 2016 will end with an overall average market rent rate increase of 7% with 2017-2020 cooling off to 3.5% average per year. The end to the recent run-up of rents may be at hand, depending on potential supply contstraints being considered by local governments (i.e., inclusionary zoning).

*Source: Barry Apartment Report