MARKET SNAPSHOT: Despite High Unemployment, Portland, Ore. Shows Signs of Investor Interest

By Erika Schnitzer, Managing Editor

Portland, Ore.—Apartment owners in Portland, Ore. have indicated that they are willing to start buying again, according to a recent survey by HFO Investment Real Estate (HFO).

The number of apartment transactions in this metro area fell by over 65 percent from 2007 to 2009, but 24 percent of respondents said that they are considering buying an apartment building within the next six months, while 46 percent of those surveyed said they would consider purchasing if the right deal came along.

The market experienced a 15 percent to 25 percent valuation decrease, according to Gregory Frick, partner at HFO, though he notes that it is starting to recoup.

The end of the fourth quarter of 2009 saw concessions begin to burn off, reports Frick, and rents have appreciated between 4 percent and 8 percent. “We’ve seen absorption of vacancy over the last 12 months, and now we’re poised to [have] some rent demand,” he adds.

As cap rates have compressed, the market is starting to see an increase in activity. “We don’t have much institutional product in this market, but the stuff we have is moving. Cap rates are sub-6, and more sales are coming through to push those down lower,” Frick tells MHN.

“Generally, the market has done well, considering the lack of jobs and how many jobs we’ve lost,” Frick adds. In March 2010, the Portland-Vancouver-Hillsboro, OR-WA MSA reported an 11.4 percent unemployment rate, according to the U.S. Bureau of Labor Statistics. Despite this, though, vacancies, which reached a high in the spring of 2009, have come down to between 4 percent and 5 percent.

And Intel recently announced a multi-billion investment for its Ronler Acres campus in Hillsboro, just west of Portland. (Frick reports this announcement as “the first glimmer of good news” for the metro.) Coupling this with additional company expansions in other metros is expected to add at least 6,000 construction jobs and 800 long-term production jobs. (Intel’s headquarters are in California, but the company has 15,000 Oregon-based employees.)

Other bright spots in the market include its high barriers to entry, which constrains new supply. The metro is considered “high on the list for Gen Y,” notes Frick, and it brings people to the area, even without jobs. (The market is known for “importing unemployment,” that is, college graduates without jobs are still interested in moving to the area, which will surely be a good thing once the economy recovers.) “The livability factor, which is still driving the demographics, coupled with the lack of new supply … just bodes well long-term,” adds Frick.