Lack of Construction in Portland to Send Vacancy Rates to Historic Lows
- Apr 26, 2012
As the next building cycle for the Portland area is still another year out, vacancy rates are expected to fall to historic lows across the metro. The overall vacancy rate will match the lowest on record at 2.7 percent, while the area’s lower-tier vacancy will fall to as low as 2 percent.
Marcus & Millichaps notes that a lack of multifamily construction and the expansion of jobs in the region will be the prime factors behind the extraordinarily high rates of occupancy. Job growth is expected to rise 3.1 percent—from 20,500 positions created in 2011 to 31,000 positions created in 2012. Of particular significance will be the development of a new Intel facility, which is expected to create thousands of construction jobs and spur large demand for Class B and C apartments.
Once completed in 2013, the new site should also generate demand for Class A apartments with the creation of hundreds of permanent jobs and thousands of ancillary positions. Similar high-tech jobs are also expected to come from Daimler Trucks North America, which will hire nearly 100 engineers at its Swan Island plant.
Additionally, Marcus & Millichaps notes that residents are beginning to shift away from single-family and homeownership, a dynamic that should shift vacancy in all submarkets to below 4 percent. The low occupancy and scarce supply should send asking rents up 4 percent to $876 per month, while effective rents are expected to increase 5.7 percent to $820 per month.
Investment is also expected to take off this year, as owners with maturing debt will likely sell while demand is high. The types of portfolios sought by investors will likely be across the board, with well-located and mid-sized Class B and C assets ranking alongside the more commonly sought Class A deals.
Cap rates for trophy buildings are likely to average in the high 4-percent range, with Class A and B assets in the suburbs falling in the mid 5- to low 6-percent range.
Portland jumped up six places in Marcus & Millichaps National Apartment Index (NAI) for 2012, coming in at the 11th best market for multifamily due to having the second-lowest vacancy rate in the nation and limited supply growth. Other West Coast markets such as San Jose, San Francisco, Orange County and San Diego made the top 10 list, indicating that the region as a whole is becoming a beacon for the nation’s apartment industry.