By Jack Stubbs
The Portland industrial market remained relatively healthy in spite of limited supply at the close of last year. According to Kidder Mathews’ recently released Q4 2022 Portland Industrial Report, the end of 2022 saw decreased leasing activity and increased net absorption, paired with decreasing vacancy rates and rising average asking rents.
Several market highlights outlined in the report demonstrate the relative robustness of Rose City’s industrial market.
Firstly, average asking lease rates rose 18.2 percent year-over-year, climbing from $0.73 per square foot in the fourth quarter of 2021 to $0.86 per square foot in the fourth quarter of 2022.
Direct vacancy rates, meanwhile, saw a marked decrease year-over-year, from 3.3 percent in the fourth quarter of 2021 to 2.9 percent in the fourth quarter of 2022, states the report. At the same time, total availability rates increased, going from 4.6 percent in the fourth quarter of 2021 to 4.9 percent posted in the fourth quarter of 2022.
In a trajectory that perhaps suggests a slight cooling of interest in Portland’s industrial market relative to past quarters, leasing activity decreased 48.7 percent year-over-year – from 2.96 million square feet leased in the fourth quarter of 2021 – and to just over 1.5 million square feet leased at the end of 2022.
The most active submarkets for leasing activity in the fourth quarter were Northeast Portland and Clark County with 566,820 and 361,667 square feet leased, respectively.
Some of the noteworthy lease transactions that occurred were Thermal Supply Inc.’s 171,848 square foot lease at a property in the Orchards submarket at 9013 NE 72nd Ave., the landlord for which is Panattoni Development Company, Inc.; and Chef’s Warehouse’s 142,315 square foot lease from Prologis at a property in Guilds Lake at 3860 NW Yeon Ave. As another notable example, landlord LBA Realty’s property at 29555-29899 SW Boones Ferry Road in Wilsonville saw an 81,305 square-foot lease signed by PODS Enterprises.
All of the aforementioned lease transactions occurred in October of 2022.
Sales volume dropped 77.6 percent over the past year, representing a decline from 4.98 million square feet posted in the fourth quarter of 2021 to the 1.1 million square feet seen in the fourth quarter of 2022.
In spite of the overall decrease in sales volume, there were nonetheless several significant transactions that took place in the fourth quarter last year. The quarter’s largest sale was Pacific Lumber & Truss Co.’s sale of a 105,429 square-foot property – located at 10515 SW Allen Blvd. & 5695 SW Western Ave. in the Beaverton submarket – to Site Solutions LLC for $31.65 million, or just over $300 per square foot.
Other noteworthy transactions included Bridge Investment Group’s acquisition for just over $28.1 million, or roughly $194 per square foot, of a 144,700-square-foot property located at 12360 SW Leveton Dr. from TA Realty. Also of note, Bank of America Corp. spent $15.1 million, or just over $122 per square foot, to acquire a 123,000-square-foot property from The Oregon Community Foundation, which is located at 3800 SE Naef Rd. in Milwaukie.
2022 was a record year for net absorption, reporting positive 5.84 million square feet absorbed – which marks a 54 percent increase from the positive 3.79 million square feet absorbed in 2021.
Looking ahead, a couple of indicators suggest mixed results for what the short-term future of Portland’s industrial market might hold in terms of product coming online. The report notes that five million square feet of industrial buildings were delivered in 2022, which is higher than the previous five-year average delivery total of 3.18 million square feet. However, with only 2.7 million square feet currently under construction, 2023’s delivery total will be significantly lower than that of last year.
Some of the main under-construction projects include Phelan Development Company’s 489,700 square foot 138 Logistics Center Building A & B, which is located at 4600 NE 138th Ave. in Portland and scheduled for delivery in the second quarter of 2023; and Schnitzer Properties/Mainlander’s 445,000 square foot Sherwood Commerce Center – located at 21600 SW Oregon St. in Sherwood – which is expected to deliver in the third quarter.
Lastly, Pactrust has in the works the Pactrust Corporate Park – totaling 293,262 square feet and located in the Salmon Creek submarket – which is anticipated to deliver this quarter.
Looking ahead, construction deliveries are expected to decrease in 2023, meaning that the region’s industrial market will not necessarily supply enough inventory to satisfy current demand levels. In the coming quarters, this dynamic might lead to an increase in annual rent growth, the report shows.