The greater Portland industrial real estate market has been a focal point for investors and developers in recent years, with substantial growth and demand. However, the third quarter of 2023 has brought some changes, offering a new perspective on the market’s dynamics, according to the latest Portland Q3 2023 industrial market report by Colliers.
Development Activity Centered in Clark County
One of the standout features of the market is the concentration of development activity in Clark County, accounting for a significant portion of the entire development pipeline. With 1.18 million square feet of new construction across five projects, this submarket has shown resilience and growth, contributing to 51 percent of the overall development pipeline. This growth aligns with the 1.14 million square feet already delivered year-to-date. Clark County continues to be a hub of industrial real estate development in the greater Portland area.
Preleasing Trends and Future Prospects
While there is 2.2 million square feet of industrial space currently under construction market-wide, only 15 percent of this space is preleased. However, it’s worth noting that all the space expected to be delivered in the final quarter of 2024 has been preleased. This suggests a certain level of confidence among tenants in the market’s long-term prospects and the commitment of developers to meet their requirements.
Institutional Capital Entering the Market
Q3 2023 witnessed a significant influx of institutional capital into the greater Portland industrial market. STAG Industrial, Inc., a publicly traded Real Estate Investment Trust (REIT), acquired the Beaverton Industrial Center from BKM Capital Partners for $20.6 million, equating to $170 per square foot. This transaction underscores the area’s attractiveness to institutional investors, further solidifying its position as a prime industrial real estate destination. In two smaller deals, Golden Bear Ventures paid $9.4 million, or around $130 per square foot, to buy the 72,360-square-foot property at 1825 and 1845 NW Argyle Street from Willamette Waterfront. Alexandra Properties also paid $8.4 million, or around $309 per square foot, to buy the 27,128-square-foot Oregon Wood Specialties property in Central City from the Oregon Museum of Science and Industry.
Shift in Absorption Rates
After a remarkable streak of ten consecutive quarters of positive net absorption, the market experienced negative net absorption of 73,000 square feet in Q3 2023. While this dip only represents a mere 0.01 percent of the tracked inventory, it coincided with the delivery of 1.8 million square feet of new supply throughout the quarter. This excess supply has pushed the vacancy rate to 3.7 percent, indicating a temporary imbalance between supply and demand. However, it’s essential to view this shift in the context of long-term trends. Three notable leases were recorded during the quarter. Western Boxed Meats Distributors renewed 156,360 square feet at Argyle Industrial Park, Building B & C, 2331 & 2401 NE Argyle St.; Jiffy took down 119,261 square feet of new space at Anchor Park – Building 1, 3511-3527 N Anchor St.; and Southland Industries leased 95,265 square feet at Portside Industrial Park, 3443 NW 32nd Ave. in Clark County.
Plateaued Asking Rates and Sublease Availability
With the recent decline in demand, average direct asking rates have plateaued at $0.87 for the third consecutive quarter. While showing a 10 basis point decrease from the previous quarter’s historic high, sublease availability rates remain significantly higher compared to the same period a year ago, up by 150 percent and 92 percent above the trailing five-year average.
Sales Activity and Future Outlook
Industrial and flex sales activity in the greater Portland market has faced headwinds, with a 77 percent year-on-year decrease in sales volume. However, there is a glimmer of hope as Q3 2023 saw a 57 percent increase in sales volume compared to the previous quarter, indicating a potential turnaround. Notably, Q2 2023 marked the lowest quarterly sales total since 2013.