Portland’s multifamily real estate market has recently been mirroring national urban trends, namely a consistent and moderate year-over-year growth in rental rates accompanied by a gradual reduction in occupancy.
According to the CBRE Portland Multifamily 2Q 2023 report, the average asking rental rates stayed flat quarter-over-quarter at around $1,755 per unit. The year-over-year rent growth rate has decelerated slightly, but has remained positive at 1.5 percent. The total occupancy rate has moved closely in line with the national trends of averaging towards the pre-pandemic levels, decreasing to 94.5 percent in the second quarter of 2023. Quarterly absorption numbers have had best results in the last 18 months, with close to 750 units being absorbed.
The report further asserts that Portland’s multifamily market is exhibiting a notable uptick in investment momentum within the local real estate community. While this surge is not yet fully represented in year-to-date sales data due to pending sales that haven’t yet completed, CBRE brokers have observed a significant rise in inquiries for purchase offers. Furthermore, CBRE reports that both buyers and sellers are displaying increased enthusiasm to engage in transactions, marking a notable shift from the conditions observed six months ago.
From the recorded sales, the multifamily assets in the Portland metropolitan area transacted a total of $173 million, which is a 71 percent decrease year-over-year. A total of 736 units changed owners over the quarter, which is approximately one third of the average transaction volume seen in the area in the last decade. The top sales transaction was the sale of a 36-unit apartment building known as Broadway Apartments located in Vancouver, Wash., which was sold for the highest per unit price of approximately $16.7 million, or $465,000 per unit.
“Buyer interest has been strong in the suburbs for both new construction and value-add properties, while interest in the urban core has retreated from its previous rush. In the second quarter, we closed transactions on – and are currently marketing – properties across the board: downtown mid- and high-rises, suburban value-add and new construction projects, large communities in the tertiary markets, and stabilized student properties. Although sales interest is high and apartment operational fundamentals are good, the current economic environment has made value a moving target,” said Phil Oester, senior vice president in CBRE’s Portland office.
Despite the moderate deceleration in transaction volume due to the concurrent increase in interest rates, the multifamily real estate sector remains an appealing choice for investors across diverse asset categories. CBRE believes this attraction is primarily rooted in the sector’s ability to offer relatively stable returns when compared to alternative asset types, positioning it as an effective hedge against inflationary pressures.
Looking ahead to the remainder of 2023, CBRE reports that the Portland metropolitan area expects the completion of close to 4,000 new multifamily units, a figure below the five-year average of just under 5,900. This slightly subdued development rate can be attributed to the persistent challenges posed by elevated construction costs and interest rates. Consequently, the attractiveness of land parcels available for purchase to institutional buyers has diminished to some extent.
On the other hand, as real estate markets along the West Coast continue their post-pandemic recovery, CBRE believes that Portland is poised to stand out as a more affordable alternative. This affordability factor is projected to drive an influx of residents seeking cost-effective housing options, consequently fueling demand for rental apartments, which aligns with Portland’s historical appeal as a city with a high quality of life and diverse cultural amenities.