2Q 17 Office Market Report
Low vacancy rates and steady rental rates characterize the Portland office market Portland s office market has reached a level of strength not seen since the great recession. Significant in-migration of skilled labor lured by the City s growing positive reputation, and the expansion of many local firms, creates the perfect storm for a booming market. Cap Berri, CPM, RPA, CCIM Vice President, Chief Operating Office, Principal Broker NAI Elliott The Portland market remained stable in the second quarter, but is seeing limited growth. Vacancy rates dipped slightly, but rental rates and sales volume are down to some extent. Vacancy rates went down slightly, ending the quarter at 7.2%. This can be compared to 7.4% vacancy at the end of the first quarter. The market is near record low for office vacancies. Net absorption remained positive at 188,736 square feet, this can be compared to last quarter s negative 45,754 square feet. Construction deliveries were down over the quarter. One building totaling 9,000 square feet was delivered to the market during the quarter in comparison to three buildings totaling 82,188 square feet in the first quarter. Despite the limited new inventory this quarter, there were 3,489,155 square feet of space under construction at the end of the quarter, so subsequent quarters are expected to see a higher number of deliveries. Overall, the metro Portland office market continues to be strong. Demand is growing and with the significant new product under construction, investors are obviously confident new space will be leased in the coming months.
Trends at a Glance ABSORPTION VACANCY UNDER CONSTRUCTION SALE PRICES NEW CONSTRUCTION RENTAL RATES Historical Absorption and Deliveries
Submarket Statistics SUBMARKET STATISTICS SUBMARKET # BLDGS. TOTAL RBA TOTAL TOTAL QUOTED UNDER VACANT SF AVAILABLE (%) RATE ($/SF/YR) CONSTRUCTION (SF) 367 26,295,058 2,568,858 9.8% $29.54 513,051 Clark County 825 11,021,398 817,188 7.4% $19.06 34,700 I-5 Corridor 602 10,097,455 1,082,488 10.7% $24.62 21,000 Lloyd District 222 5,285,182 187,575 3.5% $27.20 155,261 Northeast 985 9,603,036 370,940 3.9% $17.37 24,300 Northwest 218 3,518,056 195,726 5.6% $22.86 417,056 Skamania County 4 23,664 2,500 10.6% $0.00 0 Southeast 949 8,745,532 349,856 4.0% $22.08 224,089 Southwest 769 12,167,505 1,039,458 8.5% $21.11 800,698 Westside 392 13,018,369 589,537 4.5% $21.19 1,299,000 Total 5,333 99,775,255 7,204,137 7.2% $24.10 3,489,155 The Portland office market is continuing to grow. Rental rates are down very slightly, but this is not cause for concern for investors. At the same time, the vacancy rates in the market dipped a bit, especially in the. Pioneer Place s WeWork office space opened during the second quarter. More and more, office users are looking for creative and flexible solutions to match their office demands. The changing demand in office type presents major opportunities for developers to offer new and unique product types. Outside of the, close-in submarkets continue to grow in popularity for office users. The biggest office lease in the 2nd quarter was Autodesk s 108,750 square foot lease of the Towne Storage building. The lease of the entire Towne Storage building underscores the ongoing popularity of Central Eastside Industrial District s creative office inventory, a trend started by buildings like Olympic Mills Commerce Center. The creative office market continues to be competitive, especially in centrally located buildings like Olympic Mills Commerce Center. Jamie Nelson, CLS Senior Commercial Real Estate Broker NAI Elliott
New to the Market and New Construction NEW TO THE MARKET NAME RBA SUBMARKET OCCUPANCY DELIVERY DATE The Dairy Building 46,503 Southeast 28% 1Q17 Marson Ehrman Annex 27,525 63% 1Q17 7474 NE MLK Blvd 9,000 Northeast 2Q17 NEW CONSTRUCTION NAME # Buildings Total GLA PRELEASED DELIVERY DATE North Expansion Bldg B 887,000 Westside 2Q18 North Expansion Bldg A 412,000 Westside Block 29 Center for Health and Healing 360,000 Southwest 1Q18 Knight Cancer Institute Research Bldg 332,000 Southwest 2Q19 9North 202,168 0% 2Q18 Broadway Tower - Office 175,689 8% 2Q18 Field Office - West 165,653 Northwest 10% 1Q18 Field Office - East 133,403 Northwest 5% 1Q18 The Leland James 118,000 Northwest 6% Towne Storage 108,750 Lloyd District Under Amrour Inc 70,000 Southwest Heartline Building 70,702 1% 4Q17 1127 SW Morrison St 62,381 12% The Fair-Haired Dumbbell 56,000 Lloyd Disrict 17%
Major Sales TOP SALES NAME TOTAL SF. PRICE PRICE/SF CAP DATE SOLD Pacwest Center 545,522 $170,000,000 $311.63-12/21/2016 Pioneer Tower 296,329 $121,750,000 $410.86 4.8% 6/30/2016 Park Square Campus 295,789 $94,350,000 $318.98 4.82% 10/31/2016 Umpqua Bank Plaza 276,676 $90,000,000 $325.29 5.5% 1/9/2017 Congress Center 384,951 $85,125,000 $221.13 4% 1/6/2017 Commonwealth Building 219,742 $69,000,000 $314.00 5.0% 6/30/2016 Mohawk Corporate Center 342,004 $44,250,000 $129,38-4/14/2016 1320 SW Broadway St 176,000 $95,000,000 $539,77 5% 4/27/2017 Twin Oaks Technology Center 166,000 $17,150,000 $103.31-9/30/2016 Seven office sales occurred during the second quarter for a total of 400,383 square feet. This is down in comparison to the 958,586 square foot sold in the previous corner. This downturn can be attributed to a softer market and a limited office inventory for sale. At the same time, the price per square foot in Portland is up over last year and prices continue to beat the national average, which are clear indicators of a healthy office market. Development continues to be widespread throughout Portland and there is construction across all its submarkets. Notably, the majority of space that is set to be delivered in the third quarter has already been pre-leased. This demonstrates that there is continued need for new office space and demand for further development. Sales in the market are tightening. With limited inventory, sales are few and far between. At the same time, the average sales price is rising steadily. Chris Lio Commercial Real Estate Broker NAI Elliott
Local Employment and Economy Oregon vs. U.S. Unemployment Perecent Unemployed Month Unemployment rates continue to be very low across the Portland market and nationally. At the end of June, unemployment rates in the Portland market were at 3.7%. This is up very slightly from last month s 3.6%, but down over both the year and the quarter. This is a reflection of Portland s continually strong economy. Given the record low rates, employment rates are not expected to drop much farther in the near future. At the same time, the Consumer Price Index (CPI) in the Portland area rose 4.4% over the past year. Over the first half of the year alone, the CPI has risen 2.5%. This can be attributed to Portland s continued popularity, which has contributed to higher prices on staple goods for consumers. Oregon s economy is hitting the sweet spot, which only happens at or near full employment. State of Oregon, Oregon Economic Revenue and Forecast
NAI Elliott s First Quarter 93 252,544 4,601,180 OPEN Total Transactions Completed Square Feet Leased, Sold, and Financed Square Feet Managed The first half of 2017 has been strong. The company has closed 93 transaction with several more initiated during the second quarter that are near closing. This number is on-track with last year s number and is expected to take off in the next quarter. Specific highlights from the quarter included joining the Professional Retail Store Maintenance Associate (PRSM) and being awarded the management contract for the Fountain Village, a 161-unit apartment complex in Vancouver, WA. Momentum is building across all departments and we are excited to bring new opportunities to our clients, tenants, and employees in the coming months. We are excited to add multifamily management to our services and particularly look forward to assisting mixed-use clients with our expertise in both commercial and residential areas. Jordan Elliott VP, NAI Coordinator NAI Elliott