Out of Land AND Roads
We continue to see positive net absorption for Industrial warehouse space across the Greater Portland Marketplace. 3rd Quarter experienced almost 900k sf of absorption, for more than 2.5M sf of absorption through the first three quarters. This already surpasses my estimate for all of 2017, which I pegged at less than 2.5M sf of absorption. And I doubt 4th Quarter will go negative, so the underlying strength of this recovery continues onward.
New deliveries total just over 2M sf through the first three quarters, with a little more than 1.0M sf delivered in the 3rd Quarter. A significant portion of this space (700k sf) was the three building Vista Logistics Park in Gresham, billed as the largest speculative development ever in the greater Portland Metro area.
With deliveries spiking above absorption in the 3rd Quarter, the warehouse vacancy rate increased slightly to 3.4%. Most submarkets remain below 5% vacant, with Clackamas/Milwaukie still below 2%. Interestingly, the East Columbia Corridor vacancy spiked to 8.9%, which is a vacancy level we haven’t seen since the middle of 2012. This of course is a result of the Gresham product above (and some other) coming on line. It is expected that future absorption will continue to push this down, although there is still plenty of product being constructed in that popular submarket. For a full list of submarket vacancy and absorption, click here.
Rental rates continue strong, although as previously noted the increases appear to be slowing as we push through the $0.50/sf shell rates for good quality warehouse space in the 25 -50k sf range East of PDX. Obviously, other neighborhoods will deviate from this $0.50 rate. Building sales prices are hard to peg as there are very few available, and most of the ones that are available have functional issues. It is fair to say that reasonable buildings are running in the $100 - $150/sf range at this time.
The Portland market continues to grow. Rough estimates place the number of folks at around 100 people per day coming into the market. Admittedly some of these are new born babes, but the vast majority are seasoned consumers with appetites and driver’s licenses. I’ve mentioned before what our industrial lands data base tells us. We are absorbing around 500 acres per year, and we have a total of 1,200 acres of land in our data base. Certainly, there is more land out there, but it doesn’t matter if folks don’t want to sell it. State Law says we should have a 20 year supply. The above math indicates less than 3 years. I’d put it somewhere closer to 5 years. Fortunately for the state, we will soon have a 20 year supply again. Once there is no more land, and absorption drops to less than 60 acres per year, we will then have our mandated minimum number of years of land available.
As we all know, getting around town continues to become more difficult. I won’t bore you with the numbers (which I don’t know in detail), but if you look at the population growth over the last 25 years (considerable) and the amount of freeway lane miles added (miniscule), you end up with impending gridlock. Every time our government scrounges up another $1B for transportation, it ends up being another light rail line from one city hall to another. Not a productive way to move products around town if you are involved with industrial real estate, which if you get this you are. Next rush hour look at your traffic app and note the red in Portland and the green in Vancouver. They actually add roads in Clark County. Novel.
According to a recent Portland Tribune article (not in the Oregonian???), the population in Portland in the last 10 years has increased by 25%. TriMet ridership has gone up 5%, or a net 20% reduction in the amount of people riding TriMet. In the same issue was an article concerning the Transportation Bond being prepared for the next round of transportation upgrades. Initially there were going to be tax hikes to cover a $900M roadway upgrade, and a $2.4B bond to cover light rail from Portland City Hall to Tigard City Hall. However, per the article, polling indicates only 17% of voters will support a light rail only bond, not that light rail hasn’t been voted down before. Consequently, I am hearing talk of a compromise bond that will also include roadway improvements. We shall see.
In spite of a lack of land and a lack of roads, we continue to do well. While things are crazy here, we’re probably glad we’re not in LA, SF, or Seattle. We continue to grow at a relatively healthy rate, and industrial is doing well with the transition of shopping from bricks to clicks. My last article was the Amazon conspiracy issue, so I’ll leave that one alone. However, between shopping the internet, 3PL’s, and the last mile folks, the demand for industrial space continues. I guess I’ll revise my estimate upwards to just over 3M sf of absorption in 2017, which will pretty well line up with what happened in 2016 and 2015. As I mentioned before, regardless of what you think personally, business likes a business friendly President. I expect this growth to continue into 2020.