Here Come the Taxes
Well, net absorption (space leased minus space vacated) is off another 300k SF this quarter, making the total a negative 750k SF absorbed for the first half of the year. Oddly, it still feels strong out there, so I'm going to stick with my estimate of 2.5m SF of absorption for the year, meaning we will need close to 1.5m SF of absorption in the last two quarters. Vacancy has edged up to just under 4% which is still healthy by any measure. You can get the details for each market segment in our Capacity Industrial Market Report, presented in the next blog post.
There really are no buildings to purchase. I recently ran a notice to the industrial real estate community on a 72k SF building that my client is constructing for lease only. I got three inquiries asking if it could be purchased. Finding a reasonable building to purchase is a challenge. At the institutional level, there is still plenty of money in play. An example would be where Exeter Property Group stepped up to purchase the mostly empty, newly constructed 500k SF Glisan Corporate Park for more than $50m. Risky money, safe money, moderate money--there is plenty of all kinds on the sidelines looking to be put into play.
Our Portland / Vancouver industrial real estate marketplace tends to follow the national economy. As we move into another quarter of what has become the longest recovery ever in the US, that underlying strength in the national economy tends to carry Portland in the same rising tide. In contrast to this push upward, it has been an interesting year for the legislatures both north and south of the river. While I'm involved with local initiatives (Traffic, SDC's, Zone Code), I tend not to get involved at the State or National level. From what I can tell, Oregon and Washington have pushed and/or are working on ways to tax that can only have a dragging effect on the economy.
In Oregon, it's:
A consumption tax on business sales
A carbon reduction regulations program
A payroll tax on every employer to fund a new Paid Family Leave program
An increase in the corporate income tax rate
In Washington, it's:
An increase in large financial institution taxes
An increase in real estate transaction fees
A B&O tax surcharge on service-oriented and high-tech businesses
Just to name a few. Add to that aggressive increases in the state minimum wage and it is just getting plain tough to compete in the global economy from the Pacific Northwest. Since no business pays taxes, only consumers through the cost of their purchases, survival for low-income families becomes even more difficult.
It is tough to say exactly why companies do what they do, but recent examples of shut-downs have included ESCO in Portland and Harry's Fresh Foods in the Gresham area. Hopefully, companies can handle this load while times are good, but it will be challenging during our next recession.
Fortunately, after years of hibernation, we are adding some freeway lane miles. Contrary to what I hear when politicians speak, you CAN increase throughput by increasing capacity. I recently mentioned the I-5 South lane addition from roughly Highway 217 to I-205 southbound at 9 AM and was driving the speed limit from the I-84 interchange to Powell thanks to a 33% increase in capacity (3 lanes to 4). Clark County has been adding freeway lanes for years, and whenever I am in a meeting on traffic issues, I just hold up my Google Maps app. Red in Portland, Green in Vancouver.
Not to sound like a broken record, but as crazy as you may think he is, we have a business-friendly President. As such, I expect this strong economy to last through 2020. Whether it is this guy or someone else, if they are business-friendly, I expect this growth to continue for another four years. Hopefully, our legislature will get to a point where they realize they just can't keep adding taxes anymore. Which, having wrote the previous sentence, I realize doesn't sound too intelligent.