Reaching Equilibrium?

Since coming out of the Great Recession, the Portland/Vancouver Industrial real estate marketplace has grown (net positive absorption) roughly 3M sf per year.  For a 200M sf inventory, that represents a 1.5% annual growth rate in occupied space.  Not the best, but better than many locales.  While this number jumped in the middle of covid as the transition from bricks to clicks was accelerated, we have seen negative absorption in ’23 & ’24 as the market has corrected itself.  Now, in the third quarter of ’25, we saw roughly a 50k sf net negative absorption, or a steady state within the accuracy of our data.  The first two quarters saw +300k sf and – 700k sf respectively, leaving us pretty close to neutral through the first three quarters of 2025.  It kind of begs the question.  Are we entering into a new era where the norm isn’t plus 3M sf, but a net no change equilibrium? 

Can this be so?

As I’ve mentioned previously, Portland has spent the last 40 – 50 years with a catcher’s mitt on warehousing product sent from the ever-increasing production of China.  Those days are over.  China’s production is waning as the US “reshores”, and with the improvement to the Panama Canal and expanded Ports in the Southwestern US, even what China is still making is leaking into the East Coast ports.  Coming out of the Great Recession, the west coast got 2 out of 3 containers coming in from foreign countries.  That number is now basically even.  To further impact our neighborhood, the Port of Portland now imports virtually no containers.  Business for local Third Party Logistics (3PL’s) companies has been waning, and one of the major players in the Portland area has just put 500k sf on the market for sublease (not included in the end of September absorption number).  Add to that reshoring, which has turned into mostly near shoring to Mexico, and now Texas has the catcher’s mitt on.  Is equilibrium the new norm?

Vacancy rose about a half a point from 6.5% end of Q2 to 6.9% end of Q3.  Although absorption was flat, we keep adding new vacant product that pushes up vacancy.  And interestingly, vacancy is averaging out over the marketplace.  Over the last couple of years as the market has ‘corrected’ itself, with 7 out of 8 previous quarters having negative absorption, the majority of that ‘correction’ occurred in the tax heavy Portland/Multnomah county Columbia Corridor area, with vacancies pushing over 10% in the Corridor, while the other three counties (Clackamas, Washington, Clark) were still below 5%.  Well, industrial space (especially warehouse) is truly a commodity.  I explained before how lease rates have been in the $0.80’s in the suburbs, but in the $0.70’s (or below) in the Columbia Corridor.  Not all users can lease anywhere, but those that can are taking the lower cost alternative.  As I often tell my Clients:  Figure out where you can do business the cheapest, and you can probably handle the tax difference.  As a result, Vacancies are mostly in the 5 – 10% range across the market. You can learn more detailed info in the following Capacity Industrial Market report.

Another continued drag on our local economy is the inability of Portland to stay out of the national news.  We all know that there is a problem, in like the half dozen block area surrounding the ICE facility.  But all that people know around the nation is that Portland is the next candidate for the National Guard.  Accurate or not, people that bet their money on businesses don’t like to take on additional risk.  Maybe if they studied the problem in detail they’d realize it doesn’t matter.  But they don’t.

In spite of the above, people probably smarter than I continue to bet (other people’s money) that Portland Industrial absorption will continue positive.  Projects under construction have ballooned from 4.8M sf to 6.6M sf, an almost 40% increase.  As we have gone through our summer construction start season, four projects ranging from 500k sf to almost 1M sf have gone under construction, with most buildings larger than 300k sf.  The seasoned veterans are betting that the trend to regional warehousing will continue. 

Third quarter absorption was slightly negative.  From mid-2023 through the end of ’24, we averaged 500k sf a quarter of negative net absorption.  We’re averaging a negative 150k sf of net absorption through three quarters of ’25.  It’s like we’re trying to get better, but can’t quite pull out of it.  Taxes, tariffs, bad publicity, and the hope for lower interest rates are pressing down on us.  We’ve ended one war and are looking at some great tax and depreciation incentives on the upside.  Expect 4^th Quarter to be positive, finishing out the year at a balanced absorption, and then look for ’26 to get us back to half of our usual 3M sf of annual absorption as tariffs settle down and the tax incentives begin to take effect.  Unless of course, equilibrium is the new reality.