The Bleeding Continues

I shouldn’t have, but I went back and read the titles to my last four quarterly articles.

Q3 2025 Reaching Equilibrium?

Q2 2025 Back to Bad

Q1 2025 Turning the Corner

Q4 2024 Finishing with a Thud

It’s like our Portland Industrial Marketplace is Lucy holding the football, and I’m Charlie Brown trying to kick it. Every time I think we’re getting there, the data goes south. And I’m going to save myself from the misery of reading my last four summaries. I’m sure in every one of them I’ve said things are going to turn to the positive. Why? Because that is how the market feels. It feels good, not half the time mediocre, and half the time bad.

So, we ended the year with a net negative -600k sf of absorption, to end the year with a -1M sf of net absorption. Every time I think we’re turning the corner, we end up sinking further. I have to ask myself why I’m the optimist when things aren’t turning around. As an Engineer by training (ex-Professional Engineer) I like to think I’m analytical and pragmatic. However, as I look at my book of business, I have to admit I do OK not just on the upside (a growing economy), but also on the downside. With a background as a manufacturing engineer, I tend to get manufacturing buildings. Well, what that’s meant as of late is selling 450k sf of Columbia Steel buildings, and listing a 260k sf Hood Packaging building and a 90k sf Miller Paint building. As a 5th generation Oregonian, born and raised in Portland, I’m not proud to say I’ve been making money as the greater Portland situation has squeezed family wage jobs out of the region. All this activity is possibly leaving me believing that the Portland/Vancouver Industrial real estate marketplace is better than it is.

With the negative absorption (companies shedding space) and vacant new construction coming onto the market, vacancy has risen from 6.9% to 7.7%. This number is still below what I consider to be the 10% vacancy fulcrum (<10% = Landlord Market, >10% = Tenant Market), but it is edging ever closer. You can find vacancy by submarket in the following Industrial Market Report. You will see that the adjustments I discussed last quarter continue to play out, where lower rates in the Portland Columbia Corridor area are helping to bring down those vacancies, while vacant new construction coming online in the other Counties are pushing up their vacancies. I did kind of a napkin analysis of lease rates, and the Columbia Corridor signed leases over the last year have averaged at least $0.05/sf less than the next closest (worse) submarket.

Under construction has dropped by almost a third as the new construction started in early 2025 has been completed, with less new starts occurring during the year. And a third of the product under construction is split between Woodland and Canby. None of the product under construction has a Portland address. Most Industrial Developers like to build big, and are banking that there is still demand out there from Retailers trying to provide quick home delivery to battle Amazon.

It appears the ‘reshore’ days have passed, as have the daily dose of tariff changes. While these may have helped to drive production back home, I do believe we have a couple other forces that should help. We now have considerable, accelerated depreciation for manufacturers. Also, I believe with interest rates probably hitting a somewhat static balance, those that have been sitting on the sidelines waiting should jump into the fray. That being said, I have yet to run into a company doing something for one of the above reasons. But as we head into 2026, they should.

For all the hand wringing here, Portland/Vancouver Industrial real estate continues to be a popular product. Lease rates are generally holding, $0.70’s in the Columbia Corridor, $0.80’s elsewhere, and in the $0.90’s for new. Companies continue to pay a premium for the high clear height, trailer parking and other perks that come with new construction. Sale prices for good industrial properties continue to be elevated in the $150 - $200/sf range, for what is put on the market. There isn’t much on the market, as folks hold onto the good ones.

Our representatives continue to talk about creating a strong business climate, but then legislate more taxes. Portland can’t seem to get out of the news, for what a very few people are doing to our reputation. It makes it hard to attract new businesses. I’m in for the long haul, as I’m sure you are. I believe if we can finish 2026 at a break even for net absorption, we will have finally stopped the ebb and hopefully be positioned for growth thereafter.