The Slide Slows

It’s been tough summarizing the Portland/Vancouver Industrial Marketplace over the last few years without sounding like a Negative Nellie.  However, I’m going to try to find the positive where I can.  To begin with, the negative net absorption rate continues to lessen.  A loss of 1.2M sf in Q1, 200k sf in Q2, and now a 160k sf loss in Q3.  Previous losses were 0.5M sf in ’23, 3M sf in ’24, and 1M sf in 25.  After the big hit in Q1 of this year, the balance of 26 has seen just a slight loss in occupancy for our region.  The big hit in ‘24 was the result of a national rebound from over-building through the COVID years.  While ‘25 into early ’26 saw a continued drain, hopefully the last two quarters are an indication we could be moving back into positive territory to finish the year. 

As a result of the slightly negative net absorption, and some new product coming on line, the vacancy rate has edged up from 8.2% last quarter to 8.3%.  Still below the 10% threshold for a true Tenant’s market, although some submarkets are already Tenant friendly.  For a look at vacancy by submarket, see the Capacity Industrial Market Report following this article.

Lease rates certainly vary by submarket.  The Columbia Corridor, referred to as Rivergate, Airport Way, and East Columbia Corridor in the quarterly report, are mostly in the above 10% vacant range.  But to keep them near 10%, Landlords are doing deals in the $0.70’s shell range, with subleases pushing rates downward and these deals being done in the mid $0.60’s.  The steam has evaporated for all the construction being done on the Tualatin Sherwood Road, with new construction being completed in Sherwood (a ways away from the freeway) having trouble leasing up, driving the usually robust Tualatin submarket (includes Sherwood) to an almost 13% vacancy.  On the other hand, Clark County at just under 6% vacant, is routinely doing deals on new construction in the mid to upper $0.90’s.

New developments under construction have increased.  While Sherwood Commerce Center Phase 2 was completed, Sewell Corporate Phase 2 and East Vancouver E-Commerce Center were added, bringing under construction from just under 5M sf to a little over 5.5M sf.  Developers continue to gamble that Corporate America is looking for quality product with current amenities.  A recent visit to a National Real Estate Conference in Chicago accentuated the fact that the Fortune 500 companies want to lease new product to install ever increasing levels of warehouse automation to compete against the likes of Amazon. 

There continues to be few warehouses on the market for sale.  Accounting for over 80% of our marketplace, the folks that own them continue to hang onto them.  Manufacturing buildings are coming on the market for sale as the challenges of making things in our market continue.  While they have historically been selling, there has been a lack of demand as of late, causing owners to adjust their pricing.  Quoting numbers is tough due to the myriad of considerations when evaluating an industrial building, but for the most part warehouses are transacting north of $150/sf, while manufacturing facilities are transacting south of $150/sf.

Admittedly my last quarterly was somewhat of a political piece, but we do have the elections coming up.  The SDA is alive and well in Portland.  Recent events in France are illustrating where Coveting can lead you.  Just recently I was told an out of state company is going to wait until after the election to decide if they are going to move forward with a land purchase to build on.  And a fellow broker indicated an out of state company that had started their search in Clark County was going to be looking south of the river due to the Millionaire Tax.  We are in a global economy, and have to compete like it.

Investment in manufacturing across the US continues to balloon and hopefully will have an impact here.  We were able to fight off the vacancy tax.  Hopefully we can do the same with the building energy tax.  Not good publicity, but wins, nonetheless.  Let’s see if we can finish the 4^th Quarter in the black.