Market Pauses as Uncertainty Grows

  • The Portland region’s multifamily market participants and observers are in a “wait and see” mode, due to numerous recent changes and the potential for more on the horizon.
  • Sales activity points to this caution, as 2015-2016’s pattern of record sales did not continue into the first quarter of this year. Q1’s $307M volume is 41.5% less than the same period last year, and an 80% decrease from Q4 2016’s $1.5B in sales.
  • Multifamily developers rushing to vest projects prior to the February 1 start of the City of Portland’s Inclusionary Housing (IH) program caused a surge of land use review and permit applications. Patrick Barry tallies these entitlements at a minimum of 7,050 units over the two months ending January 31, 2017.
  • A close reading of the City of Portland’s permit intake reports reveals a small handful of new projects proposed after February 1, but the large number of projects vested under the pre-IH rules will dominate the development pipeline for the next two to three years.
  • Under construction and future new projects will join a market that had already started to move itself into supply/demand balance over 2016. Q1 2017 registered another decrease in market-wide occupancy and flattened rental rate growth below 4%.
  • However, the chilling combined effect of Construction Excise Tax, System Development Charges, Inclusionary Housing, barring of no-cause evictions, tenant relocation assistance, and potential for outright rent control could dampen development at a time when it is strongly needed. This may translate into re-accelerating growth in rental rates and increasing occupancy—acceptable to developers’ and investors’ bottom lines, but perhaps unintended by tenant advocates.
  • Jurisdictions outside of Portland could attract a greater share of regional development in the near term due to low vacancy, stable rent growth, and comparatively less onerous regulation.
     

Quick Fact: $307 Million

  • 28 transactions closed in Q1, averaging nearly $11M per deal.
  • These properties contained 1,549 units for an average of $198,222/unit.