Rental Rates Increase Rapidly As Vacancy Declines
- Industrial rental rates in the Portland region continued their upward trajectory in the second quarter, when the overall market’s blended direct triple-net asking rate reached $0.581/SF per month.
- While $0.581/SF is a record level for market-wide blended direct rental rates, it also represents a record year-over-year (YOY) growth rate in quoted pricing. This composite rental rate is 14.4% higher than it was in Q2 2016, an annual change never before seen in the Portland market and the fifth consecutive quarter of increasing annual inflation in quoted rates. For example, Q1 2017’s YOY increase was 13.3%, and the prior quarter saw 11.5% growth.
- Demand appears undeterred by this rental rate environment, as seen in Q2’s 899k SF of positive space absorption (i.e. the net of tenant move-ins and move-outs). This pushed the vacancy rate down to at most 3.6% market-wide. Another measure of demand—reported lease executions—totaled 2.4M SF in Q2.
- The headline-grabbing lease by Amazon of the forthcoming 857k SF Troutdale Logistics Center is one of the most visible signals of demand for high-quality institutional industrial space in Portland. This project start brings the total square footage currently under construction to around 3.2M SF. 33% of this space is pre-leased.
- Excluding Troutdale Logistics Center and the Amazon lease reveals a 12% pre-leasing rate in the resulting 2.7M SF (up from 11% in Q1).
- Demand for small- and mid-sized spaces also influences the market, as seen in the diversity of product within the development pipeline.
- The above fundamentals are partly related to our region’s scarcity of developable industrial land. If expansion of the regional Urban Growth Boundary does not occur, perhaps approaches such as the City of Portland’s recently announced initiative to increase financial resources for brownfield redevelopment, or more dense industrial construction types, may hold significance in the distant future.
Quick Fact: $117 Million
The Second quarter’s $117M of sales activity breaks down as follows:
- 10 investment sales totaled $94M and averaged $102.92/SF
- 9 owner/user sales totaled $23M and averaged $148.38/SF