Industrial Rental Rates Keep Trending Up

  • Portland’s metropolitan industrial market ended 2017 with yet another increase in direct rental rates quoted on a blended basis. The market-wide composite rate of $0.63 PSF per month represents a 5% increase over the quarter and 19% increase over the year.
    • The Airport/Gateway submarket’s Q4 rate of $0.69 PSF per month is essentially unchanged over the quarter and 17% greater over the year.
    • The Rivergate/Swan Island submarket’s rate of $0.44 PSF per month represents a 2% decline over the quarter but an 11% increase over the year.
    • The East Columbia Corridor’s rate of $0.55 PSF per month is up about 1% over the quarter but down about 2% over the year.
    • Beaverton/Hillsboro’s rate of $0.56 PSF per month is down about 3.75% over the quarter and also down about 4% over the year, showing some slight signs of moderation.
  • In a departure from the last two years of trends in demand for industrial space, net absorption throughout the market registered near zero in the fourth quarter. Large amounts of vacated space in the NE/SE Close-In and West & Central Vancouver submarkets are the source of most of the quarter’s negative absorption. This activity brought 2017’s annual net absorption to approximately 3.3M SF.
  • Around 600k SF of new product delivered in Q4. While this inventory was 66% pre-leased at completion, tenants generally do not move into their leased space immediately after a building delivers, in order to allow for tenant improvement construction. Therefore, the newly delivered products’ technically vacant space combined with net zero absorption to move the vacancy rate up to 3.7% (still down over the year from 4%).
  • Investment sales represented $79M of the quarter’s total sales activity. Of note, these investment sales averaged higher per-square-foot pricing ($111 PSF) than the quarter’s owner/user sales ($98 PSF). Typically, owner/user sales include a premium over comparable investment transactions.
  • However, the Portland market’s very limited availability of leasable space or developable land appear to have compressed capitalization rates to the point of elevating investment pricing above owner/user pricing.

Quick Fact: $164 Million

  • 5 investment transactions totaled $79M and averaged $111 PSF
  • 10 owner/user transactions totaled $72M and averaged $98 PSF
  • 1 transaction for redevelopment totaled $13M at $80 PSF on the land