Vacancy and Absorption Respond to Significant Deliveries
- Market-wide net absorption is negative 228k SF for the quarter while vacancy rose from 3.6% to 4.5% since Q4 2017. Although this is the first time market-wide net absorption has been negative in ten quarters, it is primarily caused by a single transaction.
- The primary driver to negative net absorption is the combination of Safeway moving out of their 860k SF Clackamas distribution center and the buyer, Maletis Beverage, marketing the building for lease prior to committing to use all or a portion of the remaining space for one of their own operations. It stands to reason that there will be either some early success in leasing to 3rd party tenants needing cold storage, which there is significant demand for, or that the owner will occupy a meaningful portion of this space before the end of 2018.
- The largest positive net absorption for the quarter is Airport Way with 814k SF absorbed and a vacancy of 4.25%. This is mostly thanks to the addition of the new warehouse and distribution center for the United States Postal Service, which is vacating its Pearl District Post Office blocks, currently rebranded by Prosper Portland as the “Broadway Corridor.”
- Westside markets, made up of NW/Guilds Lake, Beaverton/Hillsboro, and I-5 South have the lowest vacancies at 3.01%, which is a slight uptick from Q4 2017. Several nominal vacancies, as a proportion of total inventory, caused the negative net absorption of 239k SF.
- With the delivery of nearly 1.5M SF of inventory, market-wide vacancy increased 0.9% over the quarter and 1.0% over the year.
- East Columbia Corridor is the largest submarket by supply (25.5M SF) and has the highest vacancy in the market, 10.08%. 500k SF were delivered this quarter, temporarily increasing vacancy.
- The lion’s share of deliveries and projects under construction are in the North/Northeast submarkets, primarily Airport Way and East Columbia Corridor. Having delivered over 1.3M SF with 2.1M SF still in the pipeline, these markets are commanding strong blended asking rents of $0.59 PSF/month, compared to the market average of $0.60 PSF/month, despite the inventory consisting of larger buildings and spaces.
- While market-wide blended asking rents cooled slightly in Q1 2018 from Q4 2017 ($0.63 to $0.60 PSF/month) they are still up year-over-year from $0.55 PSF/month in Q1 2017 and are likely to increase with the out-of-state demand for warehouse and distribution space.