Investment sales for flex properties were impressive this year, particularly the $7.85M sale of 39k SF building in Hillsboro, leased by Hitachi. The strong-credit tenant yielded a strong PSF sale of $199, which is $19 more PSF than the next highest sale.
Despite delivering less than 10% of the supply delivered during 2015 (2.96M SF versus 209k SF), it was the most significant year for new supply since 2015, and likely in the near future, for Portland’s flex market. Going on five quarters in a row of positive net absorption and four of decreasing vacancy rates, this asset class ended 2018 strong. There are three expected deliveries for Q2 2019, totaling 109k SF, which are currently spread across the region, from Yamhill County, to Cascade Park in Washington, and Clackamas/Milwaukie.
Rental rates are down over the year, but up for the third consecutive quarter. With little new supply coming on the market soon, rates are likely to increase early in 2019. The question remains, as through much of 2018, about the impact of trade with China and what the national political environment will mean for economic growth. Given the relatively small proportion of Oregon’s exports to China subject to the new tariffs (~0.2%), there is no expectation of a dramatic decrease in demand for flex assets.
The Vancouver Mall/Cascade Park/Orchards submarket cluster will be interesting to watch as nearly 79k SF is set to deliver in Q2, yet the vacancy is the highest in the region, at 16.7% and net absorption down over the quarter to 4.2k SF.