Industrial remains the strongest property asset in the Portland metropolitan region and United States nationally. Rents continue to climb, reaching a blended rate of $0.65 per month NNN in the Portland MSA. Vacancy is down 40 basis points, the lowest rate since Q3 2017. Net absorption remains very high (1.18M SF), and the product under construction remains above 2.4M SF, as has been the case since Q4 2015. Absorption is expected to decrease in 2019 for lack of inventory and new supply, not dwindling demand.
The strongest investment sales submarkets for industrial product this quarter were Clackamas/Milwaukie (992k SF | $48.5M), Wilsonville (425 SF | $45.3M), East Columbia Corridor (299k SF | $18.8M), and Rivergate (287k SF | $16.9M). These sales are primarily warehouses and distribution centers, continuing the strength of third-party logistics (3PL) in Portland. In the coming quarters and years, last-mile delivery centers are going to become more important and scarce.
Over the year, transactions spanned a wide variety of investors. Close to one-third of the sales by transaction count were made by individuals. The largest single buyer by volume in the market was RREEF Management, which purchased part of Albertson’s portfolio in East Columbia Corridor (924K SF for $106.2M); this accounted for 15% of the sales volume for the year in the Portland MSA. Specht Properties follows with 7% of the sales volume after they purchased Supervalu’s portfolio in Clackamas/Milwaukie (992K SF for $48.5M).
New supply will be concentrated heavily in East Columbia Corridor (1.14M SF under construction), Airport Way (928K SF under construction), and Marion County (3.32M SF proposed). This is indicative of how tight land supply near Portland, within the Urban Growth Boundary, has become.
Looking ahead to 2019, keeping an eye on trade uncertainty and political changes, nationally and internationally, will be critical to accurately predicting the supply of raw materials and labor.