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PSU Center for Real Estate Releases February Quarterly Report
Author: Gerard Mildner, Ph.D.
Posted: March 2, 2016

Portland State University Center for Real Estate released its latest issue of the Center for Real Estate Quarterly Report, produced with the assistance of the Oregon Association of Realtors and Regional Multiple Listing Service (RMLS). The 92-page report includes comprehensive analyses of Portland’s affordable housing, the state of the economy, and residential, multifamily, office, industrial and retail markets.

In the feature article, Clyde Holland of Holland Partner Group, presents an alternative strategy for producing affordable housing in the region. Holland finds that the region has a shortage of 40,000 housing units and argues that rent control and inclusionary zoning will make the problem worse. Instead, Holland proposes loosening zoning regulations to allow more high-rise development to be built in Portland's central core and permit financing the impact fees from those units from future property taxes.

In Holland’s Single Family Housing column, RMLS Student Fellow Alex Joyce finds that Portland area home prices have reached a median of $305,000, matching the peak before the housing bust in 2007. The other strong markets in the state and region include Bend, with a median price of $327,000, suburban Clark County with a median home price is $283,000. In the Portland market, the number of sales has been growing, with sellers achieving 99% of their asking price. Housing production in the region continues to recover, but building permits remain about 20% of their levels in 1990-2007.

Center for Real Estate Student Fellow Marc Strabic finds that multi-family housing market remains a strong market for investors, landlords and developers. Axiometrics reports that the Portland market was the fastest appreciating rental housing market in the United States, with December-to-December rent growth of 11.3% and a vacancy rate of only 2.4%. Strabic points out that apartment construction in the region is booming, particularly in the city of Portland, although that boom doesn't make up for the decline in single family construction.

The office market in Portland is a strong market for landlords and developers, too. Oregon Association of REALTORS Student Fellow Alec Lawrence finds an average vacancy rate of 9.4%, with the lowest levels in downtown Portland, 6.7%, and the Lloyd District, 4.5%. Lawrence reports that median asking rent in downtown Portland, $24.08 per square foot, remains competitive to Seattle, $33.70; Silicon Valley, $41.68; and San Francisco, $66.80; which suggests that the migration of tech firms to Portland can continue.

Portland’s industrial market continues to show the best fundamentals in decades. According to Center for Real Estate Student Fellow Adam Seidman, the average industrial vacancy rate of 4.5% is a historic low, and the average warehouse rental rate of $0.46 per square foot is a record high. The Portland market absorbed over 3.4 million square feet of new warehouse space in 2015, which comes close to matching the 4.8 million square feet per year benchmark in 2004-07.These trends are expected to continue as tenant demand for small and large spaces remains strong.

The retail market in Portland is a strong market for property owners. According to Lawrence, the average vacancy rate has dropped to 4.6%, its lowest rate in years, with the average lease rate reaching $17.42 per square foot. The highest rents in the region were on the I-5 Corridor at $21.61. In his report, Lawrence comments on the changing strategies of Wal-Mart, which is closing two of its Neighborhood Market format stores in Portland, and Amazon, which is planning to open 400 brick and mortar stores nationwide.

Overall, the US economy is starting the seventh year of economic recovery. According to Seidman, GDP is projected to grow by 2.4% to 2.5% for the next two quarters, recovering from a slowdown in the fourth quarter. Unemployment in the Portland region fell to 4.9%, slightly below the national average of 5.0%. The key uncertainties moving forward are the Federal Reserve's interest rate policy, economic growth in China, and commodity prices, where dramatic reductions in oil prices have damaged bond and equity markets.

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