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					                                                 Real Estate Market Review                                                       1st Quarter

                                                 Portland, Vancouver and Surrounding Areas                                       2012



                                                 Portland Industrial
Market Forecast                                    For the first time in years there are some real
                         Current / Projection      signs of economic recovery in Oregon. With news
                                                   of a decreasing unemployment rate, a housing
Vacancy                    6.8%
                                                   market believed by many to have hit bottom with
Construction       416,077 sf                      price increases expected, and an uptick in leasing
Rental Rate
                                                   activity, many investors are cautiously optimistic.
Per SF         $0.33-$0.36*                        Acknowledging the fact that changes are occurring at
Absorption         806,472 sf
                                                   a glacial pace, improvements have been broad-based
*Shell rate; varies by size, category and
                                                   across a wide range of industries and occupations.
submarket                                          Oregon’s recovery is being led by gains in business
                                                   investment and exports, with lingering weakness in the
Market Up Close
                                                   public sector and housing-related industries.
Increased activity in both leasing and
investment activity is a positive sign for the
Portland Industrial Real Estate Market.
The first major speculative industrial             In 2011, leasing demand for industrial real estate grew significantly, allowing
development in four years was delivered this
quarter, in Wilsonville, by Pacific Northwest
                                                   this sector to continue to absorb much of the space vacated during the recent
Properties. The property caters to smaller         recession. In fact, nationwide, almost all of the U.S industrial markets reported
tenants and already has significant activity.      positive absorption trends in 2011, with big-box warehouse activity outperforming
Rental rates have stabilized in most               the sector as a whole. Many participants feel that leasing demand for distribution
submarkets on standard business park
                                                   space will remain strong in the coming months, and the first quarter did nothing to
space as well as larger spaces. The
exception to that would be the Airport Way/        change this mindset. Investors’ upbeat outlook for warehouse space is tied to a
East Columbia Corridor submarket for               number of factors, including: the stabilizing labor market, limited amount of new
spaces from 40,000 to 80,000 s.f.
                                                   construction, and expected rent growth as positive absorption continues. The
Several larger deals are in lease negotiation      current unemployment rate in the Portland Metropolitan Statistical Area (MSA) is
stages including a 300,000 s.f. lease in
Wilsonville’s Nike Distribution Center             8.1%, compared with 8.8% in Oregon and 8.3% nationwide. One year ago, the MSA
and a 170,000 s.f. lease at Wilsonville            unemployment rate was 9.8%.
Distribution Center. n
                                                   Current Supply & New Construction
                                                   There are over 180 million s.f. of industrial real estate in the Portland metro market. A
                                                   lack of new construction in recent years has been good to help stabilize the market.
                                                   Total NRA has increased only 1.2% over the first quarter 2009 figure. This lack of
                                                   new space has been fueling the recent surges in net absorption, and has been
                                                   placing downward pressure on vacancy and availability rates.

                                                                                                                        Continued, page 2

                                                                                                                               1st Quarter 2012 | 1
Area Review

Portland Industrial Market Statistics
                         Inventory
                                                     Total      Total           Net        Buildings     NRA      Buildings         Avg Asking
   Period       Buildings           NRA             Vacancy   Availability   Absorption    Delivered   Deliveries   U/C     NRA U/C Rate (NNN)
  2012 1Q          5,284        180,110,832           6.8%       9.7%           806,472       12         352,230        4       416,077      $0.42

  2011 4Q          5,259        179,586,351           7.1%       9.8%         1,057,844        2         437,423       16       768,307      $0.42

  2011 3Q          5,256        179,145,828           7.5%      10.2%           975,957        1          71,000       15       792,753      $0.42

  2011 2Q          5,255        179,074,828           8.0%      10.6%           430,904        0               0        4       547,800      $0.42

  2011 1Q           5,255       179,074,828           8.2%      11.4%           (25,382)       1           3,100        3       544,700      $0.43

  2010 4Q          5,255        179,074,828           8.2%      11.6%           235,998        0               0        2       131,000      $0.44

  2010 3Q          5,255        179,074,828           8.3%      11.9%           411,113        1         415,000        2       131,000      $0.45

  2010 2Q          5,253        178,598,127           8.3%      11.6%           (41,763)       3         119,723        3       536,701      $0.45

  2010 1Q           5,249       178,424,749           8.2%      11.5%         (118,086)        5         128,720        6       650,079      $0.46

  2009 4Q          5,246        178,411,385           8.1%      11.3%            19,476        1         210,000        9       663,443      $0.46

  2009 3Q           5,245       178,201,385           8.0%       7.6%         (385,886)        3          60,437        8       706,742      $0.46

  2009 2Q          5,242        178,140,948           7.8%       7.6%        (1,758,155)       5          80,217        6       687,821      $0.45

  2009 1Q           5,236       178,041,831           6.7%       6.5%         (839,613)       21         717,663       11       774,501      $0.46


During first quarter 2012 we experienced the first speculative                    year period since 2006 and 2007, when approximately 5.1 million
industrial development delivery since 2008. The property is the                   s.f. were absorbed.
Pacific Northwest Properties’ four building business park in
Wilsonville, totaling about 90,700 s.f. The mixed-use development,                Rental Rate Trends and Forecast
known as the Wilsonville Road Business Park, is offering                          Rental rates have stabilized in almost all industrial tenant size
warehouse and flex units from 1,500 to 32,000 s.f. with an asking                 categories and, in select submarkets and size ranges, rental rates
rate of $0.50 on the shell with an $0.80/s.f. surcharge ($/s.f./                  have increased. Asking shell rates are ranging from $0.36/s.f. on
month, triple net). There are already some pending deals.                         the low end for larger bulk warehouse space up to $0.45/s.f. on
The 165,400 s.f. McLane Foods Distribution Center in Tualatin                     the high end for more traditional smaller business park spaces in
was also delivered during the first quarter of the year and                       desirable submarkets. Actual deal shell rates are 10% to 15% less
Boeing completed a 60,000 s.f. expansion of their Airport area                    than asking and are occurring in the $0.32 to $0.38 per s.f. range.
manufacturing facility as well. Next year, we expect to see 300,000               The highest rents are being achieved in Hillsboro, with its shortage
to 400,000 s.f. of new construction, of which approximately 80%                   of industrial space and the recent demand from contractors for
will be owner occupied. Developers are beginning to jockey for                    warehouse near the Intel Ronler Acres expansion project. The
position for the remaining industrial land, but no moves have                     next highest performing submarket is the I-5 Corridor from Tigard
been made given that rental rates need to increase before new                     through Wilsonville. The softest submarket is the Airport Way/East
speculative construction on a larger scale makes financial sense.                 Columbia Corridor submarket, especially for those spaces in the
                                                                                  40,000 to 80,000 s.f. size range.
Vacancy and Net Absorption                                                        We have seen landlords pushing asking office surcharges from
In the Portland metropolitan market the vacancy rate continued                    $0.70 to $0.75/s.f. on most properties with above average finishes
its decline and ended the quarter at 6.8%. This compares with                     while the older properties continue asking an office surcharge of
an 8.2% vacancy rate one year ago. Net Absorption continued                       $0.70/s.f. In some cases, owners are asking $0.80/s.f. for a new
to be strong this quarter with 806,472 s.f. of positive absorption.               office surcharge.
Over the past four quarters, net absorption has averaged 817,794
s.f. per quarter. Comparing this with the quarter after quarter of                Industrial Business Parks
negative net absorption in 2009 and into 2010, it’s a real sign of                We track 34.7 million s.f. of traditional industrial business park
improvement.                                                                      space in the Portland Metro area. The vacancy rate for these
Over the past four quarters the industrial market has absorbed                    business parks declined this quarter from 13.3% to 13.1%. This
nearly 3.3 million s.f. of space. This is the highest level in a one-             continues the vacancy rate decline from 14.9% in first quarter
                                                                                  2011 and from 16.5% in first quarter 2010. These business parks

2 | Portland Industrial Real Estate Market Review
  Absorption, Deliveries & Vacancy
         SF                                                                                                          %

       2.5M                                                                                                          9%

                                                                                                                                 Net Absorption
        2M                                                                                                           8%
                                                                                                                                 Deliveries

       1.5M                                                                                                          7%          Vacancy Rate


        1M                                                                                                           6%

        .5M                                                                                                          5%

        0M                                                                                                           4%

        .5M                                                                                                          3%

        1M                                                                                                           2%

       1.5M                                                                                                          1%

        2M                                                                                                           0%
              2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12




continue to underperform the overall Portland market and there is         7.1%. This is still improved from first quarter 2011, one year ago,
still a great deal of business park space available. The availability     when the vacancy rate was 7.5%. This submarket continues
rate for these business parks is 17.8%, indicating that 17.8% of          to recover more slowly than other submarkets due to its large
business park space is currently actively being marketed for lease        concentration of larger bulk warehouse space.
(while 13.1% is physically vacant).
                                                                          Southeast Submarket
KEY SUBMARKET ACTIVITY                                                    The Southeast Portland submarket also experienced a great
                                                                          deal of activity in the first quarter of 2012 as the vacancy rate fell
I-5 Corridor Submarket                                                    to 4.5% from 5.7%. There were several leases completed this
The I-5 Corridor submarket vacancy rate has declined to 8.7%              quarter including Premier Auto leasing 64,000 s.f. in Milwaukie,
this quarter, which is down from 8.9% at year-end 2011 and down           Interstate Meats leasing 40,000 s.f. in Clackamas, and Cascade
from 11.4% one year ago. The vacancy rate in the I-5 Corridor             Rigging leasing 30,000 s.f. in Clackamas.
is still dramatically skewed upward by four very large industrial
buildings, Nike (400,000 s.f.), Wilsonville Distribution Center           Summary
(170,000 s.f.), Hollywood Video Distribution Center (176,000              The Portland industrial market is on the verge of turning the
s.f.), and the former Stanton manufacturing facility (100,000 s.f.).      corner as vacancy rates are reaching lower levels and availability
If these four large vacancies are removed from the survey, the            rates are declining. Landlords are beginning to become more
vacancy rate in the I-5 Corridor is closer to 5.5%, which places          comfortable with pushing on rents and concessions, which
it as one of the strongest submarkets in Portland. There are two          will eventually lead to a spike in rental rates over the course
pending lease transactions which will likely bring the vacancy            of the next two years. Also, the overall economic picture is
down during the second quarter of 2012, one for 300,000 s.f. at           improving. In September 2011, 33% of economists anticipated
the Nike Distribution Center and one for 170,000 s.f. at Wilsonville      a double dip recession; today it’s about 21%. An American City
Distribution Center.                                                      Business Journals survey reports that small business owners
                                                                          across the country are updating technology, giving raises, and
Northeast Submarket                                                       increasing sales. Overall, the market forecast is for continued
The Northeast submarket includes the Rivergate, Columbia                  slow improvement, with increased net absorption and limited new
Boulevard, and Airport Way/East Columbia Corridor submarkets.             construction on the horizon.
This is the largest of Portland’s industrial submarkets with nearly       *Source: CoStar Data
69,900,000 s.f. of total inventory. The vacancy rate increased
slightly in the first quarter, from 7.0% in fourth quarter 2011 to

kiddermathews.com                                                                                                                1st Quarter 2012 | 3
Submarket Statistics
                                                                                                               Vacancy                 Vacancy                 Vacancy                 Vacancy                 Vacancy
                                                                                       Total SF
 Submarket                                                    Total NRA                                          Rate                    Rate                    Rate                    Rate                    Rate
                                                                                        Vacant
                                                                                                               Q1 2012                 Q4 2011                 Q3 2011                 Q2 2011                 Q1 2011
 Northeast
 Columbia Blvd/Airport                                        22,288,359              2,036,277                     9.1%                    8.2%                    9.5%                  10.3%                     9.2%
 Airport Way/East Columbia Corridor                           13,827,771                 639,572                    4.6%                    5.2%                    5.5%                    5.5%                    5.4%
 Hayden Island/Swan Island                                      9,737,151                653,551                    6.7%                    6.4%                    6.6%                    6.9%                    7.0%
 Rivergate                                                     15,229,571             1,400,505                     9.2%                  10.1%                     8.9%                    9.3%                    9.9%
 Gateway                                                        2,997,930                  57,661                   1.9%                    1.3%                    2.3%                    2.6%                    2.6%
 Gresham                                                        1,569,083                103,400                    6.6%                    6.3%                    6.3%                    2.2%                    2.1%
 Close-In Northeast                                             4,238,151                  66,971                   1.6%                    1.6%                    2.4%                    3.4%                    3.5%
 I-5 Corridor
 Tigard                                                         5,677,939                236,298                    4.2%                    4.1%                    4.0%                    3.7%                    4.7%
 Tualatin                                                        9,957,565               460,451                    4.6%                    5.7%                    7.4%                    7.8%                    8.0%
 Wilsonville                                                    6,462,762             1,176,484                   18.2%                   16.6%                   16.8%                   19.8%                   22.0%
 Northwest
 Guilds Lake/NW Close-In                                      12,824,388                 701,268                    5.5%                    6.0%                    5.5%                    6.7%                    6.6%
 Southeast
 Close In Southeast                                             7,051,460                222,026                    3.1%                    3.4%                    3.6%                    3.2%                    3.6%
 Milwaukie/Clackamas                                          21,607,114              1,213,768                     5.6%                    6.6%                    6.9%                    6.8%                    7.0%
 Oregon City                                                       951,391                 63,355                   6.7%                    6.9%                    7.0%                    7.7%                    7.5%
 Southwest
 217 Corridor/Beaverton                                         4,960,927                601,123                  12.1%                   12.4%                   12.1%                   12.5%                   14.6%
 North Beaverton                                                   911,940               164,773                  18.1%                   18.1%                   18.0%                   17.2%                   20.6%
 Westside
 Sunset Corridor/Hillsboro                                    11,281,823                 694,623                    6.2%                    7.1%                    8.8%                    8.9%                    9.5%
 Clark County
 Camas/Washougal                                                1,303,870                  74,379                   5.7%                    5.7%                    6.1%                    8.1%                    7.7%
 CBD/West Vancouver                                             5,099,219                136,633                    2.7%                    3.2%                    3.4%                    6.6%                    5.9%
 Hazel Dell/Salmon Creek                                        1,328,394                  34,049                   2.6%                    3.9%                    5.0%                    5.1%                    5.8%
 St. Johns/Central Vancouver                                    6,550,358                488,058                    7.5%                    7.7%                    7.5%                    8.0%                  10.6%




Contact                                                                                                                   Offices
Steven Klein                                  The information in this report was composed by                              Seattle                               Tacoma                                San Francisco
Senior Vice President                         the Kidder Mathews Valuation Advisory Group.                                206.296.9600                          253.722.1400                          415.229.8888
Branch Manager                                Rebecca Horvat, MAI
                                                                                                                          Bellevue                              Olympia                               Redwood Shores
503.221.9900                                  Kidder Mathews Valuation Advisory Services
                                                                                                                          425.454.7040                          360.705.2800                          650.769.3600
sklein@kiddermathews.com                      503.221.9900 | rhorvat@kiddermathews.com
                                                                                                                          South Seattle                         Portland                              Silicon Valley
                                                                                                                          206.248.7300                          503.221.9900                          408.970.9400


  This information supplied herein is from sources we deem reliable. It is provided without any representation, warranty or guarantee, expressed or implied as to its accuracy. Prospective Buyer or Tenant should conduct an
  independent investigation and verification of all matters deemed to be material, including, but not limited to, statements of income and expenses. CONSULT YOUR ATTORNEY, ACCOUNTANT, OR OTHER PROFESSIONAL ADVISOR.



4 | Portland Industrial Real Estate Market Review

				
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