Real Estate Market Review Portland Office · The fiber optic broadband internet provider FireServe...
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Real Estate Market Review Portland Office 1 st Quarter 2018 The Portland office market continued to benefit from the expansion of the technology sector in the first quarter of 2018, as a strong economy kept unemployment near the metro’s historical lows. An uptick in vacancy to begin the year belied robust fundamentals, evidenced by the market’s 5.5% annual rent growth and notable investment activity from institutional buyers. Overall, rental rates reached an average of $25.69 FS, while new Class A developments were achieving rents in the mid-to-high $30s NNN. Investors continue to see value-add opportunities in Portland, acquiring assets with an eye toward repositioning them as modern office properties to attract the market’s variety of tech and creative users. With nearly 3 million s.f. of office space under construction at quarter’s end, the market has significant room to expand, and economic factors remain favorable for growth in the near term. 1st Quarter 2018 | 1 Office vacancies in metro Portland rose 80 basis points from the first quarter, to 7.6%, but are unchanged year over year. Although the market reported 108,323 s.f. of negative net absorption over the first three months of 2018, demand and supply fundamentals remain strong. The Downtown area endured 270,341 s.f. of negative net absorption this quarter, as Vestas Americas gave back 34,845 s.f. at 1417 NW Everett Street and Corinthian Colleges closed down its location at 921 SW Morrison Street. In the suburbs, 217 Corridor/ Beaverton was down 106,489 s.f. this quarter, as Comcast shut its service center at 9605 SW Nimbus Avenue, leaving 56,146 s.f.. In Wilsonville, Convergys closed its 119,076 s.f. call center at 9275 SW Peyton Lane, driving 97,827 s.f. of negative net absorption. Lastly, Holiday Retirement moved out of 24,232 s.f. at 5885 Meadows Road in Lake Oswego, relocating its headquarters to Florida two months after its parent company, Fortress Investment Group, was sold to SoftBank. Despite the layoffs stemming from those closures, unemployment in metro Portland remains at or near its all-time low, hovering just above 4%. Leasing activity slowed from last quarter, but big-name companies continued to seek and find office space in metro Portland, which saw 1,022,383 s.f. taken over the past three months. WeWork struck the quarter’s largest deal, taking 70,190 s.f. on the ninth through 13th floors of the Power + Light Building at 920 SW Sixth Avenue for its third location in Portland. The fiber optic broadband internet provider FireServe secured 29,128 s.f. on floors 3-5 of the New Market Market Forecast Trends WeWork 920 SW Sixth Avenue, Portland 70,190 s.f. leased FireServe 115 SW Ash Street, Portland 29,128 s.f. leased Markowitz, Herbold, Glade & Mehlhaf, P.C. 1455 SW Broadway, Portland 19,424 s.f. leased Notable Lease Transactions Unico Properties 38 NW Davis Street, Portland 124,006 s.f. | $54.25M or $437/s.f. Westport Capital Partners 309 SW 6th Avenue, Portland 207,895 s.f. | $53.93M or $259/s.f. Specht Development One Pacific Square, Portland 238,751 s.f. | $52.1M or $218/s.f. Notable Sale Transactions ABSORPTION RENTAL RATE VACANCY CONSTRUCTION DELIVERIES
Transcript of Real Estate Market Review Portland Office · The fiber optic broadband internet provider FireServe...
Real Estate Market Review
Portland Office
1st Quarter
2018
The Portland office market continued to benefit from the expansion of the technology sector in the first quarter of 2018, as a strong economy kept unemployment near the metro’s historical lows. An uptick in vacancy to begin the year belied robust fundamentals, evidenced by the market’s 5.5% annual rent growth and notable investment activity from institutional buyers. Overall, rental rates reached an average of $25.69 FS, while new Class A developments were achieving rents in the mid-to-high $30s NNN. Investors continue to see value-add opportunities in Portland, acquiring assets with an eye toward repositioning them as modern office properties to attract the market’s variety of tech and creative users. With nearly 3 million s.f. of office space under construction at quarter’s end, the market has significant room to expand, and economic factors remain favorable for growth in the near term.
1st Quarter 2018 | 1
Office vacancies in metro Portland rose 80 basis points from the first quarter, to 7.6%, but are unchanged year over year. Although the market reported 108,323 s.f. of negative net absorption over the first three months of 2018, demand and supply fundamentals remain strong. The Downtown area endured 270,341 s.f. of negative net absorption this quarter, as Vestas Americas gave back 34,845 s.f. at 1417 NW Everett Street and Corinthian Colleges closed down its location at 921 SW Morrison Street. In the suburbs, 217 Corridor/Beaverton was down 106,489 s.f. this quarter, as Comcast shut its service center at 9605 SW Nimbus Avenue, leaving 56,146 s.f.. In Wilsonville, Convergys closed its 119,076 s.f. call center at 9275 SW Peyton Lane, driving 97,827 s.f. of negative net absorption. Lastly, Holiday Retirement moved out of 24,232 s.f. at 5885 Meadows
Road in Lake Oswego, relocating its headquarters to Florida two months after its parent company, Fortress Investment Group, was sold to SoftBank. Despite the layoffs stemming from those closures, unemployment in metro Portland remains at or near its all-time low, hovering just above 4%.
Leasing activity slowed from last quarter, but big-name companies continued to seek and find office space in metro Portland, which saw 1,022,383 s.f. taken over the past three months. WeWork struck the quarter’s largest deal, taking 70,190 s.f. on the ninth through 13th floors of the Power + Light Building at 920 SW Sixth Avenue for its third location in Portland. The fiber optic broadband internet provider FireServe secured 29,128 s.f. on floors 3-5 of the New Market
Market Forecast Trends
WeWork 920 SW Sixth Avenue, Portland 70,190 s.f. leased
FireServe 115 SW Ash Street, Portland 29,128 s.f. leased
Markowitz, Herbold, Glade & Mehlhaf, P.C. 1455 SW Broadway, Portland 19,424 s.f. leased
Notable Lease Transactions
Unico Properties 38 NW Davis Street, Portland 124,006 s.f. | $54.25M or $437/s.f.
Westport Capital Partners 309 SW 6th Avenue, Portland 207,895 s.f. | $53.93M or $259/s.f.
Specht Development One Pacific Square, Portland 238,751 s.f. | $52.1M or $218/s.f.
Notable Sale Transactions
ABSORPTION
RENTAL RATE
VACANCY
CONSTRUCTION DELIVERIES
2 | Portland Office Real Estate Market Review
SF
Asking Lease RateLeasing Activity
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
1Q18
20
17
$/SF
0
1M
2M
3M
4M
5M
6M
7M
8M
$14
$16
$18
$20
$22
$24
$26
$28
$30
SF
Vacancy RateNew Deliveries
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2017
1Q18
%
0
500K
1M
1.5M
2M
2%
6%
10%
14%
18%
Area ReviewSubmarket Statistics
SubmarketTotal
InventoryDirect
Vacancy Rate
Total Vacancy
Rate
Total Available
RateQ1 Net
AbsorptionYTD Net
Absorption
Quarterly Leasing Activity
YTD Leasing Activity
Rental Rate
CBD 26,515,582 9.7% 10.3% 13.1% (569,792) (569,792) 390,211 390,211 $31.37
Pearl District/Chinatown 2,720,680 5.4% 5.4% 6.2% 22,906 22,906 2,093 2,093 $27.97Downtown Total 29,236,262 9.3% 9.8% 12.4% (545,868) (545,868) 392,304 392,304 $31.27
217 Corridor/Beaverton 3,752,217 16.5% 17.2% 17.3% (106,489) (106,489) 38,843 38,843 $19.91
Airport Way 1,150,609 6.5% 6.8% 11.4% 3,586 3,586 2,490 2,490 $15.31
Barbur Blvd/Capitol Hwy 1,316,558 6.6% 7.0% 10.1% (1,443) (1,443) 6,860 6,860 $17.63
Camas/Washougal 645,183 1.9% 1.9% 2.4% 1,460 1,460 0 0 $20.75
Cascade Park 2,991,800 8.2% 8.5% 10.7% (32,357) (32,357) 21,525 21,525 $19.55
CBD/West Vancouver 2,617,946 8.3% 8.3% 10.9% (24,340) (24,340) 42,782 42,782 $22.76
Clackamas/Milwaukie 2,651,947 1.9% 1.9% 2.7% (3,959) (3,959) 13,724 13,724 $18.70
East Columbia Corridor 873,486 0.0% 0.0% 2.1% 1,800 1,800 1,065 1,065 $15.15
Gateway 2,305,351 2.2% 2.2% 9.6% (7,483) (7,483) 7,626 7,626 $18.76
Gresham 999,500 4.1% 4.1% 5.0% 3,162 3,162 1,571 1,571 $19.50
Guilds Lake 782,299 21.1% 21.1% 34.0% 47,881 47,881 0 0 $20.26
Hayden Isl/Swan Isl 1,273,992 1.5% 1.5% 1.5% (827) (827) 0 0 $13.10
Hazel Dell/Salmon Creek 867,583 5.1% 5.1% 6.0% 2,947 2,947 1,200 1,200 $22.31
Johns Landing 1,972,233 4.3% 4.5% 3.7% 18,750 18,750 6,280 6,280 $25.37
Kruse Way 2,856,958 12.5% 12.9% 13.8% (21,753) (21,753) 65,446 65,446 $30.36
Lake Oswego/West Linn 934,032 6.9% 7.2% 7.6% (1,978) (1,978) 8,451 8,451 $24.15
Lloyd District 5,173,475 1.4% 3.4% 7.4% 96,157 96,157 11,420 11,420 $28.86
Mall 205 914,183 2.0% 2.0% 2.1% 6,676 6,676 2,144 2,144 $16.86
NE Close-In 1,430,578 0.9% 0.9% 3.9% 17,656 17,656 8,720 8,720 $24.12
North Beaverton 3,040,405 3.0% 3.6% 3.5% 3,307 3,307 20,703 20,702 $25.82
Orchards 671,667 11.3% 11.3% 11.3% 7,472 7,472 0 0 $17.30
Oregon City 810,602 4.4% 4.4% 4.3% (7,790) (7,790) 5,981 5,981 $1,746.00
Rivergate 76,977 0.0% 0.0% 0.0% 0 0 0 0 -
SE Close-In 3,028,044 7.2% 7.9% 9.1% 50,815 50,815 25,249 25,249 $26.54
Sherwood 161,390 14.1% 14.1% 14.1% (316) (316) 0 0 $26.00
St. Johns/Central Vancouver 1,611,128 6.0% 6.0% 10.5% 5,809 5,809 33,578 33,578 $13.07
Sunset Corridor/Hillsboro 12,495,778 4.4% 4.6% 5.6% 55,263 55,263 30,751 30,751 $21.59
SW Close-In 591,160 5.2% 5.2% 7.4% 11,556 11,556 15,578 15,578 $21.12
Sylvan/Hillsdale 690,955 5.0% 5.0% 15.0% 42,600 42,600 4,994 4,994 $20.90
Tigard 3,248,719 9.9% 10.7% 14.1% 37,362 37,362 32,135 32,135 $21.33
Tualatin 1,190,981 18.3% 18.3% 17.9% (16,049) (16,049) 13,745 13,745 $24.06
Vancouver Mall 840,308 10.6% 10.8% 10.6% (30,266) (30,266) 4,512 4,512 $18.48
Wilsonville 1,231,094 1.2% 1.2% 17.0% 3,827 3,827 2,706 2,706 $20.03
Suburban Total 65,199,138 6.3% 6.6% 8.8% 156,983 156,983 430,079 430,079 $22.25
Class A 30,427,928 7.5% 8.1% 10.9% 7,569 7,569 251,547 251,547 $33.05
Class B 45,517,219 8.1% 8.3% 10.8% (310,570) (30,570) 435,058 435,058 $23.46
Class C 18,470,701 4.8% 5.0% 5.9% (85,884) (85,884) 135,778 135,778 $19.76
Total 94,435,400 7.3% 7.6% 9.9% (383,850) (383,850) 822,383 821,343 $25.69
HISTORICAL NEW CONSTRUCTION & VACANCY RATE HISTORICAL LEASING ACTIVITY & ASKING LEASE RATES
1st Quarter 2018 | 3kiddermathews.com
FORECAST
Vacancy
4Q173Q172Q171Q174Q163Q162Q161Q16
Availability
2Q18 4Q183Q181Q186%
7%
8%
9%
10%
11%
12%
VACANCY VS AVAILABILITY
Average Sales Price (PSF)
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1Q18
2017
Cap Rate
$50
$75
$100
$125
$150
$175
$200
$225
$250
$275
$300
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
AVERAGE SALES PRICE & CAPITALIZATION RATES
3Q17 4Q172Q171Q174Q163Q162Q161Q16
Class B
FORECAST
Class A
1Q18 2Q18 4Q183Q18
Class C
$20
$23
$26
$29
$32
$35
$38
ASKING LEASE RATE
Vacancy
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
1Q18
2017
Asking Lease Rate (PSF)
6%
8%
10%
12%
14%
16%
$15
$18
$21
$24
$27
$30
VACANCY VS ASKING LEASE RATE
Net Absorption (SF)
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2018
2017
-1M
-500K
0
500K
1M
1.5M
2M
2.5M
NET ABSORPTION - HISTORICAL
Net Absorption (SF)
4Q16 1Q173Q162Q161Q16 2Q17 3Q17 4Q17 1Q18-200K
0
200K
400K
600K
800K
1M
NET ABSORPTION - QUARTERLY
4 | Portland Office Real Estate Market Review
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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.
Market Breakdown
Q1 2018 Q4 2017 Q1 2017 Annual % Change
Vacancy Rate 7.6% 6.8% 7.6% 0.0%
Availability Rate 9.9% 9.4% 10.1% -2.0%
Asking Lease Rate $25.69 $25.52 $24.36 5.5%
Leased SF 1,022,383 1,773,875 1,485,713 -31.1%
Sold SF 990,172 2,115,123 1,564,110 -36.7%
Net Absorption -108,323 371,450 -84,383 N/A
Offices
Seattle206.296.9600
Bellevue425.454.7040
South Seattle206.248.7300
Tacoma253.722.1400
Olympia360.705.2800
Portland503.221.9900
San Francisco415.229.8888
Redwood Shores650.769.3600
Silicon Valley408.970.9400
Sacramento916.970.9700
Roseville916.751.3600
Los Angeles213.880.5250
Commerce323.727.1144
El Segundo310.807.0880
Long Beach562.472.0071
Orange County949.557.5000
Inland Empire909.764.6500
San Diego858.509.1200
Carlsbad760.430.1000
Reno775.301.1300
Phoenix602.513.5200
HISTORICAL SALES ACTIVITY & MEDIAN SALES PRICE
SF
Median Price/Building SFTotal Square Feet of Sales
2014
2015
2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1Q18
2017
$/SF
0
3M
6M
9M
12M
$50
$100
$150
$200
$250
Total Square Feet of Sales
Median Price/Building SF
ContactBrian HatcherExecutive VP, BrokeragePacific [email protected]
Theater building at 115 SW Ash Street. Finally, the top two floors of the Broadway Tower were spoken for by Markowitz, Herbold, Glade & Mehlhaf, P.C. The lawfirm, currently based out of the PacWest Tower, will move into its new space next summer. Amazon became the Broadway Tower’s future anchor tenant when it leased floors 9-13 late last year.
Portland CBD assets continued to attract investors from around the country in the first quarter, as strong fundamentals coupled with the growth of the technology sector enhanced the market’s appeal to buyers. Seattle-based Unico Properties, which has been active in Portland in recent years, made the largest outlay, spending $54.25 million to acquire the 38 Davis building, completed in 2016 by Gerding Edlen and Ankrom Moisan Architects. The mixed-use project, which also features residential and retail components, went for $437 per s.f. Office tenants at 38 Davis include the aforementioned Ankrom Moisan, along with Airbnb and the University of Oregon. Also in Portland CBD, Westport Capital Partners, out of Connecticut, bought the US National Bank building at 309 SW 6th Avenue from ScanlanKemperBard Companies for $53.925 million or $259 per s.f. The 207,895 s.f. Class B asset was only 60% leased at sale, creating significant value-add potential for the buyer. Westport also inherits a big-name tenant in Google, which occupies 25,416 s.f. on the fourth floor. Finally, locally based Specht
Development joined an unnamed institutional investor in the purchase of One Pacific Square, at 220 NW 2nd Avenue in Old Town. The 238,751 s.f. Class A asset traded for $52.1 million or $218 per s.f. in an all-cash deal. Cap rates on office sales this quarter hovered around 6%, and the average price per s.f. stayed over $250.
Four office construction developments delivered in the first quarter, adding approximately 310,000 s.f. to the market’s inventory, of which about 60% was available for lease. The Field Office West building at 2035 NW Front Avenue in Guilds Lake, which includes about 112,000 s.f. of office space, was about 35% leased to technology firms Adpearance and Ampere. In Southeast Portland, the newly completed Clay Pavilion building at 120 SE Clay Street was fully leased to Simple. Meanwhile, 16 projects totaling 2,951,717 s.f. were still rising at quarter’s end, including the 1.2 million s.f. Nike North expansion in Beaverton. The 9North project at 1250 NW 9th Street in Portland CBD is slated for a third-quarter delivery and has eight floors of creative office space available for lease. Finally, the Broadway Tower is set for completion in the fourth quarter. The 20-story, Class A building had about 53,039 s.f. still available at the end of the first quarter, with asking rents in the low-to-mid $30s NNN.
Data Source: CoStar
