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Portland Industrial Market Report 2Q2011
Portland Industrial Market Report 2Q2011
Portland Industrial Market Report 2Q2011
Portland Industrial Market Report 2Q2011
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Portland Industrial Market Report 2Q2011

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Portland Industrial Market Report 2Q2011

Portland Industrial Market Report 2Q2011

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  • 1. Q2 2011 | INDUSTRIALPORTLANDTHE KNOWLEDGE REPORT Continuing Growth Despite Economic Uncertainty OVERVIEW As the Portland industrial market continues a slow climb out of nearly four million square feet of negative absorption generated during the recent recession, second quarter economic data suggestsMARKET INDICATORS* the potential for a more uneven recovery in the mid-term than previously anticipated. As indicated by the most recent forecast provided by the Oregon Office of Economic Analysis, major risk factors 2010 2011 affecting the recovery of the industrial sector include a slowed easing of credit availability, commodity price inflation, and continued state and federal budget shortfalls. Additionally, while recent national Q2 job growth numbers have exceeded published forecasts, jobless claims continue to remain elevated at over 400,000 per month. These points, combined with a sluggish 1.8 percent revised first quarter Q1 GDP growth rate and a lingering federal deficit crisis, raise obvious questions over the nature and duration of a sustained economic recovery. VACANCY Within the Portland Metro Area, the industrial real estate market is performing modestly well despite NET ABSORPTION lingering concerns over the well being of state and federal economies. Four of the five major submarket sectors recorded positive absorption for the second quarter of 2011, with the sole exception being the CONSTRUCTION — North/Northeast submarkets. Additionally, Metro unemployment dropped to 8.8 percent at the end of the current quarter, down from 9.6 percent at the conclusion of the first quarter of 2011. This statistic RENTAL RATE marries well with modest growth forecasted across Portland manufacturing sectors throughout 2011. As forecasted at the end of the first quarter of 2011, we anticipate that the Portland industrial market*Market Indicators show trend of previous four quarters. will further recover throughout the end of 2011 and moving into 2012. Despite worrisome national economic conditions, local data suggests that growth will continue its slow march forward and pastUPDATE lingering fears of a double dip recession.New Supply, Absorption and Vacancy Rates 1,500,000 10.0% LEASING & ABSORPTION 9.0% 1,000,000 8.0% The second quarter of 2011 reflected several familiar leasing and absorption trends that began 500,000 developing in the third quarter of 2010. Improved economic conditions have positioned the Portland 7.0% industrial market in a prolonged recovery period defined by modest absorption, incrementally 0 6.0% decreasing vacancy rates, and asking rates that are only now beginning to stabilize. As the mid-point 5.0% of the year was reached, four consecutive quarters of positive absorption totalling 821,120-square- (500,000) 4.0% feet of occupied space removed nearly one-fifth of the negative absorption inflicted on the market as(1,000,000) 3.0% a result of the recent recession. While nearly 8.7 percent of the approximately 174-million-square- feet of inventory remains vacant in the Portland market, the lack of speculative development along 2.0%(1,500,000) with consistent leasing activity are continuing to change the landscape of availabilties within select 1.0% submarkets. For example, continued demand for large warehouse and distribution facilities in the(2,000,000) 0.0% North/Northeast submarkets has placed considerable limitations on large institutional tenants seeking Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 this space type. Also, as the manufacturing job market continues to recover into 2012, the availability 2008 2009 2010 2011 Total Net Absorption RBA Delivered Total Vacant % of high-quality manufacturing and distribution space along with generous landlord concessions will begin to diminish.www.colliers.com/portland
  • 2. THE KNOWLEDGE REPORT | Q2 2011 | INDUSTRIAL | PORTLAND LEASING & ABSORPTION (CONT.) prolonged pace, the lack of market-wide speculative development as well as consecutive Several notable lease transactions were signed NORTH quarters of positive absorption will continue to in the second quarter of 2011. BakeMark signed provide the foundation for vacancy rates to drop to a lease at the Rockwood Corporate Center in levels unseen since 2008. NORTHEAST the East Columbia Corridor. Located at 19841 NE San Rafael St. in Gresham, BakeMark will 15.1 million square feet of space is currently vacant NORTHWEST to occupy 46,400-square-feet in this facility. within the Portland market, with the largest Another deal of note was a direct lease signed by vacancies continuing to reside in the Westside, Charter Mechanical in May. Charter will occupy North/Northeast, and Clark County submarkets. approximately 40,000-square-feet of space at While vacancy rates within the Westside and Clark 7924 SW Hunziker in Tigard. County submarkets decreased 20 and 80 basis SOUTHWEST SOUTHEAST points respectively, the North/Northeast With an encouraging 271,965-square-feet of submarket posted a vacancy rate increase of 30 positive absorption recorded during the second basis points. The I-5 South Corridor, which quarter of 2011, the Portland market enjoyedDuring the fourth quarter, 271,965 suffered a 300 percent increase in vacancy during its single largest quarterly absorption since thesquare feet of positive net absorption the financial crisis, began to see signs of life third quarter of 2008, and its fourth consecutivewas recorded market wide. through the first half of the year. Within the second quarter of positive absorption since mid-2010. quarter of 2011, it posted 116,238-square-feet of Additionally, of the major industrial submarket positive absorption, dropping the vacancy rate to sectors, only the North/Northeast submarket 11.5 percent. Addionally, second quarter vacancy cluster (Rivergate, East Columbia Corridor, and rates for bulk/logistics facilities, down from a peak Airport Way) experienced negative absorption of 19.6 percent in the third quarter of 2009, this quarter. The Westside submarkets, burdened decreased 30 basis points to 16.8 percent. with over 2.7 million square feet of negative absorption during the recession, recorded its Despite gradually improving conditions within the fourth consecutive quarter of positive absorption Portland Market, persistent economic uncertainty at 219,564-square-feet, while Clark County, will continue to impede the increased velocity of another perennial under performer of the post- recovery as well as confident predictions of recession period, posted 155,556 square-feet of industrial sector growth beyond the short and positive absorption. mid-term. Improvement in the most important components of growth in this sector - inflation, employment growth, and fuel prices - will be VACANCY necessary to keep tenants actively engaged in real Vacancy during the second quarter of 2011 was estate decisions moving into 2012. 8.7 percent, a decrease of 10 basis points from the first quarter of 2011, and 20 basis points from the second quarter of 2010. As recovery to pre- recession levels continues at an incremental but [continued on Page 4] UPDATE: SIGNIFICANT LEASES & SALES LEASE ACTIVITY PROJECT SUBMARKET TENANT SIZE SF SIGN DATE TRANSACTION TYPE Oregon Business Park III Tigard Bridgeport Distribution 69,737 04/2011 Relocation SYNNEX Corporation 217 Corridor/Beaverton SYNNEX Corporation 52,011 04/2011 Renewal Rockwood Corporate Center East Columbia Corridor BakeMark 46,400 06/2011 New Deal Fry Distribution Center 217 Corridor/Beaverton George Morlan Plumbing Supply 40,000 05/2011 Renewal 7924 SW Hunziker St Tigard Charter Mechanical 39,509 05/2011 New Deal SALES ACTIVITY PROJECT CITY SALES DATE SALES PRICE PRICE/SF TRANSACTION TYPE 2300 SE Beta Street Portland 05/06/2011 $8,025,000 $38.65 Owner/User 9650 SW Herman Road Tualatin 04/27/2011 $3,350,000 $51.86 Owner/User 6235 N Cutter Circle Portland 04/18/2011 $2,725,000 $59.53 Owner/User 1810 W 39th Street Vancouver 06/09/2011 $2,700,000 $38.77 Owner/User 6140 SW Macadam Avenue Portland 06/27/2011 $2,500,000 $111.58 Owner/UserP. 2 | COLLIERS INTERNATIONAL
  • 3. THE KNOWLEDGE REPORT | Q2 2011 | INDUSTRIAL | PORTLANDUPDATE Net Absorption New Supply Existing Properties Direct Vacancy Sublease Vacancy Total Vacancy SF SF U/C Avg. Current Current Rent Market Sector Inventory SF % SF % SF Q2-11 Q2-10 Quarter YTD Quarter YTD SFCENTRALCBD/Lloyd 4,220,040 250,981 5.9% 7,010 0.2% 257,991 6.1% 6.10% (5,160) 67,930 - - - $6.00NE/SE Close-In 9,184,326 293,606 3.2% - 0.0% 293,606 3.2% 1.90% 49,689 64,478 - - - $4.96SW Close-In 663,538 96,000 14.5% - 0.0% 96,000 14.5% 8.90% - - - - - $7.56Total 14,067,904 640,587 4.6% 7,010 0.0% 647,597 4.6% 3.70% 44,529 132,408 - - - $5.47WESTSIDENW/Guilds Lake 13,471,661 1,015,093 7.5% 39,600 0.3% 1,054,693 7.8% 8.70% (61,076) 80,620 - - - $4.34Beaverton/Hillsboro* 18,726,918 2,086,046 11.1% 57,347 0.3% 2,143,393 11.4% 12.80% 164,402 165,216 - - - $5.01I-5 South 23,443,254 2,619,139 11.2% 65,887 0.3% 2,685,026 11.5% 12.10% 116,238 116,602 - - - $5.36Total 55,641,833 5,720,278 10.3% 162,834 0.3% 5,883,112 10.6% 11.50% 219,564 362,438 - - - $5.08NORTH/NORTHEASTRivergate/Hayden and Swan Island 24,501,914 2,290,502 9.3% 0 0.0% 2,290,502 9.3% 8.40% 18,848 47,831 - - 413,700 $4.57Airport Gateway 15,091,555 723,424 4.8% 61,820 0.4% 785,244 5.2% 4.40% (8,637) (62,271) - - - $5.15East Columbia/NE Outlying 21,319,974 2,098,374 9.8% 135,992 0.6% 2,234,366 10.5% 10.40% (191,357) (267,491) - - 60,000 $5.17Total 60,913,443 5,112,300 8.4% 197,812 0.3% 5,310,112 8.7% 7.68.1% (181,146) (281,931) - - 473,700 $4.95SOUTHEASTGresham/Mall 205/Outlying 3,639,252 183,540 5.0% - 0.0% 183,540 5.0% 2.50% (8,500) 28,860 - - - $5.87Clackamas/Milwaukie/Oregon City 20,941,275 1,472,214 7.0% 24,712 0.1% 1,496,926 7.1% 8.50% 41,962 162,195 - - - $4.32Total 24,580,527 1,655,754 6.7% 24,712 0.1% 1,680,466 6.8% 7.6% 33,462 191,055 - - - $4.40CLARK COUNTYWest & Central Vancouver 12,064,867 772,001 6.4% 85,434 0.7% 857,435 7.1% 8.00% 126,844 21,605 - - - $5.37Van. Mall/Cascade Park/Orchards 4,405,634 475,450 10.8% 0 0.0% 475,450 10.8% 10.3% 36,512 (21,276) - - - $6.01Camas/Washougal/Outlying 3,427,659 253,875 7.4% - 0.0% 253,875 7.4% 13.00% (7,800) 13,700 - - - $3.60Total 19,898,160 1,501,326 7.5% 85,434 0.4% 1,586,760 8.0% 9.4% 155,556 14,029 - - - $5.52GRAND TOTAL 175,101,867 14,630,245 8.4% 477,802 0.3% 15,108,047 8.6% 8.6% 271,965 417,999 - - 473,700 $0.42QUARTERLY COMPARISON AND TOTALS2011 2Q 175,101,867 14,630,245 8.4% 477,802 0.3% 15,108,047 8.6% 8.6% 271,965 417,999 - - 473,700 $0.422011 1Q 175,101,867 14,643,991 8.4% 699,562 0.4% 15,343,553 8.8% NA 146,034 146,034 - - 473,700 $0.432010 4Q 175,101,867 14,829,606 8.5% 535,946 0.3% 15,365,552 8.8% NA 205,298 290,365 - 573,655 60,000 $0.432010 3Q 175,101,867 15,097,781 8.6% 563,653 0.3% 15,661,434 8.9% NA 197,823 85,067 415,000 573,655 60,000 $0.442010 2Q 174,965,543 14,623,637 8.4% 699,562 0.4% 15,323,199 8.8% NA (83,498) (112,756) 105,000 158,655 475,000 $0.44 COLLIERS INTERNATIONAL VALUATION & ADVISORY SERVICES Colliers Valuation & Advisory SERVICES Services began as Palmer Groth • Largest commercial Portfolio Valuation and Pietka in 1978 in the Pacific appraisal group in the Single Asset Appraisals Northwest. We changed our name Pacific Northwest Special Assets from FirstService PGP Valuation • Over 50 professionlas Property Tax Appeal to Colliers International Valuation and 12 MAI’s in Oregon Condemnation/Right of Way & Advisory Serives in 2011. & Washington Litigation Support • 21 offices across th e US We provide national coverage Feasibility Studies • Specialty practice groups with local expertise. Our depth Appraisal Review • 460 markets worldwide of knowledge, experience and Valuation Management committment to quality allow our Services clients to make well informed decisions regarding commercial Jeff Grose, MAI, MRICS Regional Managing Director real estate. 503.542.5411 | jeff.grose@colliers.com COLLIERS INTERNATIONAL | P. 3
  • 4. THE KNOWLEDGE REPORT | Q2 2011 | INDUSTRIAL | PORTLANDKNOWLEDGE REPORT | Q2 2010 | OFFICE | PORTLANDRENTS The driving theme of stalled speculativeRates for industrial properties in the second development that has defined the previous four quarters continues to prevail in the second quarter 480 offices inquarter of 2011 were $0.42 per square foot, whichreflects a triple net blended service for shell and of 2011. Tight credit conditions, lingering elevated vacancy rates, and and uncertain economic 61 countries onoffice space. This represents a $0.01 decreasefrom the first quarter of 2011, and $0.02 decrease climate make it likely that speculative development 6 continents will not return in any substative fashion until 2012.from the first quarter of 2010. Though perpetually United States: 135 As vacancy rates continue to slowly decline andhigh vacancies have continued to place downward Canada: 39 asking rents dislodge from three year lows, several Asia: 52pressure on lease rates since the second half of of the over two dozen proposed 100,000-square- ANZ*: 1682008, the quarterly decline in asking rates has foot and greater industrial projects listed in the Latin America: 17slowed significantly due to increased leasing CoStar database may begin to see realization. EMEA**: 95activity within the past two quarters. Additionally, • $1.9 billion in annual revenueas high-quality, newer spaces are leased duringthe short-run, B and C class product may • 1.4 billion square feet under SALES ACTIVITY managementmarginally drive average rates down until themarket begins to self-correct throughout the Sales volume continues to be depressed through • 15,052 professionalsremainder of 2011. the mid-point of 2011. After four quarters of *Australia and New Zealand; ** Europe, Middle East and Africa increasing transaction volume over the course ofDeparting from the market-wide generalizations of 2010, the first two quarters of 2011 have seen PORTLAND:previous quarters regarding the continued sales volumes return to the lowered levelsprevalence of concessions and declining rates, David Kotansky sustained during the height of the recession. Managing Director, Portlandincreased activity in small to mid-sized spaces has During the second quarter, 17 industrial properties 601 SW Second Ave.created a two-sided supply environment within in excess of $500,000 were sold accounting for Suite 1950select areas. In the North/Northeast submarkets, Portland, OR 97204 approximately $38 million in transaction volume.for example, transaction activity for space below TEL +1 503 223 3123 Over 90 percent of these transactions were25,000-square-feet has gained momentum. As a FAX +1 503 227 2447 owner/user sales, with only two being above theresult, rental rates are beginning to increase and $5 million threshold. This level of activity reflectslandlord concessions are less prevalent. However, 1) a carry-over of sluggish activity from the firstthe opposite is true for space greater than quarter of 2011 2) continued reticence among RESEARCH CONTACT:30,000-square-feet, as concessions continue to lenders to provide credit, and 3) trepidation amongfavor tenants and rates remain flat. Sam Weathers investors concerning the immediate and mid-term Research AnalystIf the market continues to recover into the early recovery of the industrial investment market. 601 SW Second Ave.quarters of 2012, the time for tenants looking to Suite 1950 The most notable transaction this quarter was the Portland, OR 97204secure long-term leases, discounted rates, and owner/user sale of the Holman Distribution Center TEL +1 503 223 3123favorable concessions will begin to run short. located at 2300 SE Beta St. in Milwaukie for FAX +1 503 227 2447Many tenants are already begining to experience $8.025 million. Also of note is the sale of 720 Nreduced concessions in the more active, close-in Hayden Meadows Dr. in the Airport Waysubmarkets. This will likely become a more general submarket. This warehouse facility was sold aspractice moving into the next year. This document has been prepared by Colliers part of a 41 property, $87.1 million multi-state International for advertising and general information disposition by the FedEx Corporation. only. Colliers International makes no guarantees, representations or warranties of any kind, expressed orCONSTRUCTION implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability.The only major industrial properties under WHAT DOES ALL OF THIS MEAN? Any interested party should undertake their own inquiries as to the accuracy of the information. Colliersconstruction in the Portland Market are the The conflict between the positive momentum International excludes unequivocally all inferred or413,700-square-foot Subaru of America multi- implied terms, conditions and warranties arising out of created by consecutive quarters of elevated this document and excludes all liability for loss andpurpose facility in the Rivergate submarket, and leasing activity and positive absorption, and damages arising there from. This publication is thethe 60,000-square-foot Boeing Chemical copyrighted property of Colliers International and/or its persistant fears of economic problems that, if licensor(s). ©2011. All rights reserved.Processing facility in the Rivergate submarket. The sustained, will likely undermine progress made inSubaru development will serve as a training the post-recession recovery will be a primary focalfacility, parts distribution center, and regional point as we enter the second half of 2011. If theoffices for the company. This project is slated for balance of economic fundamentals - job growth,delivery in November 2011. The $100 million credit availability, and tempered inflation - remainsBoeing facility broker ground in May of 2010. This steady, we expect the continued recovery of theproject is scheduled for completion in December idustrial market to be sustained over the coming2012. 18 to 24 months. Accelerating success.www.colliers.com/portland

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