Q2 2011 | officePortlandTHE KNOWLEDgE REPORT                                                                       Navigat...
the knowledge report | Q2 2011 | office | portland                                                leasinG & aBsorPtion (co...
the knowledge report | Q2 2011 | office | portland                                                                        ...
the knowledge reportknowledge report | Q2| 2010 2011 | officeportland                        Q2 | office |      | portland...
Upcoming SlideShare
Loading in...5
×

Portland Office Market Report 2Q2011

389

Published on

Portland Office Market Report 2Q2011

Published in: Real Estate, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
389
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Portland Office Market Report 2Q2011"

  1. 1. Q2 2011 | officePortlandTHE KNOWLEDgE REPORT Navigating Uncertain Waters overvieW The optimistic yet cautious proclamations of sustained economic recovery that welcomed U.S.market indicators* commercial real estate markets into the second quarter of 2011 continue to be subdued by continued uncertainty. Recent economic and unemployment data effectively illustrate this point: 1) The price of 2010 2011 oil fell below $100 per barrel by the end of June, though gas prices are 30 percent higher than one year ago. 2) Credit availability, while more abundant now than at any time over the past two years, is Q1 still more limited than prior to the recession 3) Though recent ADP jobs data shows that U.S. private Q2 sector jobs outperformed predictions and rose by 157,000 in June, unemployment claims are still at an elevated 418,000 as the second quarter came to a close. These points, combined with a sluggish vacancy 1.8 percent revised first quarter gDP growth rate and a lingering federal deficit crisis, raise obvious net aBsorPtion questions over the nature and duration of a sustained economic recovery. It is against this national backdrop, however, that the positive momentum of the Portland office construction — — market, though slow and inconsistent, continues to draw a favorable contrast. Absorption has been positive for five consecutive quarters while asking rates are beginning to flatten and a lack rental rate — of speculative construction inches vacancy rates downwards. Compared to the 1.24 million square*Market Indicators show trend of previous four quarters. feet of lost occupancy incurred during the five hardest hit quarters beginning in the first quarter of 2009, the most recent five quarters have welcomed 1.1 million square feet of net occupied space. Along with the .8 percent drop in the Metro unemployment rate to 8.8 percent in June, tighteninguPdate space availabilities in the central submarkets, and consistent leasing activity market wide, the marketnew supply, absorption and vacancy rates appears to have stabilized. As forecasted at the end of the first quarter of 2011, we continue to 800,000 16.0% anticipate that the Portland office market will continue to show improvement throughout the end of 2011 and moving into 2012. 600,000 14.0% 400,000 12.0% leasinG & aBsorPtion 10.0% While smaller lease transactions dominated the market during the second quarter of 2011, several 200,000 8.0% notable deals were signed that further support the five-quarter trend of positive absorption that has 0 continued unabated since the second quarter of 2010. eBay penned a 28,000-square-foot lease at 6.0%(200,000) the Fifth Avenue Building in the Central Business District (CBD). This lease, a by-product of eBay’s 4.0% acquisition of Portland-based software development firm Critical Path, will help absorb nearly half(400,000) 2.0% of the approximately 60,000-square-feet of space vacated by the Portland Energy Conservation, Inc.(600,000) 0.0% when it moved to the First & Main building this spring. Additionally, StairMaster leased 26,349-square- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 feet at the 4400 Building in the Vancouver Mall Submarket with the assistance of the City of Vancouver, State of Washington, and the Columbia River Economic Development Council (CREDC). 2008 2009 2010 2011 RBA Delivered Total Net Absorption Total Vacant %www.colliers.com/portland
  2. 2. the knowledge report | Q2 2011 | office | portland leasinG & aBsorPtion (cont.) space to total available space has been steadily NORTH decreasing. This positive indicator suggests a Market wide, 66,984-square-feet of positive slowing of negative absorption in the near-term net absorption was recorded during the second even as leasing activity remains strong. Despite quarter of 2011. This represents a precipitous NORTHEAST decrease from the positive 498,892-square-feet the turmoil and uncertainty surrounding the mid- year economic forecast, these data points provide reported during the first quarter of 2011, and NORTHWEST an element of confidence that market conditions the positive 154,119-square-feet recorded during will continue to tighten moving into 2012. the second quarter of 2010. This marginally positive net absorption represented mixed vacancy performances from the metro submarkets. Portland’s office vacancy during the second Clark County continues to perform well across SOUTHWEST SOUTHEAST quarter of 2011 was 12.3 percent, a decrease of all property types with 112,203-square-feet 20 basis points from the fourth quarter of 2010, of positive absorption for the quarter. The I-5 and 140 basis points from the second quarter of South submarket, however, perennially punishedAsking rent for Class A properties last year. Continuing the byline of the previous since the financial meltdown in late 2008, hadaveraged $23.83 per square foot. five quarters, the overall vacancy rate continued 121,909-square-feet of negative absorption. its downward march. Stalled speculative office All of the net loss in the I-5 South submarket development and consistent activity from the is attributable to the 140,850-square-feet of private sector will continue lowering the vacancy negative absorption in the class A product group. rate towards single digits throughout the This is the largest single loss in occupancy in I-5 remainder of 2011 and into 2012. South Class A space within the past 10 years. 9.3 million square feet of inventory is currently Additionally, two leasing statistics lend credence vacant within the Portland market. The highest to predictions of continued improvement of the vacancy rates continue to reside within the office market throughout the remainder of 2011. Westside and I-5 South submarkets at 16.4 First, despite the average deal size remaining percent and 20 percent, respectively. However, at its smallest since early 2009, transaction while vacancy rates in the Westside submarkets volume continues to be a robust 917,168-square- have declined a substantive 2 percentage points feet market wide. Probable causes for the in the previous five quarters, the I-5 South smaller deal sizes reported in the first quarter submarkets jumped 1.5 percent since the first office market report remain unchanged: 1) large quarter of 2011. Overall, Class A product vacancy space availabilities are limited within central within the Central City continues to approach submarkets 2) tenants continue to downsize pre-recession lows at 6.8 percent, while to reduce operational costs and 3) smaller Suburban Class A vacancy rates have increased businesses continue to enter the marketplace 70 basis points to 14.9 percent since last quarter. looking to take advantage of favorable lease rates and deals as credit and economic conditions improve. Second, as a supplement to the steadily decreasing vacancy rates of the past five quarters, the ratio of non-vacant/available [continued on Page 4] uPdate: siGniFicant leases & sales lease activity Project suBmarket tenant size sF siGn date transaction tyPe Fifth Avenue Building CBD eBay 28,024 04/04/2011 Move-In The 4400 Building Vancouver Mall Stairmaster 26,349 05/01/2011 Move-In Bank of America Center CBD First American Title 18,843 05/02/2011 Move-In KOIN Center CBD Skanska USA 17,200 05/03/2011 Sublet/Move-In Amberglen Business Ctr Sunset Corridor greater giving 14,520 05/03/2011 Move-In sales activity Project city sales date sales Price Price/sF transaction tyPe Bridgeport Crossing I Tigard 06/17/2011 $2,937,984 $146.90 Investment 88 NW Davis Street Portland 05/27/2011 $1,985,000 $50.90 Investment Hoyt Street Building Portland 06/09/2011 $1,800,000 $91.73 Investment Porter glisan Portland 04/28/2011 $1,600,000 $80.00 Investment 37 SW Woods St Portland 04/14/2011 $1,069,700 $127.35 InvestmentP. 2 | colliers international
  3. 3. the knowledge report | Q2 2011 | office | portland u/c & net absorption new supply avg. existing Properties direct vacancy sublease vacancy total vacancy Proposed sF sF rent sF current current u/c. annual market sector Bldgs inventory sF % sF % sF Q2-11 Q2-10 ytd ytd Quarter Quarter sF ratecBda 41 11,686,002 728,224 6.2% 95,035 0.8% 823,259 7.0% 12.2% 18,183 150,557 - - 62,200 $24.89B 123 9,101,265 933,246 10.3% 35,356 0.4% 968,602 10.6% 10.4% (40,437) (102,846) - - 133,260 $19.70c 128 3,942,795 492,741 12.5% 9,481 0.2% 502,222 12.7% 12.3% 164 (367) - - - $17.62total 292 24,730,062 2,154,211 8.7% 139,872 0.6% 2,294,083 9.3% 11.6% (22,090) 47,344 - - 195,460 $21.42cBd Perimetera 10 2,647,088 134,325 5.1% 20,978 0.8% 155,303 5.9% 3.8% 8,802 (9,129) - - - $22.35B 83 4,067,009 453,780 11.2% 4,317 0.1% 458,097 11.3% 13.2% (17,787) 10,030 - - - $18.74c 94 2,570,554 186,422 7.3% - - 186,422 7.3% 7.4% (2,399) (20,283) - - - $13.86total 187 9,284,651 774,527 8.3% 25,295 0.3% 799,822 8.6% 8.9% (11,384) (19,382) - - - $18.68Westsidea 36 3,222,160 645,875 20.0% 5,094 0.2% 650,969 20.2% 23.4% 53,895 54,396 - - - $21.93B 211 8,671,543 1,409,051 16.2% 134,216 1.5% 1,543,267 17.8% 20.0% 26,187 81,589 - - - $16.78c 83 1,871,808 195,279 10.4% 13,663 0.7% 208,942 11.2% 16.7% (1,066) 129,978 - - - $12.98total 330 13,765,511 2,250,205 16.3% 152,973 1.1% 2,403,178 17.5% 20.5% 79,016 275,963 - - - $17.67i-5 southa 34 3,199,731 881,953 27.6% 9,464 0.3% 891,417 27.9% 27.7% (140,850) 53,357 - - 26,000 $24.84B 136 4,241,682 667,721 15.7% 16,974 0.4% 684,695 16.1% 13.5% 13,272 (36,515) - - - $18.69c 47 859,186 84,478 9.8% - - 84,478 9.8% 10.0% 5,669 8,502 - - - $14.52total 217 8,300,599 1,634,152 19.7% 26,438 0.3% 1,660,590 20.0% 18.6% (121,909) 25,344 - - 26000 $21.72eastsidea 13 951,683 267,808 28.1% - - 267,808 28.1% 23.5% (3,516) (6,581) - - 135,000 $23.63B 162 6,409,650 490,556 7.7% 15,202 0.2% 505,758 7.9% 7.6% 33,312 (17,960) - - 50,000 $17.25c 166 3,704,742 212,885 5.7% - 0.0% 212,885 5.7% 5.4% 1,352 11,673 - - - $13.38total 341 11,066,075 971,249 8.8% 15,202 0.1% 986,451 8.9% 8.2% 31,148 (12,868) - - 185,000 $18.13clark countya 29 2,658,672 291,399 11.0% 14,630 0.6% 306,029 11.5% 14.2% 2,861 (813) - - 293,920 $22.52B 149 4,420,926 683,516 15.5% 26,645 0.6% 710,161 16.1% 20.0% 104,701 226,732 - 62,900 - $18.28c 59 1,655,452 136,581 8.3% 2,319 0.1% 138,900 8.4% 9.1% 4,641 23,558 - - - $17.34total 237 8,735,050 1,111,496 12.7% 43,594 0.5% 1,155,090 13.2% 16.1% 112,203 249,477 - 62,900 293,920 $19.35Grand total 1,604 75,881,948 8,895,840 11.7% 403,374 0.5% 9,299,214 12.3% 13.7% 66,984 565,878 - 62,900 700,380 $19.70Quarterly comParison and totalsQ2 2011 1,604 75,811,948 8,895,840 11.7% 403,374 0.5% 9,299,214 12.3% 13.7% 66,984 565,876 0 62,900 700,380 $19.70Q1 2011 1,604 75,811,948 8,905,748 11.7% 460,450 0.6% 9,366,198 12.4% na 498,892 498,892 62,900 62,900 517,120 $19.73Q4 2010 1,602 75,749,048 9,288,909 12.3% 513,281 0.7% 9,802,190 12.9% na 364,657 572,815 0 616,935 286,100 $19.81Q3 2010 1,602 75,749,048 9,624,804 12.7% 542,043 0.7% 10,166,847 13.4% na 184,946 208,158 0 616,935 151,100 $19.74Q2 2010 1,602 75,749,048 9,793,207 12.9% 558,586 0.7% 10,351,793 13.7% na 154,119 23,212 602,935 616,935 151,100 $19.83collierS international ValUation & adViSorY SerViceS colliers valuation & advisory services services began as palmer Groth and pietka in portfolio Valuation • largest commercial 1978 in the pacific northwest. We Single asset appraisals appraisal group in the changed our name from firstService Special assets pacific northwest pGp Valuation to colliers international property tax appeal • over 50 professionlas Valuation & advisory Serives in 2011. condemnation/right of Way and 12 Mai’s in oregon litigation Support & Washington We provide national coverage with local • 21 offices across th e US expertise. our depth of knowledge, feasibility Studies appraisal review • Specialty practice groups experience and committment to quality • 460 markets worldwide allow our clients to make well informed Valuation Management decisions regarding commercial real Services jeff Grose, mai, mrics Regional Managing Director estate. 503.542.5411 | jeff.grose@colliers.com colliers international | P. 3
  4. 4. the knowledge reportknowledge report | Q2| 2010 2011 | officeportland Q2 | office | | portlandrental rates company will fully occupy. Also under construction is the 135,000-square-foot FBI Building in theThe average asking rate for all building classes inthe Portland market was $19.70 per square foot. Airport Way submarket which is currently slated for a March 2012 delivery. 480 offices inThis represents a marginal decrease since thefirst quarter of 2011 and a slowing of the decline in While the lack of speculative development 61 countries on continues to benefit the office market recovery,asking rates from their peak of $20.37 per squarefoot in the third quarter of 2009. Asking rates for stalled proposals in submarkets with increasingly 6 continentsClass A properties averaged $23.83 per square limited large blocks of space may see renewed plausibility in the coming quarters. As lease rates United States: 135foot, a $0.14 increase from one year ago and a Canada: 39$0.17 increase from the end of 2010. Rates for increase, credit relaxes, and uncertainty Asia: 52Class B and C properties are $18.12 and 15.39 per surrounding driving economic forces takes a ANZ*: 168square foot respectively. Class B properties have positive turn, proposed projects such as Latin America: 17experienced a steady seven-quarter decline from downtown’s 359,923-square-foot Park Avenue EMEA**: 95and $19.24 during the third quarter of 2009. Class West building and the Pearl District’s • $1.9 billion in annual revenueC rates, however, have remained stable since the 238,038-square foot LEED pre-certified Onebeginning of 2011. Waterfront Place may see realization. • 1.4 billion square feet under managementSeveral notable asking rate characteristics standout within the individual submarket groups. First, • 15,052 professionalsamong the Central City and Suburban submarkets, sales activity *Australia and New Zealand; ** Europe, Middle East and Africasecond quarter asking rates have taken divergent Sales activity during the second quarter of 2011paths across building classes. While Central City was highlighted by a lack of notable investment Portland:Class A rates have declined in relation to Class B sales. Thirteen transactions over $500,000 wereand C properties, the opposite is true for the David Kotansky recorded during the second quarter, accounting Managing Director, PortlandSuburban submarkets. This variation in the rent for a total of $18.1 million in transaction volume. 601 SW Second Ave.premium for Class A properties across the two Unlike the previous quarter in which the only sale Suite 1950competing submarket groups is one of several over $10 million accounted for 79 percent of the Portland, OR 97204likely facilitators of the positive absorption (or total quarterly transaction volume, the second tel +1 503 223 3123‘flight to quality’) for Class A properties in the quarter of 2011 had no investment or owner/user FaX +1 503 227 2447Central City submarkets and negative absorption deals transacted over three million dollars. At 12in the Suburban markets. percent of the average rolling five-year sale priceAdditionally, despite substantial variation across of $6.2 million, the second quarter average saleindividual submarket groups, asking rates appear price of $754,000 reflects 1) a carry-over of the research contact:to be approaching a period of stabilization. sluggish sales activity from the first quarter of Sam WeathersForecasts of market wide rate increases will likely 2011, 2) continued reticence among lenders to Research Analystnot be realized until 2012 as economic conditions provide credit, and 3) trepidation among investors 601 SW Second Ave.improve and excess supply continues to be concerning the immediate recovery of the office Suite 1950absorbed. According to Property and Portfolio investment market. Portland, OR 97204Research (PPR), a commercial real estate data Despite this fact, several notable transactions tel +1 503 223 3123analysis provider, the forecasted rental rate occured within the second quarter of 2011. The FaX +1 503 227 2447growth from 2012 to the first quarter of 2015 will 39,000-square foot office building located at 88be approximately 23 percent. Rates will remain NW Davis St. in Old Town-Chinatown was sold forunchanged in the meantime, with tenant- $1.99 million by the Portland Developmentimprovement allowances, concessions, and Commission as a future redevelopment. The This document has been prepared by Colliersmodified rental rates continuing to prevail in areas Oregon College of Oriental Medicine will occupy International for advertising and general information only. Colliers International makes no guarantees,with high vacancy. Stronger performing this space when completed. Additionally, representations or warranties of any kind, expressed orsubmarkets such as the CBD will see tenant Bridgeport Crossing I, located at 7420 SW implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability.allowances stabilize as supply constricts enough Bridgeport Rd. in Tigard, sold for $2.9 million Any interested party should undertake their ownto favor landlords in the coming year. dollars in late June. inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or What does all oF this mean implied terms, conditions and warranties arising out of this document and excludes all liability for loss andconstruction The second quarter of 2011 poses a question that damages arising there from. This publication is the copyrighted property of Colliers International and/or its embodies the underlying theme of this year’s mid-As mid-year approaches, one of the common licensor(s). ©2011. All rights reserved.themes carried from the first quarter of 2011 is the term market report: How will continuallypervasive lack of major speculative development worrisome economic data and the possibility of athroughout the Portland market. While construction stalled recovery affect the real estate decisions ofhas continued on the 62,000-square-foot Overton investors, tenants, and landlords through theBuilding and the 172,000-square-foot Meier & remainder of 2011 and into 2012? If the balance ofFrank Depot Building in the Pearl District, only a positive economic fundamentals - job growth,handful of other projects, the largest of which are credit availability, and tempered inflation - remainowner/user facilities, are currently underconstruction. Fisher Investments is building a steady, we expect the continued recovery of the Accelerating success. office market to be sustained over the coming 18293,920-square-foot facility in Camas which the to 24 months.www.colliers.com/portland

×