Pamplin Media Group – Q1 ‘lull’ belies strength of Portland’s industrial real estate market | Ezine Daddy

Experts say that high demand and tight supply will continue to drive the growth of the industrial real estate market in 2022.

The exponential rise in e-commerce during the pandemic is one of the factors driving Portland’s industrial real estate market growth into 2022, with steadily falling vacancy rates and availability rates driving rental prices higher, market analysts say.

Kidder Mathews reported that advertised rents rose 5.7% year over year to $0.74 per square foot triple net rent (NNN). Direct vacancy rates decreased to 3.1% in the first quarter of 2022 and total net absorption for the quarter was 648,870 square feet.

“It’s hotter than ever in the Portland market. Every quarter has been better than the last, and this quarter is no exception,” said Peter Stalick, executive vice president and shareholder at Kidder Mathews’ Portland office, adding that rents are rising every quarter and so are building values. “That’s why the big investment firms are so optimistic in the industrial market.”

E-commerce, which Stalick says requires three times the storage space of brick-and-mortar stores, was already on the rise before the pandemic and boomed as people shopped online during the shutdown. This has increased the demand for industrial space.

He found that the low stock of existing buildings means that tenants compete for space. COURTLY PHOTOGRAPHED – Peter Stalick

“People put their buildings on the market six months before the tenant moves out, and when a tenant moves out, it’s usually because they’re moving into something bigger,” Stalick said.

Rental activity in the first quarter of 2022 fell 22.9% year over year to 2.1 million square feet. The most active submarkets were Northeast Portland and the I-5 corridor with 751,828 square feet and 516,009 square feet of leased space, respectively.

Compared to the stellar fourth quarter of 2021 with 5.1 million square feet of sales activity, the industrial market started this quarter on what JLL calls a “dull” with sales volume of 1 million square feet. It attributed 87% of the quarter’s negative absorption rate to 10 sublets that hit the market. The Northeast Columbia Corridor hosted the two largest subleases as PK Kinder Co. and Pomegranate Communications returned both acreage.

JLL stressed that the quiet first quarter reflects neither the buoyant industrial market nor the outlook for the rest of the year. New buildings are being leased prior to completion, with 56% of all vacant square feet in development this quarter being pre-let. Of the 1.3 million square feet scheduled for delivery in the second quarter, 49% is pre-let.

Supply in development has returned to pre-pandemic levels as supply totals nearly 4 million square feet. In addition to the strong demand and new deliveries, according to JLL, there is no end in sight to the rent increases.

Kidder Mathews reported that more than 211,000 square feet of industrial space was delivered in the first quarter of 2022. There is 5.9 million square feet of industrial space under construction, including 1.5 million square feet for Intel’s Hillsboro expansion.

Josh Lehner of the Oregon OfficaZe of Economic Analysis pointed to several announcements of future distribution centers, mostly in the Portland area, and new builds should bring more capacity and future growth online.

Among the new assets, NSI Manufacturing has signed a 10-year lease for a new 62,000 square foot manufacturing facility in Sherwood to expand its capacity to manufacture ampoules, level sensors and integrated systems for the semiconductor and solar industries. NSI, which also offers repair services, plans to move into the new premises in the fourth quarter of this year.COURTESY OF SHERWOOD - NSI is building a 62,000 square foot facility in Sherwood's Tualatin-Sherwood Corporate Park, scheduled for completion in June.  You are in building A shown here.

Kidder Mathew’s Stalick said the market for industrial space is expanding from Portland to Woodburn and Salem to the south and Longview, Washington to the north given the lack of supply in the area. He expects Salem’s inventory of industrial buildings, as well as its workforce and affordable housing inventory, to increase as more people commute to Portland for work.

JLL looked north to Ridgefield, Wash., where a 468,810-square-foot industrial center is under construction. Clark County has seen asking rents increase 32% year over year as it has quickly become attractive to renters. JLL’s report for this quarter states that growth in this submarket can be attributed to several factors, one of which is the lack of a state income tax in Washington.

“Currently, we are also seeing increased deal terms as more deals are closed with annual increases of 3.5% to 4%,” the report states.


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