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Cashing in on Portland's real estate boom

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0614NB1BY DAN COOK

With Portland’s commercial real estate market mounting a strong comeback from the recession, major investors are competing for positions in the key sectors: multifamily housing, office, retail and industrial properties. Lenders are quickly emerging from the gloom of the recession as developers, eager to return to the market, scramble to lock in loans at attractively low interest rates.

The signs of robust recovery in Portland are everywhere. 

Multifamily housing rents soared as vacancies fell, dipping below 2.5% at the end of this year’s first quarter. In recent years, the strength of the multifamily submarket has been singular, but now lower vacancy trends have extended to all property types. Investors are eager to take advantage of the turning market — if they can get a piece of it.

Portland office vacancies fell from more than 17% in 1Q13 to 14.6% in 1Q14 as demand for office space heated up. Flex-space vacancies dropped 3%, to 11.35%, and industrial dropped below 9% after hovering over 10% a year ago. And industrial’s total absorption of more than 650,000 square feet in 1Q14 boasted the best climate for industrial development since 2007. 

Retail has been rebounding too. As 2013 got under way, just 15,000 square feet of retail space was under construction in the entire region — and all of that was in Vancouver. A year later, that number stands at 340,205, with nearly half of it in the booming Southwest corridor.

“What I like to say is, it’s fun again,” says Ken Griggs, president of Norris, Beggs & Simpson Financial Services. “All the lenders are back in the market and hungry to make mortgages. Interest rates are low by historical standards, and short-term rates have significant pull.”

Griggs says those looking to snap up properties here aren’t focused on just one or two sectors. “The demand we’re seeing here in Portland is across all property types. Portland is on a lot of investor radar screens right now, because we’re stable compared to other markets. Occupancy levels are high and rents are rising, which indicate a healthy economy.”

Norris, Beggs & Simpson, one of the West Coast’s premier commercial real estate players since 1932, is in a unique position to evaluate Portland area market trends. Beyond spikes in brokerage activity, its lending division, Norris, Beggs & Simpson Financial Services, has witnessed the market shift’s effect on investors.  

As attractive investment opportunities dwindle in such major West Coast markets as San Francisco, Los Angeles and Seattle, investors look to Portland as the next option. Proof of Portland’s newfound attention is underscored by the floodgates of different investment types slowly opening. Though still cautious, investors are entertaining options other than the safety net of multifamily properties, and that trend shows up increased activity in the more risk-involved brokerage investment services at NAI Norris, Beggs & Simpson.  The correlation suggests that the local economy is a significant draw from all over. 

Chris Johnson, president of NAI Norris, Beggs & Simpson, has witnessed a massive influx of investment money into the local commercial real estate market since mid-2013 — a combination of those who don’t have a Portland presence as well as groups returning to the market after years of being dormant. 

 “What’s driving this?” Johnson muses. “Everyone has a lot of capital and they’ve got to deploy it. The run-up in the stock market last year meant all these investment groups that wanted to maintain a certain percentage of their assets in real estate had to increase their holdings.”

J. Blake Hering, Jr., principal, director of Portland production, Norris, Beggs & Simpson Financial Services, says Portland is nowhere near the saturation point for development or investment in commercial real estate.

Hering explained that Portland offers investors and developers an advantage that doesn’t exist in most other West Coast markets: its urban growth boundary, the perimeter around the metropolitan area inside of which development is greatly restricted. The UGB not only curbs expansion but deters the problem of sprawl, which can undermine the value of commercial real estate. It’s the saving grace of a recession, and the cherry on top of a boom.

“The urban growth boundary serves as a supply constraint,” says Hering. “It safeguards against oversaturating the market with too much product. It focuses investment on existing space.”

The UGB supports Portland’s conscious efforts of expansion through transportation because it reinforces the city’s value of culture and high quality of life. This proves to be a source of confidence as well as an attractive advantage for future investors.

With the market still climbing, Griggs, Johnson, and Hering all agree that the peak has yet to be reached. “Portland is primed and ready as a strong contender for investment opportunity,” Johnson affirms. “The city is poised to gain momentum in 2014.”

 0614NB2
Two major Portland commercial real estate players in collaborative discussion:
Todd Gooding, president and principal of ScanlanKemperBard, left,
and Chris Johnson, president of NAI Norris, Beggs & Simpson, right
 
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