The ft.² Report » vacancy rate

Despite the glut of condos on the market, Portland’s multifamily vacancy rate is relatively low compared to other markets in the U.S. According to a report issued by commercial real estate tracker CoStar, the national vacancy rate for this type of property was 10.6% at the end of the second quarter. This is a jump from a year ago and the first quarter of 2009 when the rate was 10% and 10.1% respectively. Urban areas increased vacancy by .8% from a year ago while suburban areas remained around 10%.

Rental vacancy is running highest in the South (13.8%) and lowest in the North (7.1%) overall. The West saw the most significant increase from 2Q 08 while the other regions in the U.S. remained mostly flat.

Portland is the anomaly in the West with the lowest multifamily vacancy rate among the major metropolitan statistical areas (MSA) in the U.S. At 2.9%, Portland’s vacancy is 2.1% less than the next lowest city, Louisville, KY. This is a bit unexpected given the large number of projects delivered in the last two years, at the onset of the economic downturn.

Often times, Portland experiences a latent effect and the true impact of negative and positive moves in the economy aren’t fully felt for another six months. Considering the Street of Dreams had a building on the tour go into foreclosure just as the show began, it is reasonable to expect that this vacancy rate will rise. How much though, remains uncertain.

Five Most Vacant MSAs – multifamily

Memphis, TN – 25.8%

Birmingham, AL – 22.7%

Phoenix, AZ – 19.3%

New Orleans, LA – 18.9%

Atlanta, GA – 18.4%

Five Lowest Vacant MSA – multifamily

Alburquerque, NM – 5.6%

Boston, MA – 5.6%

Hartford, CT – 5.6%

Louisville, KY – 5.0%

Portland, OR – 2.9%

Advantage: Tenant

squarefeetpdx — Tue, 31 Mar 2009 18:04:33 +0000

The loss of more than 4 million jobs over the last 15 months has pushed the national office vacancy rate in 2008 to 14.5% , up from 12.6% in 2007 (based on 79 office markets tracked by the Bureau of Labor Statistics). Office rents grew from 9% to 10.6% between 2006 and 2007, but started a moderate decline in the second half of 2008. They are on a much sharper downward trajectory for the first quarter of 2009.

As a result of the change in market conditions, tenants are now pressuring landlords to renegotiate leases or downsize their space. This type of strategy is effective in the most overheated markets (ie. New York, Los Angeles, Las Vegas, Miami, etc) while secondary markets are less exposed and therefore slower to lower rates and/or “right-size” tenants in order to keep them on the rent roll. In the Portland/Vancouver area, think suburbs for the greatest opportunities in savings at this stage of the cycle.

Office tenants are also delaying lease decisions if at all possible. With so much uncertainty in the economy most businesses appear to be in a holding pattern until a clear picture of future revenues is visible. I would hazard to guess that tenants are also counting on a further decline in rental rates. However, at the end of the day, most are renewing their leases, usually for three to five years, with some are taking the one to two year tactic in case things just don’t work out.

data source: Reis and National Real Estate Investor

The Ted Spread – Less is More

squarefeetpdx — Sun, 01 Mar 2009 22:01:41 +0000

Highly regarded financial advisor Judith McGee had a few thoughts to offer on the current credit market and what she sees as, if at least modestly, improving markets this year. Though cautious on her observations, Ms. McGee points out that money market indicators are showing signs of better times ahead. An important signal to track is the Ted spread (the gap between the rate of the three month Treasury bill and the lending rate banks charge each other). She points to the fact that in November 2008, banks were not lending to one another thus causing the Ted to stretch to 450 basis points, a colossal jump in the wrong direction over a short timeframe. It is currently down around 100 basis points, a vast improvement. The average from 2002 to 2006 was 25-30 basis points, so clearly we have some work to do, but it looks attainable at this point.

From a commercial real estate standpoint, this means that, very slowly, commercial investors can hope to see some lending make a re-appearance in lower risk markets first followed by more troubled areas. Portland is lower risk, though considered a second tier investment market, with our neighbor to the north considered a good first tier investment by many. I’m not sure if we have seen the full effects as a result of Wamu’s collapse (whose 700,000 SF downtown office tower will be vacated) and Boeing’s continued layoffs, which could change the outlook for Seattle.

The story references statistics provided by my partner and I through our quarterly report on the market conditions in Portland and Vancouver. If you are interested in receiving our quarterly report, contact me at kristin.hammond(at)pacific-re.com.

Here’s the article from the DJC – http://tinyurl.com/blpefchttp

The Vestas Love Affair Continues…

squarefeetpdx — Wed, 10 Dec 2008 17:54:05 +0000

It appears the Wall Street Journal has taken notice of the Portland-Vestas Wind Systems love affair, announcing the 500,000 SF headquarters decision I blogged about in an earlier post.

Vestas has expanded into an additional 18,000 SF at Harrison Square (1800 SW First Avenue) bringing their total square footage across three buildings between Naito Parkway and First Avenue to around 77,000 SF. While this is some significant square footage, it is hard to believe that they would actually need 500,000 SF (that’s larger than the Fox Tower). There are still some major hurdles to overcome and who knows what this deal will look like when it is finally completed. My guess, something closer to 300,000 SF and a 2010 construction start date. Especially if they want to be in or close to downtown.

As for the rates quoted in this article, they reflect an average including all types of office buildings across the entire market (downtown, eastside, westside). The average asking rate for just downtown buildings, all types, is actually closer to $22.75 with a vacancy rate of 7.7%. As you can see, the downtown (CBD is our preferred acronym) is much tighter than this article would have you believe. This is a good thing. It means more businesses are choosing to locate in our downtown and take advantage of all the improvements made over the last five years.