The Industrial Market Grows Up
In many ways, Portland’s industrial market has experienced a dramatic shift over the past five years, emerging as a market to be reckoned with. Demand has exceeded supply for the past six years, pushing vacancy to a 25-year low and rents up 18 percent year-over-year. Industrial users have grown in size, and large users have grown in number. Developments are bigger and migrating further from the traditional industrial submarkets. Investors are keen on Portland assets and are willing to pay a premium for quality product with a solid tenant roster.
Portland’s population grew by 8 percent from 2010 to 2015, ranking it among the top 20 of the 50 largest U.S. cities. This growth in metro-area population has propelled strong demand from large e-commerce and distribution companies as they expand into new locations to service our growing consumer base. In 2010, we saw 11 users lease or build spaces of 100,000 square feet or more, and our average size lease was 24,854 square feet. By 2016, our average-sized industrial lease had grown to 39,218 square feet, an increase of 57.8 percent. We also saw 18 users build or lease space greater than 100,000 square feet. Portland’s industrial market users are getting bigger and there are more large users in the market.
Developers are planning larger projects and looking further afield for development sites to accommodate these changing dynamics. More than 2.4 million square feet of industrial space was built in 2016 in the Portland metro. Some of the largest projects completed in 2016 included the 600,000-square-foot distribution center for Subaru at Gresham Vista Business Park, Amazon’s lease of the Majestic Brookwood Business Park and Cummins lease of the PDX Logistics Center, both of which involved more than 300,000 square feet. Industrial development remains elevated with 2.5 million square feet under construction. Another sign that developers remain bullish on Portland’s industrial future is the fact that 70 percent of this construction is speculative. Among the projects underway is Specht Development’s Vista Logistics Park, the largest single-phase speculative development ever in the metro. The project is set to deliver 732,824 square feet in three buildings to the northeast Columbia Corridor at the end of 2017. Several other large projects are in the planning stages and in areas stretching the boundaries of the metro area. A 700,000-square-foot project is proposed for Union Ridge in Ridgefield, Wash., and a large fulfillment center totaling 855,000 square feet is planned for Troutdale.
All this new institutional-grade development is ramping up interest in Portland and investors are willing to pay a premium for quality product with a solid tenant roster. The largest sale of 2016 occurred late in the fourth quarter when the Commerce Parks portfolio sold to Lincoln Property Company for $112.3 million at a cap rate of 6 percent. The portfolio contained five commerce parks totaling 1.4 million square feet and almost 70 acres of land. Portland’s very strong market fundamentals, growing population and higher-profile tenants will continue to put pressure on vacancy rates as increasing rents will continue to attract interest from institutional investors as Portland grows up and out.
— By Patricia Raicht, Senior Vice President, JLL Portland, and Buzz Ellis, Managing Director, JLL Portland. This article first appeared in the April 2017 issue of Western Real Estate Business magazine.