Portland Industrial’s Market Experiences Steady Growth
The Portland industrial market continues to be strong despite softening from a few leading indicators. The overall market vacancy rate is 4.3 percent, which is up from 3.4 percent in the third quarter of 2018, while absorption during this period was 832,000 square feet. Historical absorption during the current cycle has averaged 3.8 million square feet. Almost 5 million square feet came on line in 2018, 2 million of which was speculative space that was 85 percent available in July 2019. This impressive amount of growth expanded the existing overall market size by 2.2 percent.
Top tenants have been Amazon’s fulfillment centers, which occupy 918,000 square feet in the Rivergate Industrial Park in North Portland and 857,000 square feet in Troutdale. Both facilities were developed by Trammell Crow. Amazon also signed a lease in Hillsboro in 2016 for 303,000 square feet of space that was developed by Majestic. A United States Postal Service processing and distribution facility moved from a confined, central city location into 818,000 square feet in the Airport Way industrial area in Northeast Portland. Other large users include third party logistics, retailers/wholesalers and local market distributors.
Intel announced an additional 1.5-million-square-foot expansion of its existing 2.2 million square feet to D1X at Ronler Acres in Hillsboro in the beginning of 2019. Intel is already Metro Portland’s largest employer, though the company estimates it will increase its workforce by 12 percent, or 1,750 workers. Columbia Distributors, one of the West Coast’s largest beverage distributors, has consolidated its operations and constructed a 530,000-square-foot facility in Canby, which is south of Portland.
Sales volume year to date has outpaced volume from the previous two years. Market cap rates have been in the 5 percent range for well-positioned properties. The Portland metro area had five assets included in the bulk portfolio sale from Dermody Properties to Colony Capital. CoStar estimates that the local properties were valued at $102 million. Glisan Corporate Park sold in May for $56.5 million to Exeter Property Group. This project was developed by Trammell Crow, with 60 percent of the three buildings still available at the time of sale. This year’s largest sale occurred when Albertsons sold three West Coast distribution centers totaling 948,000 square feet in a sale-leaseback to RREEF Management for an estimated value of $87.6 million, or $93 per square foot.
Specht Development and Ares Management purchased the 992,000-square-foot Supervalu Distribution Center for $48.5 million in a sale-leaseback transaction. This property is located at 6433 SE Lake Road in Milwaukie and will be an excellent core location for just-in-time delivery logistics in the future.
The Portland metro industrial market has seen great growth in rents and overall size during this cycle and should continue to experience good, steady growth during the balance of 2019 and 2020.
— By Greg Nesting, vice president, Norris & Stevens/TCN. This article first appeared in the October 2019 issue of Western Real Estate Business magazine.