Strong economic growth on the West Coast from the booming tech industry has benefited Portland’s economy. As a result, considerable employment and population growth, particularly from the Millennial generation, has elevated the industrial market significantly in recent years. According to CBRE, demographic growth and the national shift to online consumption have contributed to a steadily decreasing industrial vacancy rate since 2010, which reached 3.3 percent in early 2019. Demand for industrial space began to pick up speed about five years ago and has since boosted asking rents 45 percent.
Ashley Connor, CBRE
Build-to-suit construction projects were a growing trend in 2018, delivering more than 2.9 million square feet for existing tenants, the largest developments being the Troutdale Reynolds and Rivergate. To date, 2019 construction has been exclusively speculative with half a million square feet delivered thus far and 41 percent preleased. An additional 1.4 million square feet is under construction and expected to deliver by year-end 2020, none of which is pre-committed. At the same time, demand for industrial space of 100,000 square feet or greater accounts for 20 percent of users in the market. The speculative construction projects delivering during the next 18 months should provide some supply options for users of all sizes, but will likely increase vacancy in the eastside submarkets.
Key demand drivers for Portland industrial real estate include manufacturing, high tech and logistics. With an overall footprint above the national average, Portland’s leading industrial sector is manufacturing, which accounted for a third of all deals completed during the past three years. In addition, manufacturing employment is now 5 percent above the pre-recession level, surpassing national statistics, which are still 5 percent below the pre-recession employment level. Other noteworthy industries include ecommerce, food and beverage production, and distribution and third-party logistics, which are primarily focused on warehouse product. Manufacturing employment growth in the Greater Portland market is expected to add 12,600 jobs over the next few years, according to the State of Oregon Employment Department, as new companies continue to enter the market and local companies expand.
Portland’s industrial fundamentals remain favorable, though individual submarkets performed at different speeds. Prime spaces in highly desirable areas are leased very quickly with the bulk of active tenants competing for similar space. Second-generation assets maintain higher vacancies and are on the market for longer. Eastside Portland delivered a significant amount of new space in 2017 and 2018, which has gradually been occupied but still contributes to the market vacancy of 5.5 percent in the Northeast — the highest in the region. Northeast vacancy will likely increase further in 2019 with the new construction in this submarket. Conversely, with little new supply on the horizon, the Westside market has remained very tight with spaces leasing quicker and overall vacancy compressed.
Portland’s West Coast location, favorable cost of living and commitment to industrial businesses has ensured steady future growth. Diversified talent and a focus on the industrial sector have allowed Portland to set itself apart from the rest of the West Coast as a prime market for new and expanding tenants.
— By Ashley Connor, senior research analyst, CBRE. This article first appeared in the July issue of Western Real Estate Business magazine.