Declining Vacancy with Increased Rents, Supply and Investment Activity Characterize Portland’s Multifamily Market.
It’s clear from almost every metric that the Portland multifamily sector’s performance in 2018 outstripped that of the prior year in virtually every respect: rent growth increased, sales volume was up more than 30 percent and the number of new units added to the market during the year is way, way up.
Here is a quick look at the major performance measures for the past year.
The Portland apartment market added about 5,700 new market-rate units in 2018, a 20 percent increase over 2017 when about 4,800 units delivered. The significant increase in Portland’s multifamily supply in 2018 bucked the national trend which saw an average of a 20 percent decrease in the number of new apartment completions.
In all, developers completed 79 new apartment projects in Portland during 2018. Of these communities, 22 had more than 100 units. Modera Pearl was the largest with 290 units. Southeast Portland attracted the greatest concentration of newly built apartments in 2018, with 1,025 new units added during the year, followed by Downtown Portland with 977 units.
The average asking monthly rent for the new deliveries is $1,714 per unit, 31 percent higher than the Portland area’s average rent of $1,305 per unit. Three new communities, Dianne, The Windward and 21 Astor, set a new rent benchmark for Portland with eye-popping average rents greater than $2,500.
What makes the Portland multifamily market’s performance in 2018 even more compelling is that vacancy actually contracted in 2018, despite the ongoing wave of new supply. Underscoring the tremendous demand from renters, the market set a new record for absorption, with about 6,600 units rented in 2018.
That in turn pushed the vacancy rate down to 5.5 percent in 2018 – a contraction of 0.6 percent from the prior year. New residents helped drive the record absorption in 2018, even as Portland’s net migration fell for the third consecutive year.
At the end of 2018, the typical market-rate Portland apartment rented for $1,305 per unit, a healthy 2.6 percent increase from the prior year.
Rent gains were strongest in the mid-quality 3-Star rated apartments, at 3.2 percent. The higher quality and more expensive 4- and 5-Star luxury apartments also posted strong growth, but at a lower rate of 2 percent. In 2018, only one neighborhood in Portland saw average rents go down: North Portland, which saw rents shrink by 1.3 percent.
In 2018, Portland multifamily investment sales volume reached $2.1 billion, an astounding 31 percent increase from the prior year.
And with the July trade of the 273-unit Indigo @ Twelve West for $206 million at $682,000 per unit, 2018 also set a record as Portland’s most expensive post-recession multifamily sale – and likely the market’s biggest ever. Greystar acquired the community located in downtown Portland’s West End neighborhood, between the pedestrian-friendly Pearl District and the central business district from Gerding Edlen.
Helping to drive up prices was an influx of out-of-state investors who ‘discovered’ the attributes of the Portland apartment market in 2018. None of the 10 investment firms that acquired the most multifamily property in Portland last year were based within Oregon.
Perhaps the biggest news of 2018 occurred on December 13th when the Metro Council voted to expand the Urban Growth Boundary by about 2,200 acres, marking the 36th expansion since the Urban Growth Boundary was established in 1979.
While the biggest near-term impact will likely be on single-family residential development in King City, Beaverton, Hillsboro and Wilsonville, the boundary expansion will ultimately affect all real estate sectors.
Meanwhile, news is trickling out of Oregon’s state capitol regarding high-level discussions on limiting annual rent increases. Locally, the Portland City Council is expected to entertain regulation aimed at nudging tenant rental applications toward a first-come, first-serve model, restricting landlord ability to select tenants with an array of criteria. This proposal may also reduce the maximum amount allowable for tenant security deposits.
However, none of these potential regulations will alter the fact that Portland’s multifamily market has an additional 10,512 market-rate units under construction at the close of 2018, a level of supply that will test the strength of demand for apartments that was demonstrated in 2018.
And, in just the first two weeks of 2019, another 244 units have broken ground.
Article written by:
EMILY ANDERER | CoStar
February 01, 2019