FALL 2018
THE
VOL. 29
Apartment Report
MARKET PROGRESSES Craig McConachie, C&R Real Estate Services, Co. Apartment Report Committee
the market. The number of for sale transactions
Overall average rents per unit type:
in the Portland MSA has remained flat
UNIT TYPE
FALL 18
for over a year and CAP rates have remained
$1120 $1230 $1187 $1463 $1344 $1269 $1584
declined slightly in the past six months and
Portland/Vancouver
rent rates have rebounded. Our survey
VACANCY:
Studio 1 bdrm/1 bth 2 bdrm/1 bth 2 bdrm/2 bth 2 bdrm th 3 bdrm/1 bth 3 bdrm/2 bth
indicates that there is still plenty of life left
The Portland/Vancouver vacancy factor
(continued on page 2)
in this cycle and the overall market is trending
decreased by 45 basis points from our
in a positive direction. While permit activity
Spring report, and currently stands at
in the Portland area has slowed since
4.4%. Troutdale/Fairview has the lowest
inclusionary zoning (IZ) regulations went
vacancy factor of 2.87%, and nine other
into effect last year, the Portland area continues
surveyed areas are all below 4%. The softest
to experience one of the strongest building
areas are close in West side. Northwest
cycles in its history. In 2018, permitted
and Downtown are both above 6%, with
apartment projects will actually decline for
SW Portland close behind at 5.7%.
steady at 5.3%. The median price per unit in Despite earlier concerns predicting increased
3Q18 was $169,500 and the median price per
vacancies and flattening rents, the overall
square foot was $189.
vacancy factor in most of the surveyed areas
$1115 $1182 $1152 $1400 $1341 $1169 $1507
1 2 3
4
OREGON
SURVEYED AREAS 1. Portland & Vancouver 2. Salem & Vicinity 3. Eugene & Springfield 4. Bend & Redmond
the first time since 2009. The rush to permit,
Two-bedroom, one bath units have the
prior to IZ, caused an artificial spike in
best occupancy of all unit types, with
activity in 2017. Of the 12,000 units currently
average vacancy of 3.6%. Studio units have
Vacancy Declines
under construction, most are pre-IZ
the highest vacancy of 5.5%. It’s important
Rents Increasing
developments. As the year comes to a close,
to note that this survey excludes new projects
Permitting Slows
it looks like the Portland MSA area will see
in the lease-up phase that haven’t reached
approximately 7,300 permitted units in 2018.
stability.
A decrease from 2017 of approximately
SPR 18
SURVEY SAYS!
Values Flat
RENT RATES:
TABLE OF CONTENTS
3,000 units.
Rent rates have resumed their upward trend.
In-migration remains robust, and job gains
Overall rent increases averaged 4% since our
PORTLAND METRO MAP . . . . . . . . . . . . . . . . . . 2
are keeping up with our expanding population.
spring survey. Only three of the twenty
SEC 42 SURVEY RESULTS . . . . . . . . . . . . . . . . . . . 2
Economic growth in the Portland area is
surveyed areas experienced declining rents.
AVERAGE RENT PER SQUARE FOOT
slowing, but is expected to continue at a more
Both Inner and Outer SE Portland saw
AVERAGE MARKET VACANCY RATE
sustainable level. The current Oregon
strong rent growth over 6%, while most other
AVERAGE NO. OF DAY VACANT . . . . . . . . . . . . 3
unemployment rate of 3.8% leaves only 7,000
areas increased approximately 3%.
SURVEY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . 4–5
Oregonians
term
Average rent per sq. ft. for all areas combined
TREND REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
unemployed. A significant improvement since
is $1.62. The Downtown core area has the
ECONOMIC UPDATE . . . . . . . . . . . . . . . . . . . . . . . 7
2010, when over 100,000 were unemployed
highest rates at $2.47, with NW Portland
INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
following the recession.
coming in second at $2.11, and SW Portland
CONSTRUCTION UPDATE . . . . . . . . . . . . . . 8-10
Capital remains available for investment, but
third with $1.93. Outer NE Portland and
THE SALEM MARKET . . . . . . . . . . . . . . . . . . . . . 11
buyers are remaining cautious, as they wait to
Troutdale/Fairview continue to have the
TENANT PAID UTILITIES . . . . . . . . . . . . . . . . . 12
see how our political headwinds may impact
lowest rates, at $1.28 and $1.32 respectively.
identified
as
long
1
portland metro area multnomah county
washington county
5
DOWNTOWN PORTLAND
3
ALOHA
1
NW PORTLAND
4
BEAVERTON
13
INNER & CENTRAL SE (PTLD)
2
HILLSBORO | NORTH OF HWY 26
17
INNER & CENTRAL NE (PTLD)
7
TIGARD | TUALATIN | SHERWOOD
18
NORTH PORTLAND | ST. JOHNS
clark county
6
SW PORTLAND
14
OUTER SE (PORTLAND)
19
WEST VANCOUVER
16
OUTER NE (PORTLAND)
20
EAST VANCOUVER
15
TROUTDALE | FAIRVIEW WOOD VILLAGE | GRESHAM
clackamas county 12
CLACKAMAS
8
LAKE OSWEGO | WEST LINN
11
MILWAUKIE
10
OREGON CITY | GLADSTONE
9
WILSONVILLE | CANBY
(continued from page 1)
absorbed quickly. Greg also surmises that many renters who are being
MARKET CONDITIONS:
priced out of the Portland market, have chosen to suffer the I-5
Over 8% of all properties are offering rental incentives, with most of
commute to help with affordability.
the concessions being offered in Class A projects in lease-up phase.
Josh Lehner, State Economist from the Oregon Office of Economic
Incentives are most aggressive in Downtown and close-in SW and
Analysis, asserts that Portland’s economy “Still has room to grow.”
NW Portland, not surprisingly the three areas with the highest
Household incomes continue to rise and poverty rates are at
vacancy. The median number of days that a unit will stay vacant for
their lowest point in 15 years. A sizable decline in single family
the entire Metro area is 32. Oregon City, Wilsonville, Aloha and
homes in the rental pool in recent years (over 10,000), has helped
Clackamas are all experiencing over two months average vacant days
absorption rates of new apartment product. Cautionary signals for the
between tenants. The North Portland/St. Johns area has the quickest
medium- term outlook include rising interest rates and the growing
turnover time of 13 days.
effects of a weak fiscal policy in Washington.
Other Areas
This survey represents a total of 73,385 units from 985 properties.
Vacancy rates in Bend/Redmond have declined to below 3% and rents
All of the articles have been reprinted without editing the content, in
have increased significantly, as that area continues to experience a
order to present unbiased opinions. We’d like to thank all of the
healthy landlords’ market, with no reported rent concessions. However,
management companies and property owners who have submitted
the turnover time in Bend/Redmond has increased slightly to 36 days.
information. Their participation is critical in insuring the accuracy
Eugene/Springfield has seen vacancies decline to an impressive 3.2%
of our data and the continued success of this report.
and rents are once again trending higher to $1.31 psf, a 6% increase. The Salem market has slowed with vacancy now over 4% and no increase in rent. With rent rates averaging $1.21 psf, Salem continues
SECTION 42 SURVEY RESULTS TTL # OF PROPERTIES = 94
to have the lowest rents per square foot of all our surveyed areas.
FALL 2018
TTL # OF UNITS = 7,757
VACANCY RATE (%)
AVG. RENT PER SQ FT ($)
STUDIO
2.11
2.17
1 BED / 1 BATH
2.04
1.27
Portland will experience its first decline in construction volume since
2 BED / 1 BATH
1.87
1.08
2008 and that “average annual construction cost increase has exceeded
2 BED / 2 BATH
4.26
0.96
12 percent per year since 2014”. He sees some “plateauing of values”
2 BED / TH
0.91
1.06
3 BED / 1 BATH
2.17
0.98
3 BED / 2 BATH
2.38
0.88
TOTALS
2.17
1.31
Our Contributors
UNIT TYPES
Patrick Barry, from Barry and Associates, has submitted an excellent article examining apartment supply and demand. He notes that
but believes that any declines will be short term. Greg Knakal, from Princeton Property Management provides an update on the Salem apartment market. With vacancy rates near 4% and rents on the increase, he predicts that new projects will be
2
60
50
40
NW Portland
1
80
70
53
2 63
3
38
46
34
4
64
42
36
30
5
28
31
20
6
30
7
42
30
33
8
50
36
9 70
30
10 11
110
100
11 12
62
32
25
17
18
12
3
13
27
Tigard | Tualatin | Sherwood
3.0
13 14
91
81
14
31
16
22
15 15
30
17
16
21
3.9
16 17
20
17
28
18
3.6 3.7
18
21
19
4.3
19
28
24
4.1
56
45
22
31
2.9 3.2
33
Bend | Redmond
Eugene | Springfield
Salem
East Vancouver
West Vancouver
4.9
N Portland | St. Johns
Inner & Central NE (Ptld)
Outer NE (Ptld)
Troutdale | Fairview Wood Village | Gresham
Outer SE (Ptld)
Inner & Central SE (Ptld)
Clackamas
Milwaukie
Or City | Gladstone
Wilsonville | Canby
4.8
Wilsonville | Canby
Lake Oswego | West Linn
Clackamas
Outer SE (Ptld)
Milwaukie
Inner & Central SE (Ptld)
Inner & Central NE (Ptld)
Oregon City | Gladstone
N Portland | St. Johns
East Vancouver
West Vancouver
Outer NE (Ptld)
Bend | Redmond
Eugene | Springfield
Salem
SW Portland
Downtown Portland
Tigard | Tualatin | Sherwood
Beaverton
Aloha
Troutdale | Fairview Wood Village | Gresham
1.34 1.33
Bend | Redmond
10
4.1
1.28
Eugene | Springfield
9
1.32
1.67
Salem
8
1.87
East Vancouver
3.0% 1.87
West Vancouver
7
3.7 4.6
1.41
N Portland | St. Johns
6
3.8
4.3
1.43
Inner & Central NE (Portland)
Downtown Portland
1.33
Outer NE (Ptld)
3.5 Lake Oswego | West Linn
4.2
1.43
Troutdale | Fairview | Wood Village | Gresham
5
5.7
Inner & Central SE (Portland)
120
Clackamas
4
SW Portland
6.1 1.43
Milwaukie
3
1.49
Outer SE (Ptld)
90 2
Beaverton
10.0% 1.56
Oregon City | Gladstone
1
1.43
Wilsonville | Canby
3.6 4.0 1.93
Lake Oswego | West Linn
4.0% 1.48
Tigard | Tualatin | Sherwood
0.0% Hillsboro | N of Hwy 26
Northwest Portland
2.11
SW Portland
5.0% Aloha
1.46
Downtown Portland
6.3 Hillsboro | N of Hwy 26
6.0%
Beaverton
7.0%
Aloha
8.0%
NW Portland
9.0%
Hillsboro | N of Hwy 26
$2.50 $2.40 $2.30 $2.20 $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10
average rent per square foot $ 2.47
1.60
1.21
1.31
average market vacancy rate %
3.0
2.0%
1.0%
20
other areas
average number of days vacant — portland/vancouver SPRING 18 FALL 18
29
36
13
19
10
0
20
other areas
survey results—fall 2018 portland/vancouver metro area AREA NAME
DOWNTOWN PORTLAND
# OF PROP
32
(5)
SPR 18 CHANGE STUDIO REPORT
1 BED 1 BATH
2 BED 1 BATH
2 BED 2 BATH
2 BED TWNHS
4.19
6.42
7.79
12.71
5.26
0
0
2.7
2.31
2.11
2.48
1.92
1.74
2.65
1138
1529
1702
2665
2371
1655
2996
835
966
77
181
19
1
6
-0.02 0.02
7.72 2.61 1235 1230
5.53 2.24 1538 3182
4.5 1.56 1368 689
8.66 1.88 1914 1582
2.45 1.29 1418 163
6.25 1.38 1314 32
0.59 1.47 1817 170
-0.19 0.11
5.15 2.63 1126 602
4.14 1.88 1215 1717
3.21 1.44 1266 841
5.07 1.78 1985 217
2.88 1.43 1379 208
0 1.22 1386 37
7.69 2.3 2367 26
0.11 -0.05
7.78 2.45 1151 591
3.65 1.94 1198 1562
3.86 1.42 1166 726
15 1.93 2008 140
2.84 1.5 1482 141
5.56 1.09 1228 54
1.37 1.5 1808 73
DATA
ALL
AVG MARKET VACANCY RATE %
6.09
6.55
-0.07
AVG RENT PER SQ FOOT $
2.47
2.41
0.02
2085
1818
6.33 2.11
6.44 2.07
7048
5453
4.06 1.87
5.02 1.69
3648
3525
AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED NW PORTLAND (1)
INNER & CENTRAL SE PORTLAND (13)
63
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
129
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
3 BED 1 BATH
3 BED 2 BATH
INNER & CENTRAL NE PORTLAND (17)
99
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
4.87 1.87
4.39 1.96
3287
2735
N PORTLAND | ST JOHNS
17
AVG MARKET VACANCY RATE %
3.64
3.89
-0.06
1.69
4.09
3.23
12.5
0
6.67
-
AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
1.67
1.75
-0.05
686
715
2.42 1169 118
1.64 1105 269
1.33 1082 186
2.34 2190 40
1.04 870 58
1.16 1101 15
0
AVG MARKET VACANCY RATE %
5.74
6.1
-0.06
4.14
6.6
3.96
6.86
7.84
0
3.03
AVG RENT PER SQ FOOT $
1.93
1.9
0.02
2.52
2.03
1.47
1.97
1.22
1.09
1.45
1213
1410
1264
2215
1285
1174
1727
290
1531
455
408
51
42
132
0.05 0.06
7.01 2.11 878 157
4.67 1.54 965 557
4.77 1.31 1072 545
4.67 1.28 1271 664
5 1.19 1106 160
0 1.13 1051 20
2.94 1.3 1491 102 3.7
(18)
SW PORTLAND
42
(6)
AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED OUTER SE PORTLAND (14)
OUTER NE PORTLAND
35
29
(16)
CLACKAMAS
2541
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
4.76 1.41
4.54 1.33
2205
2619
AVG MARKET VACANCY RATE %
3.91
3.39
0.15
4.55
2.14
5.39
4.03
3.23
0
AVG RENT PER SQ FOOT $
1.28
1.24
0.03
1.57
1.41
1.23
1.18
1.14
1.05
1.3
749 22
995 560
1086 723
1157 248
1197 62
1225 14
1366 108
2.13 2.1 901 94
3.35 1.6 1048 448
2.48 1.21 1122 686
2.67 1.23 1205 1048
4.37 1.35 1392 229
16.67 0.81 943 12
2 1.23 1561 200 4.91
AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED TROUTDALE | FAIRVIEW WOOD VILLAGE | GRESHAM (15)
2909
1737
1768
35
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
2.87 1.32
3.81 1.31
2717
3123
8
AVG MARKET VACANCY RATE %
4.64
6.08
-0.24
0
6.13
3.68
4.07
9.38
-
AVG RENT PER SQ FOOT $
1.43
1.41
0.01
2.01
1.59
1.36
1.34
1.3
-
1.35
923
1068
1192
1296
1245
-
1503
44
408
326
492
32
0
163
-0.18 -0.06
2.63 2.6 1059 38
3.33 1.66 1291 601
4.55 1.47 1305 198
3.18 1.46 1654 597
5.41 1.38 1578 148
0
6.12 1.63 2063 98
-0.26 0
0.79 1.16 486 127
2.93 1.55 1028 648
3.84 1.43 1188 703
1.57 1.43 1347 191
2.68 1.13 1133 112
0 1.16 1261 9
4.35 1.37 1533 92
-0.14 0.02
5 2.36 1150 20
5.24 1.51 1045 210
1.46 1.21 1068 343
4.85 1.32 1321 268
5 1.27 1050 20
16.67 1.24 1202 12
7.86 1.28 1665 140
-0.25 0.01
0 1.23 1110 1
5.27 1.65 1180 512
2.51 1.41 1208 958
4.13 1.37 1369 606
3.73 1.18 1445 134
0 1.49 1400 2
3.68 1.35 1521 299
-0.15 0.03
5 2.33 1063 20
3.77 1.7 1151 2121
4.22 1.4 1228 1398
4.05 1.38 1361 2694
3.54 1.41 1468 226
0 1.52 1517 37
4.6 1.36 1575 869
(12)
-0.25 0.01
AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED LAKE OSWEGO | WEST LINN (8)
18
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
MILWAUKIE (11)
21
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
OREGON CITY | GLADSTONE (10)
WILSONVILLE | CANBY (9)
ALOHA (3)
8
15
44
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
1465
1465
3.75 1.56
4.57 1.66
1680
1837
3.03 1.43
4.08 1.43
1882
1814
4.34 1.33
5.03 1.3
1013
955
3.66 1.43
4.91 1.41
2512
2686
4.03 1.48
4.72 1.43
7365
6797
4
portland/vancouver metro area # OF
AREA NAME
PROP
52
BEAVERTON (4)
ALL
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $
3.54
4.56
1.43
1.42
4181
4690
3.56
4.45
-0.2
1.46
1.42
0.03
SUM OF UNITS SURVEYED 15
HILLSBORO | N OF HWY 26 (2)
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
50
TIGARD | TUALATIN SHERWOOD (7)
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
35
WEST VANCOUVER (19)
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
15
EAST VANCOUVER (20)
SPR 18 CHANGE STUDIO REPORT
DATA
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
TOTAL AVG MARKET VACANCY RATE % TOTAL AVG RENT PER SQ FOOT $
-0.22 0.01
1602
1752
4.17
4.19
0
1.49
1.44
0.03
5323
5605
3.72
4.71
1.34
1.28
3079
3161
4.26
4.81 1.3
1.33
-0.21 0.05
-0.11 0.02
2630
2929
4.4
4.85
-0.09
1.62
1.56
0.04
TOTAL AVG RENT PER UNIT TYPE $ TOTAL SUM OF PROPERTIES SURVEYED TOTAL SUM OF UNITS SURVEYED
1 BED 1 BATH
2 BED 1 BATH
2 BED 2 BATH
2 BED TWNHS
3 BED 1 BATH
3.66 1.6
2.67
4.51
4.28
1.29
1.38
1.36
8.91 1.1
2.86 1.3
1084
1158
1450
1311
1382 798
1426 187
1184 101
1615 245
4.25
1.19
0 1.91 957 89
3 BED 2 BATH
14.29 1.51 757 7
6.61
2.52
9.52
0
1.63
1.37
1.36
1.24
1.07
1.36
1193 612
1155 121
1367 636
1311 42
1225 16
1581 168 4.52
3.3
4.15
4.4
4.13
3.36
4.22
2.27
1.67
1.41
1.38
1.33
1.34
1.35
1031 91
1108
1175
1354
1733
1317
1357
1406 327
1344 166
1642 332
4.26
1.88
2.11
6.05
3.8
-
3.52
2.11 885 57
1.52
1.26
1.27
1.17
-
1.09
1117 901
1050 654
1333
1230 237
0
1351 199 5.54
1031
2.5
3.65
2.98
5.56
2.5
-
1.94 922 80
1.48
1.37
1.22
1.05
-
1.23
1028 631
1239 571
1208 863
1071 160
0
1396 325
5.49
4.4
3.64
4.99
3.79
4.56
3.95
2.48
1.82
1.37
1.45
1.29
1.22
1.34
1120
1230
1187
1463
1344
1269
1584
762
777
202
617
497
260
116
75
183
59054
57988
4513
20619
12828
14061
2716
570
3747
vacancy rate since spring 2014—portland/vancouver metro area 14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
SPR 14
FALL 14
SPR 15
FALL 15
SPR 16
FALL 16
SPR 17
FALL 17
SPR 18
FALL 18
STUDIO 1 BED/1 BATH 2 BED/1 BATH 2 BED/2 BATH 2 BED TH 3 BED/1 BATH 3 BED/2 BATH
0
other areas SALEM & VICINITY
4.11 1.21
3.61 1.21
8355
6929
3.21 1.31
4.1 1.24
5173
5543
2.99 1.6
3.47 1.37
803
1595
TOTAL AVG MARKET VACANCY RATE %
3.72
TOTAL AVG RENT PER SQ FOOT $
1.27
EUGENE | SPRINGFIELD
BEND | REDMOND
128
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
86
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
9
AVG MARKET VACANCY RATE % AVG RENT PER SQ FOOT $ AVG RENT PER UNIT TYPE $ SUM OF UNITS SURVEYED
0.14 0
6.01 1.74 729 183
3.56 1.37 840 1910
4.88 1.16 968 3749
2.62 1.12 1091 1490
2.53 1.09 1076 474
5.17 1.3 1180 116
5.54 1.1 1290 433
-0.22 0.06
3.21 1.95 670 343
2.77 1.38 939 1517
1.88 1.17 1015 1224
2.78 1.28 1355 1115
4.56 1.17 1197 417
3.13 1.15 1131 64
7.71 1.18 1400 493
-0.14 0.17
2.17 2.03 1161 92
1.45 1.77 1260 346
7.14 1.21 1092 70
3.43 1.44 1480 233
0
0
6.45 1.09 1400 62
3.81
-0.02
3.88
3.05
4.18
2.75
3.48
4.44
6.68
1.24
0.02
1.9
1.41
1.16
1.21
1.13
1.24
1.14
760
918
981
1227
1133
1162
1352
TOTAL AVG RENT PER UNIT TYPE $ TOTAL SUM OF PROPERTIES SURVEYED TOTAL SUM OF UNITS SURVEYED
223
221
36
137
134
73
27
39
56
14331
14067
618
3773
5043
2838
891
180
988
Surveys received from Sec 42, Sec 8 and other subsidized affordable housing programs are not included in the current survey data.
5
trend report : portland metro area CoStar: Search criteria—Research Status: Published; Market: Portland; PropType: Multi Family; Sale Date: 10/1/2015—9/30/18; unit: 5 units and greater.
CAP RATE
MEDIAN PRICE PER SQUARE FOOT
3Q 18
2Q 18
1Q 18
3Q 18
2Q 18
1Q 18
4Q 17
3Q 17
2Q 17
1Q 17
4Q 16
3Q 16
2Q 16
1Q 16
MEDIAN PRICE PER UNIT (in thousands)
$210
$180
$200
$170
$190
$160
$180
$150
$170 $160
$140
$150
$130
$140
# OF TRANS
4Q15 72
1Q16 80
2Q16 69
3Q16 58
4Q16
1Q17 76
2Q17
4Q17
1Q18
2Q18
3Q 18
2Q 18
1Q 18
17 4Q
17 3Q
17 2Q
17 1Q
16 4Q
16 3Q
16 2Q
3Q17
3Q18
49
61
53
52
TTL $ VOLUME $534,511,829 $541,593,028 $420,843,400 $454,553,750 $1,633,700,743 $369,926,896 $240,789,234 $458,179,000 $663,623,832
$458,656,050
$278,843,732
$622,544,556
35
48
1Q
4Q
18 3Q
18 2Q
18 1Q
17 4Q
17 3Q
17 2Q
17 1Q
16 4Q
3Q
2Q
16 1Q
4Q
YEAR
16
$100
16
$110
$110
15
$120
16
$120
$130
15
5.0%
4Q 15
5.1%
4Q 17
5.2%
3Q 17
5.3%
2Q 17
5.4%
1Q 17
5.5%
4Q 16
5.6%
3Q 16
5.7%
2Q 16
110 100 90 80 70 60 50 40 30 20 10 0
5.8%
1Q 16
5.9%
4Q 15
NUMBER OF TRANSACTIONS
50
TTL BLDG SF
3,504,540
3,023,908
2,225,694
2,576,201
8,179,265
1,910,593
1,522,716
2,380,055
2,144,675
2,315,731
1,552,978
2,692,263
TTL UNITS
3,533
3,342
2,950
2,910
7,757
2,030
1,719
2,327
2,793
2,500
1,569
2,392
AVG PRICE
$7,423,775
$6,855,608
$6,099,180
$7,837,134
$22,379,462
$10,569,340
$5,234,549
$10,181,756
$13,543,344
$8,820,309
$5,362,379
$13,834,323
AVG # OF SF
48,674
37,799
32,256
45,197
110,531
56,194
31,723
48,573
43,769
37,963
29,301
51,774
AVG $ BLDG SF
$152.52
$180.01
$189.08
$176.18
$206.89
$192.99
$169.99
$215.37
$309.43
$217.79
$180.54
$254.18
MED $ P/SF
$121.47
$115.80
$139.71
$136.72
$163.66
$164.51
$160.42
$187.96
$200.00
$174.32
$207.33
$189.34
AVG $ P/UNIT
$150,230
$160,561
$141,235
$155,718
$217,868
$181,639
$148,087
$203,886
$234,237
$194,095
$169,297
$282,589
MED $ P/UNIT
$122,788
$106,667
$115,000
$118,962
$154,688
$147,083
$133,818
$150,532
$178,571
$152,000
$177,244
$169,500
AVG # OF UNITS
50
44
43
52
112
60
37
51
59
42
31
46
ACTUAL CAP RATE
5.76%
5.69%
5.51%
5.70%
5.22%
5.42%
5.63%
5.59%
5.29%
5.09%
5.35%
5.29%
AVG GRM
10.49
9.91
11.30
9.48
11.56
11.82
14.73
11.16
13.64
14.18
10.13
11.30
AVG GIM
11.40
9.44
10.73
—
—
—
—
9.01
—
—
—
9.88
6
PORTLAND’S STRONG ECONOMY STILL HAS ROOM TO RUN Josh Lehner, Economist, State of Oregon, Office of Economic Analysis
The Portland regional economy continues to hit the sweet spot as the latest Census data shows. Job gains are more than enough to match the growing population. The share of prime working-age Portlanders who have a job today–82%–is higher than the peak of the housing boom and back in 2000. More importantly, household incomes driven by the strong labor market continue to rise and reach all-time highs on an inflation-adjusted basis. Additionally, poverty rates are at their lowest since 2003. Crucially, these improvements are seen across all races and ethnicities in the region. Further gains are expected to continue as the economic expansion endures. That said, growth in the Portland area and across the Pacific Northwest is slowing. The strong cyclical gains experienced in recent years are over. Growth is expected to continue, but at a more sustainable rate. For example, Portland area jobs have slowed from 3% growth a couple years ago to around 2% today. Over the next few years, job growth is expected to slow even further, eventually matching gains seen in the working-age population. Similarly, local household incomes continue to see healthy increases–nearly 5% in 2017, or an inflation-adjusted 3%–but this too marks a slowdown compared to the previous couple of years. By itself, this slowdown is not a cause for concern. But it does mean the business cycle has matured. Nationally, the near-term economic outlook remains bright. Nearly all leading indicators continue to flash green. Federal fiscal stimulus–deficit-financed tax cuts and spending increases –will ensure solid economic gains this year and next. As such, near-term risks to the outlook are balanced, if not tilted to the upside. Simmering trade conflicts remain the most prominent downside risk today. So far, the actual and proposed tariffs are nowhere large enough to derail the U.S. economic expansion. However, risks are mounting over the medium-term. Potential danger lurks around the corner beginning in 2020. At this time federal fiscal spending and tax policy will be a drag on economic growth. Due to ongoing interest rate increases, monetary policy will have transitioned from accommodative, to neutral, and possibly even restrictive. It takes time for the Federal Reserve’s rate hikes to cool economic activity, typically a year or two. The potential combination of high interest rates and weak fiscal policy has economists talking about a plausible recession scenario. Now, this outcome is far from a foregone conclusion. Policymakers can, and likely will, adjust course as needed. The expansion has room to run.
Finally, the latest Census data also revealed that homeownership continues to rise in the Portland region and across the country. The local number of rental households actually fell somewhat based on the latest estimates. The recent ownership increase is driven by young, married-couple families. This is the pattern expected as household finances improved and Millennials began to age into their home-buying years. It is true that Millennials live on their own, get married, and buy a home at a later age than past generations. However most will still reach these milestones, eventually. Interestingly, the new Census data also shows that there is a sizable shift taking place underneath the surface of the housing market. In recent years in the Portland area, the number of detached single family rentals has fallen by 10,000 or so units. This is equivalent to 1-2 years of new apartment construction–a big number. As such, rental properties in the region have not increased as much as all of the new construction activity would indicate. In short, this single family shift has helped with absorption rates of the newly constructed apartments. BOTTOM LINE: The economic expansion has room to run. The Portland regional economy continues to outperform nearly all other large metro areas across the country. Even as homeownership rebounds, it is important to keep in mind that in a growing region like Portland, there remains a need for all housing types. Moving forward the region will have more owners and more renters given migration trends. Josh Lehner is a Senior Economist with the State of Oregon’s Office of Economic Analysis. He develops the quarterly Oregon Economic forecast, including outlooks for employment, income and housing. Additional responsibilities include the Oregon Index of Leading Indicators, tracking international developments in Oregon’s export markets and forecasting revenues for the Oregon Lottery, Oregon Judicial Department and state tobacco taxes. Mr. Lehner earned a B.A. in Economics from the University of Colorado and an M.S. in Economics from Portland State University.
DO YOU OFFER INCENTIVES? SPRING 2018
MAP AREA
Hillsboro | North of Hwy 26
0%
17.1%
0%
Aloha
8.7%
8.2%
Beaverton
6.7%
7.4%
Downtown Portland
22.2%
SW Portland
22.7%
Tigard | Tualatin | Sherwood Lake Oswego | West Linn Wilsonville | Canby
11.3% 4.6%
4%
Oregon City | Gladstone
14.3%
Milwaukie
11.5%
Clackamas
12.5%
Inner & Central SE Portland Outer SE Portland Troutdale | Fairview | Wood Village | Gresham Outer NE Portland Inner & Central NE Portland North Portland | St. Johns West Vancouver East Vancouver Salem | Vicinity Eugene | Springfield Bend | Redmond
7
FALL 2018
18.5%
NW Portland
6.3%
19.5%
19.6% 8.8% 9.5%
5.6% 18.2%
3.9% 12.5% 4.5%
0%
1.8%
4.3%
2.3%
11.8% 9.7% 5.9%
11.1% 19.2% 9.4%
5.7% 9.4% 3.2%
9.8% 11.1% 9%
15.2%
15%
19.8%
0%
FALL 2018 APARTMENT CONSTRUCTION UPDATE Patrick O. Barry, Barry & Associates
2018 will represent Portland’s 6th straight year of above average levels apartment construction. The stretch from 2013 to 2018 is the busiest six year period ever for Portland Metro apartment construction. This current building boom has been driven by a lack of construction from 2008 to 2012, robust job growth, in-migration of prime renters, continued rent growth, and construction costs that have remained mostly in check. However, the drivers that encouraged development are shifting. This article will review apartment supply, demand, values, and costs. SUPPLY:
As we enter the fall of 2018, the apartment construction market is showing some slowing, which is not surprising. 2017 was the busiest year ever for Portland apartment construction and it would be nearly impossible for Portland to reach surpass 10,000 units permitted for two straight years. Through July 2018, permits have been issued for around 4,250 units across the four county metro area. When the permits through July 2018 are annualized, this would suggest permits will be issued for around 7,300 units in 2018. This is a decrease of 3,000 units from 2017, though still remains one of the busiest years ever. The permit figures from 2017 were boosted by the passing of Inclusionary Zoning (IZ) which forced many developers off the sidelines. The graph below tracks permits across the metro area from 2000-YTD 2018 annualized.
APARTMENT PERMITS 2000– YTD 2018 (ANNUALIZED THROUGH JULY) FOUR COUNTY METRO AREA 11,000
10,319
10,000 9,000 8000
6,799
7,000
7,315
6,657
6,000
UNITS
7,302
5,266
5,000
4,471
5,821
5,104 4,541
4,000
4,266
2,853 3,000 2,000
2,045
2,724
1,000 0 2000
3,280
3,030
3,325
1,007 2002
2004
2006
2008
8
1,099 2010
2012
2014
2016
YTD 2018
(continued on page 9)
(continued from page 8)
As discussed later herein, the combination of rising
THE CHARTS BELOW REPRESENT PRICES OF APARTMENTS
construction costs, plateauing values, uncertainty on
BUILT SINCE 2010 LOCATED IN THE METRO AREA.
future rents/vacancies, IZ implementation, and increasing regulation (or the threat of ) dampens the optimism that
MEDIAN PRICE PER UNIT 2015–SEPT 2018
the apartment development boom will continue. DEMAND:
Economists for the State of Oregon forecast the Portland-Metro population to grow at 30,000 to 35,000 people per year through 2025. Assuming the home ownership rate is around 60 percent and a renter household size is around 2.20 persons, this population growth translates in to demand for around 5,500 to 6,400 units per year. Given the number of units under construction across the metro area, this suggests apartment demand from population growth is less than the current supply of new
$270,000 $260,000 $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 2015
apartment units. Population growth is the major driver of
2016
2017
YTD 2018
demand. Outside of population growth, there are some other smaller demand drivers such as tenants leaving roommate situations, adult children moving away from home, and homeowners moving back to the rental market.
MEDIAN PRICE PER SQUARE FOOT 2015–SEPT 2018
The homeownership ratio is an often understated figure that can greatly impact demand. As the economic expansion in Portland continues, more renters, especially at the upper end, will be in a position to purchase homes. A 1.0 percent increase in homeownership means 8,000 fewer renters are no longer in the market. A sudden increase in homeownership can quickly alter the rental market. VALUES:
The value increases that occurred from 2014 to 2017 are
$350 $340 $330 $320 $310 $300 $290 $280 $270
like none previously experienced in Portland. During the
2015
time, construction was still ramping up, vacancies dipped
2016
2017
YTD 2018
below 3%, and year over year rent increases were exceeding 10%. The market reacted as it should, and supply came
NUMBER OF SALES 2015–SEPT 2018
pouring in. Over time vacancies rose, absorption rates slowed, rents slowed down or flattened, concessions came roaring back, and investor’s suddenly have many more
40
options when looking to purchase, especially on the new construction. Many of the recently built apartments were
35
developed by merchant builders, who are looking for their
30
next project. Many of these developers are looking to
25
sell (whether the building is listed or not), and their desire to sell and move to the next project can impact prices.
20
These factors and more (rising interest rates, added
15
regulation, the threat of more regulation, etc.) have led to
10
some plateauing of values for new apartments.
2015
9
2016
2017
YTD 2018 (continued on page 10)
(continued from page 9)
From my discussions with developers/owners/brokers, any decline in new apartment values is felt to be short term. The underlying theme was get through the next 12 to 24 months as completions reach their peak and beyond 2020 there is greater optimism surrounding new apartment values. CONSTRUCTION COSTS:
At its core, development is based on a simple principle, value must exceed costs. The value of the completed apartment building must exceed the total cost to build that apartment building. Construction costs have become a major factor that make satisfying this simple principle increasingly difficult. In the process of writing this report, I surveyed five active apartment developers and contractors to get an idea of what has happened to costs in recent years. The results are summarized below. The reported costs are for hard and soft costs only. Based on this survey, the average annual construction cost increase has exceeded 12 percent per year since around 2014. Keep in mind the reported costs above exclude some major items including land and any entrepreneurial incentive for the developer. Also, larger projects today must be developed to include Inclusionary Zoning (IZ). The values represented in the tables above do not include the sale of any IZ compliant projects, though these projects will not increase values.
construction cost per square foot
SURVEY #1 SURVEY #2 SURVEY #3
$ / SQ FT
$ / SQ FT
2014–16
2018 $214
$135 $136
$205
2015
$163
$213
2016
AVERAGE ANNUAL % CHANGE (total change over time fame)
11.8% (59% total)
12.8% (51% total)
10.3% (31% total)
SURVEY #4
$104
$170
12.8% (63% total)
SURVEY #5
$128
$185
9.0% (45% total)
SUMMARY:
After eight straight years of increasing apartment development, the Portland metro area will see its first decline in construction volume since 2008. While, the volume of construction remains near record highs, apartment development will continue facing hurdles in the coming years. This includes a peak in completions during 2018 and 2019 with uncertainties on how this will impact rent/vacancies, some flattening of values, figuring a way to make IZ projects pencil, increasing government regulation, some pullback from construction lenders, and rapidly rising construction costs. While the apartment market fundamentals remain strong, apartment developers face some challenges in the coming years.
Patrick O. Barry (pb@barryapartmentreport.com) is a certif ied general appraiser with Barry & Associates, which specializes in apartment appraisal work in the Portland metropolitan area. Patrick is an engineering graduate of the University of Colorado.
10
THE SALEM MARKET Greg Knakal, Senior Portfolio Manager, Princeton Property Management
The Salem market continues to remain strong as demand pushes down vacancy rates and fuels rent growth. The most recent survey reflects the Salem vacancy rate near 4% with rent rates increasing at an annual rate of 4% over the last 12 months. Of all unit types, the two-bedroom two bath product reflects the best occupancy with an average vacancy of 2.6% while the studio units have the highest vacancy of 6%. WHAT IS DRIVING THE OVERALL DEMAND?
Current job growth in manufacturing, construction, and professional business services has played a factor. But Salem is the capital of Oregon thus government jobs consist of over a quarter of the total workforce. CoStar states positive job growth in Salem has outpaced the national average since 2013. The increase in Portland metro rents coupled with the increased cost of living in Portland, has driven many renters to make the 50-minute commute down south. Based off morning and afternoon commute traffic headed north and south on Interstate 5, the eyeball test would indicate more people are living in Salem and the Willamette Valley. The most recent figures available from the Oregon Department of Transportation reflects an increase in traffic on I-5 through Linn County at every spot monitored by the state of Oregon.
THE SUMMIT AT RED LEAF 121 UNITS 5715 RED LEAF DR S SALEM, OREGON
completed buildings have rented quickly. Other large projects in the pipe line, or near completion, include a 121-unit project known as The Summit at Red Leaf and 84-units known as the Harold Drive Apartments. The Fruitland Meadow Apartments will be completed in early fall delivering 184 units of affordable housing. These affordable apartment homes will be complete with hardwood inspired floors, granite countertops, energy efficient appliance packages, and brushed nickel finishes. Residents will enjoy an array of community lifestyle amenities including a seasonal resort style pool, and a premium fitness center with state-art-of-the-art cardio equipment. As units continue to be absorbed quickly, coupled with a low vacancy rate and quality rent growth, the average sales price per unit continues to rise. The most recent CoStar report states that cap rates have declined from an average of 8.5% to 6.5% over the course of the cycle. The average price per unit in the Salem market is $95,426. One of the larger sales of the year included a brand new 56-unit product, the Hawthorne Place Apartments in NE Salem sold for $166,071 per unit.
THE FAIRWAY 201 UNITS 1691 WALN DR SE SALEM, OREGON
Development has remained strong in Salem delivering 301 new units over the last year, exceeding the historical average. The Fairway in south Salem is one of the newest communities to hit the market with 201 units. One, two- and three-bedroom rents start at $1,025, $1,175 and $1,435 respectively. The
In summary, given the current construction levels and the demand as people move from Portland to Salem, the apartment market in the Willamette Valley will most likely remain strong at least for the next few years. Greg Knakal has been in the property management field since 1994, and with Princeton Property Management since 2002. Greg has been an instructor for the National Apartment Association and is past President of Multifamily NW. Greg is a graduate of Lewis and Clark College.
11
THE
Apartment Report
2018 multifamily nw board of directors
Thank you to all who contributed to the making of this report.
Amy Alcala Princeton Property Management president
AFFINITY PROPERTY MANAGEMENT
JENDI PROPERTIES
AMERICAN ASSETS TRUST
JENNINGS GROUP INCORPORATED
AMERICAN PROPERTY MANAGEMENT
JK MANAGEMENT
Maureen MacNabb Capital Property Management vice president
AVENUE5 RESIDENTIAL
JPM REAL ESTATE
Ericka Hargis
BARKER & CALKINS, INC
MDI, LLC
BRISTOL URBAN
MISSION ROCK RESIDENTIAL
WPL Associates secretary
BUNTING MANAGEMENT GROUP
PINNACLE
C&R REAL ESTATE SERVICES
PRIME GROUP
Chris Hermanski
CARLA PROPERTIES, LTD.
PRINCETON PROPERTY MANAGEMENT
CTL MANAGEMENT, INC.
PROMETHEUS REAL ESTATE GROUP
DALTON MANAGEMENT
QUANTUM RESIDENTIAL
Mainlander Property Management treasurer
Jeff Edinger Tokola Properties immediate past president
FPI MANAGEMENT
REGENCY MANAGEMENT INC
GREYSTAR
STERLING MANAGEMENT GROUP, INC.
GUARDIAN REAL ESTATE SERVICES
TOKOLA PROPERTIES
INCOME PROPERTY MANAGEMENT
WPL ASSOCIATES
Scott Arena Income Property Management director
Barb Casey Kennedy Restoration director
TENANT PAID UTILITIES MAP AREA NW PORTLAND
water/sewer
HEAT
64.6%
87.8%
76.5%
HILLSBORO | N OF HWY 26
DOWNTOWN PORTLAND
89%
58.5%
82.9% 87%
TIGARD | TUALATIN | SHERWOOD
79%
LAKE OSWEGO | WEST LINN
81% 89%
100%
91%
100%
88.4%
100%
INNER & CENTRAL SE PTLD OUTER SE PORTLAND TROUTDALE|FAIRVIEW WOOD VILLAGE|GRESHAM
26.1%
INNER & CENTRAL NE PTLD NORTH PTLD | ST. JOHNS WEST VANCOUVER
58.1% 68.6% 22.4%
35.5%
EUGENE | SPRINGFIELD BEND | REDMOND
Multifamily NW ®
Salvador Llerenas
72.7%
Cascade Management, Inc. director
61.5% 87.5%
100%
42.9%
Lisa Nerheim Greystar director
20.6%
87.5%
45.5%
99%
16083 SW Upper Boones Ferry Road Suite 105
Mark St. Pierre
66.7%
Interstate Roof ing director
43.8% 42.6%
100%
72.7%
GSL Properties, Inc. director
56.7%
100%
77.8%
Ryan Ridgeway
22.6%
97.6%
Jami Sterling
63.6%
Tigard, OR 97224
Sterling Management Group. Inc. director 503 213 1281
For more information on Multifamily NW or to comment on this report, please visit us on the web at www.multifamilynw.org. The opinions contained in this report are those of the authors and do not necessarily represent the opinions or positions of Multifamily NW.
12
Jesse Miller Greystar director
19.3% 46.5%
55.1%
73.2%
This report would not be possible without the dedication and commitment of the Multifamily NW staff and the Apartment Report Committee. Thank you to the many contributors, writers and consultants who have generously taken the time to provide this information.
66.7%
100%
80.7%
52.1%
Andy Hahs Bittner & Hahs, P.C. director
20.9%
96.5%
EAST VANCOUVER SALEM | VICINITY
70.9.%
42.1%
OUTER NE PORTLAND
77.2%
100%
100%
Background Investigations, Inc. director
76.2%
96.5%
WILSONVILLE | CANBY
MILWAUKIE
76.1%
100%
Dalton Management, Inc. director
Gary Fisher
58.5%
OREGON CITY | GLADSTONE
CLACKAMAS
85.7% 53.7%
95.7%
Amanda Clark Guardian Real Estate Services director
Rebecca Cook
70.6%
93.9%
68.5%
SW PORTLAND
61%
100%
87.8%
ALOHA BEAVERTON
GARBAGE
Amanda Williams C&R Real Estate Services director