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9/30/24
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This update provided by real estate services firm Kidder Matthews
Market Highlights
• Direct vacancy rates climbed to a record high of 13.6%.
• Asking rental rates fell to $28.44/SF FSG.
• Sales volume grew 99.5% YOY to 1.8M SF.
Market Drivers
For the third straight quarter, direct vacancy rates have set a record high, reaching 13.6%. Net Absorption was -610.3k sf this quarter, the fifth straight quarter it’s been negative. There have only been five positive quarters recorded since Q1 2020, making this quarter not much of an outlier and more of a continuation of trends.
Leasing activity is down 18.9% cumulatively when comparing this year’s activity to last year’s activity, but sales volume is up 35.1% in the same time frame. As properties continue to sell at lower prices, rental rates should continue to fall, ideally leading to tenants and landlords seeing eye to eye on pricing and easing the high availability and vacancy rates.
Economic Review
As of July 2024, the unemployment rate for the Portland-Vancouver-Hillsboro MSA was 4.4%, up from 3.7% at the same time last year. This is compared to 4.0% for the state of Oregon and 4.2% for the nation.
Portland’s economy is currently facing challenges. While it has shown modest improvements, it’s still struggling to recover from the pandemic. Key issues include population loss, high housing costs, and slower job growth compared to previous years.
Near Term Outlook
One trending idea in the industry is office conversions to residential properties, which would help reduce the oversupply of offices and lack of supply of housing in urban areas. A study done by CommercialEdge, a subsidiary of Yardi, found that 18.8% of product in Portland is conversion feasible, with only 4.0% meeting their criteria to be a top conversion candidate. Although conversions would be beneficial, there isn’t much space that qualifies for these projects and there
are many roadblocks in the way of it becoming a reality.
Despite the negative metrics seen across the industry nationwide, there is optimism to be had. The recent rate cuts and expectations for further rate cuts should incentivize deals to get done at more competitive rates. There are still issues around continuing work from home policies, but the cut in rates should lead to more investment in the industry and alleviate some of the pain the market has been feeling the past few years.
The information in this report was composed by the Kidder Mathews Research Group, led by Gary Baragona, Director Research.
Data source: CoStar, U.S. Bureau of Labor Statistics.
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