Industrial land at a premium
Thanks to Amazon and its buy-this-item-again mentality, the Portland area's industrial land market remains hot. Just.
Amazon made three warehouse/distribution transactions of over 850,000 square feet in 2017, two around Portland and one in Salem.
Leases were down overall, though.
According to Cushman & Wakefield's fourth quarter of 2017 Portland industrial Market Report, new leasing for Portland closed the year at 5.8 million square feet (msf), still just slightly lower than the 6.2 recorded for 2016.
The north shall rise again
The Portland overall industrial vacancy rate increased 40 basis points (bps) in the fourth quarter of 2018 to 3.9 percent, although it was still 10 bps below the year-ago figure of 4.0 percent.
According to the report, "The rise was due to scattered increases in availabilities in several submarkets including Southeast Portland and Vancouver/Clark County. The North/Northeast submarkets recorded a 10 bps dip in vacancy to 4.7 percent driven by activity in Rivergate and East Columbia."
Construction completions for 2017 were just below 2.7 msf, with 98 percent of that warehouse/distribution and the remainder high-tech or flex space. This is up from the 2.2 msf in 2016 which had a similar breakdown in uses.
Delivering in 2018 will be almost 3.7 msf (97 percent warehouse/distribution) with 2.6 msf build-to-suit and 1.1 msf speculative.
The overall asking rent for all industrial space closed the fourth quarter at a record high of $0.71 per square foot per month on a triple net basis (psf), up from $0.67 a year ago.
Cushman & Wakefield predicts that the vacancy rate will stay about the same in 2018.
Warehouse/distribution centers and fulfillment centers will be the prime consumers of available big blocks of space, in the 200,000-500,000 square-foot range.
"With the increased population growth, Portland is on the map and companies are looking to get their goods and services here," Aaron Watt, an associate director with Cushman & Wakefield of Oregon, told the Business Tribune.
"Companies in Portland are looking to expand and others are moving in. However, there is a shortage of large industrial land sites for development and it's hampering our growth." Because of the urban growth boundary, there's currently not much industrial land left in the suburbs.
"Sometimes they take the 30,000-foot view and say 'OK, there's nothing available here in a year.' We miss out completely and companies go to other city or another state."
One positive is that this shortage creates density, he says.
Cushman & Wakefield looked at absorption relative to new construction. "It's healthy," said Watt.
The net absorption total (the net change in occupied space) for 2017 was almost identical to the previous year, closing at +2.3 msf.
The Amazon deals were preleases for product that hadn't been delivered. "Even though we have new construction, because of the pace that things are being absorbed we'll maintain a relatively low vacancy rate. And that puts upward pressure on rents."
What's happening in Portland is happening all over the U.S. because everyone has changed the way they shop.
"From a national perspective on industrial lands across the U.S., given the demands of the economy and the change in supply chains, they're near a historic low."
For example, the industrial land vacancy rate in San Diego is 4.8 percent.
The demand not just for online shopping, but fast online shopping (think Amazon Prime's two-day delivery) has contributed to the growth of distribution centers. Watt sees growth in sectors such as footwear, high tech, food and beverages as well as third party logistics.
"In 50 years I think you're going to see more automated systems in warehouses, more autonomous vehicles and trucks on the road. And I think we'll continue to see more density, because of people's need for shorter times to market."
He added that he expects to see more multi-story industrial properties so they can be closer in.
Rates at 71 cents a square foot have not increased as rapidly as in recent years, when double digit increases were common. "It did throttle off a bit."
Watt concluded that the industrial market in Portland is "healthy, it's remaining strong, the metrics are good as we continue to see positive growth and absorption."
Reporter, The Business Tribune
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