A new real estate bubble?
Apartments will spring up this fall in Orenco area
Are apartment buildings the next real estate bubble?
The regional local apartment market is suddenly so hot, some real estate experts wonder if it is being overbuilt. Permits were issued for 3,333 apartment units in the Portland metropolitan area last year. Dozens of apartment buildings are currently under construction throughout the region. And dozens more are in the planning stage.
This is especially true in Hillsboro, where the City Council approved an agreement with Holland Development for the four remaining vacant parcels in the Orenco neighborhood. It calls for the construction of three six-story buildings with 580 apartments in what is being called the Platform District. Construction on the $120 million project will begin this fall.
Those three buildings will follow two other Holland Development apartment projects in Orenco. The 190-unit Platform 14 apartments have already opened; while the nearby 190-unit Tessera, formerly called the Orenco Wrap, is currently under construction.
Throughout the region within the past few months, 136 apartment projects were either recently completed, currently under construction, or proposed to be built, according to a survey conducted by Patrick Barry, an appraiser assistant with Mark D. Barry & Associates.
There are twice as many units under construction as there are units that have recently been completed. In addition, there are almost three times as many units proposed as recently completed, said Barry.
But Barry believes theres no reason to worry the market is getting over-saturated. Despite the flurry of activity, apartment construction in the region is actually below historic levels. In fact, much of it is simply compensating for the lack of activity during the Great Recession.
And demand will continue to grow, Barry said, noting the population of the region is predicted to grow by 25,000 to 30,000 people a year for the foreseeable future.
Apartment construction came to a virtual halt a few years ago. The construction thats under way now is just beginning to address the demand that has built up since then, said Barry.
According to Barry, the lack of new construction allowed vacancy rates to fall to the point where rents could be raised high enough to finance the new projects. There are around 265,000 multi-family units in the region. The vacancy rate is currently 3.6 percent, Barry said, compared to 5 percent in a balanced market.
That equates to a shortage of 3,750 units enough to convince lenders it is time to invest.
Financing is available again and developers are getting back into the market, said Barry.
Barry tracks apartment construction in the region closely and publishes his findings every quarter in the online Barry Apartment Report. The most recent one, dated for spring 2013, lists 51 apartment buildings either under construction or recently completed in the region.
Despite the activity in Hillsboro, most of those projects 36 are in Portland. To a certain extent, the Portland numbers are a little misleading, however. Many of those projects have far fewer units than the largest ones in the region, which are located in suburban Clark and Washington counties.
For example, The Reserve in Vancouver has 418 units. The Terrene at the Grove in Wilsonville has 288 units. And The Jones another Hillsboro project near Orenco has 193 units. In contrast, many of the apartment buildings under construction in Portland have less than 50 units. One, The Sherm, at 1101 S.E. Sherman St., has just 12.
But the sheer number of projects in Portland means that most apartment units are, in fact, being built in the city. More than half the permits issued last year 1,739 were for projects in Portland.
Barry said that should be no surprise. U.S. Census data shows that young people are flocking to cities. They are overwhelmingly drawn to apartments instead of houses, which cost more to rent and operate.
For a long time, many more apartments were being built in Washington and Clackamas counties. Now its Multnomah County, and specifically Portland, said Barry.
But the market is still hot in Hillsboro because of the large number of new jobs being created by big employers such as Intel. Its recent expansion projects have created a base of long-term construction jobs in the city, and the promise of support and spinoff jobs when finished.
Barry expects apartment construction to continue increasing in coming years, especially in Portland. But even then, it could take a long time to match or exceed historic highs.
Figures compiled by Barry show that apartment construction goes in cycles related to the economy, with highs in good times followed by lows during bad times. Previous high numbers of apartment permits include 6,806 in 1990, 6,652 in 1995, and 5,266 in 2003. Lows include 2,539 in 1992, 2,724 in 2003, and 1,007 in 2009. The 3,333 issued in 2012 is just about average for the last 10 years.
I expect it to go higher in the future, but theres still a long way it could go if the economy and housing market continues recovering, Barry said.Add a comment