The real estate market in Oregon’s largest city is showing signs of life, buoyed by corporate expansions and a brightening jobs picture.
“We are seeing some definite signs of life in the single-family residence market,” says Dominic Colletta, shareholder in the Portland office of multispecialty law firm Lane Powell PC. “Four builders in the local market have become very active in residential construction. Those builders purchased approved subdivision lots at very low prices; the indications seem right to start building again.
“Single-family builders are breaking ground in a variety of areas around the region,” he continues. “In particular, there seems to be a significant resurgence in interest in close-in suburban lots.”
Colletta, a ULI council chair, adds that multifamily is clearly the most active market segment. “Lots of buyers are searching for properties, but sellers of good-quality units are holding,” he says. “After two years of downward rent pressure, the market seems ready to absorb reasonable rent increases over the next one to two years. The jobs picture is still very difficult, but state economic indicators have been trending upward for several months now.”
While job recovery in Portland is lagging behind the national average, the city is still experiencing positive in-migration, points out Skip Rotticci, chief operating officer of Portland’s Costa Pacific Communities, a real estate development company of large-scale master-planned communities. “There have been several significant developments that will foster job growth in the region such as Intel’s $4 billion investment in a new fabrication plant,” he says. “Subaru North America is greatly expanding its port operations, and job growth in the region has finally turned the corner.”
However, he adds, no significant development will occur until the capital markets feel positive about near-term economic growth. “When acquisition, development, and construction funding begins to thaw,” says Rotticci, immediate past chair of ULI’s Transit-Oriented Development Council, “new underwriting criteria and low loan-to-value ratios will mean that only the strongest balance sheets will be borrowing from traditional funding sources.”
Kevin Kaufman, an associate with CB Richard Ellis in Portland who specializes in the downtown area, says one of the bright spots in the city is its central business district (CBD). “The Portland CBD continues to be very healthy, and, from a national perspective, we have a very low Class A vacancy rate of 6 percent,” he says. “There continues to be good activity downtown such as the leasing of 133,000 square feet [12,369 sq m] of space by Vestas America Wind Technology in the Meier & Frank building, which is undergoing a historic renovation. Vestas is keeping its North America headquarters here in Portland. It is a good boost for the local office market, which continues to be tight.”
Like the CBDs in most U.S. cities, Portland’s is doing much better than the suburbs, notes Gene Grant, real estate practice group leader at the local law firm of Davis Wright Tremaine LLP. “Portland’s last large office tower is the First and Main project by Shorenstein that filled up with federal agencies and a nonprofit sustainability-type tenant,” he says. “The federal agencies vacated the Wendell Wyatt Edit Green federally owned building that is the only active development project I know of in the Portland CBD right now.”
The redevelopment by Gerdlin Edlen of a large, old warehouse in Portland’s Pearl District northwest of the CBD as the Vestas headquarters is a positive sign, says Grant. “The other good development news is that Gramor Development is working on construction of three large retail projects in the suburbs—one south, north, and west of Portland on the fringes of the urban metro area,” he adds. “Hopefully as the recovery accelerates more jobs will translate into more development in Portland.”
Still, Michelle Rudd, a partner in the Portland office of Stoel Rives LLP, a full-service U.S. business law firm, expects that the Portland real estate industry will continue to be cautious in the coming year but will see some opportunities. “The extension of Portland’s light-rail system is a bright spot,” says Rudd, who specializes in real estate, development, and environmental law. “Portland recognizes the importance of quality education in urban sustainability, and the light rail will serve to link educational and enrichment institutions such as Portland State University, Oregon Health and Sciences University, Portland Community College, and the Oregon Museum of Science and Industry. The light rail has spurred development in other parts of the city and I anticipate that the new extension will yield similar benefits as people elect to live and conduct business [proximate] to transit.”