Apartment Report - Fall 2018 Multifamily NW

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