Absorption is Strong, Rent Growth Improving in Portland Despite Supply Wave

Absorption is Strong, Rent Growth Improving in Portland Despite Supply Wave

CoStar Market Insights: Q2 2018 Portland Multifamily Construction Update

Estimated to deliver by the end of 2019, the 232-unit Sellwood Apartments is the largest under-construction multifamily project in Southeast Portland.

In the first half of 2018, 3,077 new market-rate apartment units delivered across the Portland, OR market. With apartment supply expected to reach a cycle peak this year, CoStar forecasts that by the end of the year, 6,492 units will come on line.

Thus far in 2018, 39 apartment communities have delivered. Of these, 14 have at least 100 units and four had at least 200 units. Those include the 273-unit Modera Pearl, the 218-unit Heartline, the 200-unit The Windward and the 200-unit Modera Belmont.

The overall occupancy rate is 42 percent for communities delivered in 2018. Though this rate is somewhat low, the count includes communities that received a certificate of occupancy just days ago. In comparison, communities that delivered in 2017 -- with six to 18 months for lease-up -- currently stand at 88 percent occupancy.

Market vacancy has contracted throughout the past two quarters, which is a strong indication of market health. While 3,077 units have delivered in 2018, 3,845 units have been absorbed this year so far. This is particularly remarkable considering Portland’s continuing supply wave.

Nearly 8,000 units have come on line since the end of 2016, when vacancy peaked at 6.3 percent. Concurrent with this strong delivery schedule, vacancy inched down to 6.2 percent in 2017, and currently sits at 5.7 percent. This testifies to the strong fundamentals of the Portland multifamily sector.

Portland’s newest apartments have an average asking rent of $1,882, a 44 percent premium over the area’s overall average rent of $1,310 per unit. As another point of contrast, the average rent for a 2017 unit is $1,608.

Rent growth also edged up in the first half of 2018, currently standing at 2.1 percent -- an encouragement after the dispiriting 1.3 percent growth in 2017. Luxury 4- and 5-Star units represent the lion’s share of new deliveries -- only 16 percent of new inventory is rated below 4- and 5-Star.

At the ultra-high end of the spectrum, The Windward in Lake Oswego and Heartline in the Pearl District offer units leasing at rates greater than $7,000. Across the Portland metropolitan area, only five communities offer any units with such high rents.

With regard to ongoing construction, CoStar lists 11,044 market-rate units in 117 apartment communities presently underway. There are five submarkets with more than 1,000 units under construction, with activity most heavily concentrated in Southeast Portland, where 2,341 units have broken ground. The 232-unit Sellwood Apartments, which just broke ground in May, is the largest. Again, CoStar predicts an additional 3,415 apartment units to deliver in 2018.

Despite a very strong influx of new inventory in the first half of 2018, both rent and absorption are performing well. This is good news for area developers and investors, as there is substantially more new supply on the horizon.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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