WESTERN SNAPSHOT, AUGUST 2006

Portland, Oregon Multifamily Market

Black

The first factor in this dramatic improvement is that the cost of housing in Portland has increased greatly, with more than 16 percent appreciation per year for the past 3 years. The median price of a Portland home now exceeds $253,000, and the average sales price is $301,000, nearly $50,000 more than just 12 months prior. A June 2006 study by financial holding company National City Corp. and financial information provider Global Insight reported that out of the 317 largest real estate markets Portland ranked 54th as the most overpriced housing market.

The next factor is the migration of new residents to Portland, which has one of the nation’s highest rates of population growth for young professionals, as well as one of the highest concentrations of the sought-after creative class. Furthermore, the City of Roses contains a middle class that is larger than the national average. Approximately 27.5 percent of U.S. household incomes exceed $75,000. In Portland, the percentage for that income category is 30.2 percent. The high quality of life and healthy job market will continue to attract professionals to the city.

The third factor is the lack of construction of new units. From 2003 to 2005, suburban markets saw a healthy development of affordable tax-credit housing, which took time to absorb and caused the suburban markets’ high vacancy rate and high concessions. There have been very few significant starts during the past 5 years of market-rate apartments. Most of the market starts have been smaller infill projects consisting of 50 to 250 units. In fact, since 2001, the number of building permits issued for single-family units has risen from 10,564 to 12,029. The number of building permits issued for multifamily units declined from 4,860 to 4,424. With Portland’s urban growth boundary and the demands for single-family attached housing, the price of land has increased to a level that is currently in excess of what a multifamily developer can pay.

The fourth factor contributing to the improved health of the multifamily market is the conversion of existing apartments to condominiums. In the more sought-after districts of the metro area, developers have been buying quality buildings and converting them. Downtown Portland has seen the largest impact from conversions. There have been more than 1,000 units removed from the rental market for conversion to condominiums in 2005 and early 2006.

With all the improvement in the multifamily sector, investor interest has picked up. They have a new confidence in the market and are returning to purchase additional multifamily properties. Institutional investors are also a very active group in the Portland market and have a very strong interest in acquiring well-located properties that can be repositioned or can benefit from the improving rental market. There has been a reduction in the number of out-of-state investors in the smaller entrepreneurial market. This is due to the increase in properties being marketed in other cities such as San Diego, Phoenix and Las Vegas.

The balance of 2006 will continue to see rental rate growth. That coupled with the lack of construction and available apartment land will spur continued growth and strength through 2007. A market that favored the tenant for the last 5 years has decidedly turned around and is rapidly transitioning into an owner’s/landlord’s market.

Robert Black is a senior associate broker at NAI Norris, Beggs & Simpson in Portland.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.