WESTERN SNAPSHOT, OCTOBER 2008

Portland, Oregon, Industrial Market

Bernstein

Portland means talented work force, fine pinot noir and booming business opportunity.

The manifestation of that opportunity lies within a 2,800-acre industrial district just outside of downtown Portland at the confluence of the Columbia and Willamette rivers known as Rivergate.

“Today, more than 1,000 businesses in Oregon and Washington depend on the Port of Portland’s vibrant marine facilities in Rivergate, which are served by a network of interstate freeways, Union Pacific and BNSF rail lines, and the Columbia/Snake river barge system,” says Bill Wyatt, executive director of the Port of Portland. “We are the beneficiaries of visionaries who, in 1962, began to create what became Rivergate Industrial District.”

Standing as the Number 1 wheat export gateway in the country, the Columbia River is served by Terminal 5, which contains a $48 million mineral bulk exporting facility. Terminal 6, the port’s major marine terminal, sits less than a mile away. “Terminals 5 and 6 serve as the Columbia Basin’s primary docks for container cargo, auto imports, steel, grain and mineral bulk exports,” adds Wyatt.

As Portland’s largest industrial district, the 15 million-square-foot Rivergate includes the operations of major companies such as Portland-based Columbia Sportswear, Georgia Pacific and Nordstrom Distribution Center. A collection of R&D users, manufacturers and third-party logistics providers, such as Expeditors, Oregon Transfer and Ryder Logistics also call Rivergate home. “The Rivergate industrial district is ideally located within the Foreign Trade Zone, making it advantageous to many users who import/export containers out of Terminal 6,” says Eileen Murche, senior manager of Trade and Carrier Development for the Port of Portland.

The Rivergate submarket continues to make strides. New leases and renewals from Georgia Pacific, Terminal Transfer, Newport Layton, Land O’ Lakes and Blaser Diecast Products have totaled 562,818 square feet in the first half of 2008. This is offset however, by 1,785,308 square feet, which still remain vacant.

“Rivergate’s solid infrastructure, large inventory of existing buildings and sizable state-certified industrial land sites offer a well-situated location for companies looking to set up their operation on the West Coast,” says Sarah Garrison, who handles business development for the Oregon Economic & Community Development Department.

As of end of first half ‘08, vacancy in the Rivergate submarket was 12.1 percent, compared to an overall Portland industrial warehouse vacancy rate of 6.9 percent. This is due largely in part to the delivery of three new big box developments since 2007.

The most recent delivery was Trammell Crow Co.’s 573,420-square-foot Building A of Rivergate Corporate Center III in second quarter. The state-of-the-art facility is owned by the pension fund MEPT (Multi-Employer Property Trust) and advised by Seattle-based Kennedy Real Estate Counsel.

“The first phase of a planned 2.5 million-square-foot logistics park, Building A is the largest LEED Silver-certified industrial building in the United States,” states Steve Sieber, Trammell Crow’s vice president of development management.

RREEF delivered buildings 4 (208,000 square feet) and 5 (201,500 square feet) of Kelley Point Distribution Center in fourth quarter 2007, pushing its portfolio within the Rivergate submarket past the 1 million-square-foot mark. Also, the 294,425-square-foot Phase II of Capstone’s Bybee Lake Logistics Center was delivered in first quarter 2007. Currently, OIA Logistics occupies 107,000 square feet of that development.

Asking rates in the overall Portland industrial warehouse market continue to be a cheaper alternative to other West Coast markets. Shell rates in the Rivergate submarket for new warehouse space range from $0.34 to $0.37 per square foot, with office surcharge rates of $0.70 to $0.75 per square foot. Shell rates for functional 10-year-old high cube distribution buildings range from $0.31-$0.34 per square foot. Free rent, fairly generous TIs and full 5 percent fees paid to procuring brokers will remain concessions that are provided on most transactions.

Things are looking positive for the rest of 2008 and the years to come in the Rivergate industrial district. In July, the Portland Development Commission reinstated the Portland Enterprise Zone (E-Zone), offering property tax savings for new businesses that meet certain investment and employee standards. The Columbia River Channel Deepening Project continues: the $150 million project, which began in 2005, will deepen the channel from 40 feet to 43 feet, allowing the use of larger, more efficient vessels to transport commodities. Combine Portland’s growing population, the aforementioned talented work force and centralized West Coast location with the (Columbia) channel deepening, lack of congestion, tax breaks and new big box construction in Rivergate and you’ve got what the Port of Portland calls “the best kept secret on the West Coast.”

Evan Bernstein is an industrial broker at Capacity Commercial Group in Portland.

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