Overall Portland Multifamily Vacancy Down in First Quarter; NAI NBS Adds New Properties to Report

Multifamily vacancy decreased more than half a percentage point to 4.82%. Downtown, however, saw a significant increase in vacancy. This increase resulted in the addition of new product; we added ten properties totaling more than 2,100 units to the report this quarter.

Our report tracks buildings of 100 units and above in the metro area; we consider smaller buildings in some submarkets if they lack many 100+ unit properties. This quarter we added the majority of downtown units that have come to market in the past 24 months, excluding three properties that are under construction or have very recently delivered: the Broadstone Enso, the Matisse, and Indigo 12 West.

With the additions to the report, downtown vacancy rose 5 percentage points to 10.15% and vacancy in new units came in at over 15%. The new units have impacted existing and historic downtown apartments by pushing down effective rents on existing units and creating a more competitive environment. Concessions like free rent and parking are thus being offered on new and seasoned units, and marketing has become considerably more aggressive. If the economy continues to recover, the downtown market could begin to stabilize by the end of 2010.

Market Trends
Apartment managers and investors report seeing a significant uptick in tenant traffic in the latter part of the quarter. This is a good sign but doesn’t necessarily indicate a recovery, which is contingent on two to three quarters of increased tenant traffic, a reduction in vacancy and increasing rental rates. The suburban markets have seen good absorption of new product, since there has definitely not been an oversupply, and submarkets like the Sunset Corridor, East County and the close-in eastside are truly tightening up.

The multifamily market is heavily dependent on the state of the local and national economy, and especially on the fragile job market. Considerable improvement in the job market should be reflected in quarter-over-quarter improvement in occupancy and rental rates. The bright spots locally are that companies like FedEx, Boeing, and Genentech continue to invest in the area. And despite challenges, Portland continues to grow. U-Haul pegged Portland’s growth rate at 10.16% (No. 3 in the country) for 2009, meaning the number of families renting U-Hauls to move to Portland was 10.16% higher than the number of families renting trucks to leave.

NBS Companies and Stratton Launch NBS Multifamily Management

Norris, Beggs & Simpson Companies and Susan Bowlsby Stratton, a successful apartment management executive, have joined forces to found NBS Multifamily Management, a company dedicated to managing apartment communities of 100 units or more around the West Coast.

Why start a new venture in this economic climate? NBS Companies President J. Clayton Hering said he expects that as the job market grows, the demand for housing will increase, with a short supply of single-family and multifamily housing due to the significant reduction in construction over the last several years. With single-family lenders requiring greater equity and better credit, fewer people will be able to buy houses and will thus reenter the apartment market.

“With increased market activity the necessity for professional, value-added multifamily management will rise, and NBS Multifamily Management will provide a quality of service to enable multifamily owners to be competitive,” Hering said.

NBS Multifamily Management expects to hire more than 100 people in the area to run and maintain the apartment communities it will manage.

Stratton, who has more than 20 years of multifamily management experience up and down the West Coast, will serve as President of the new company. Stratton spent 13 years at Harsch Investment Properties, most recently as Senior Vice President of Operations, where she was responsible for the company’s multifamily division and managed up to 5,500 units. A native Oregonian, she will receive her Executive MBA from Pepperdine University in March.

“I am so pleased to be joining NBS,” Stratton said. “My years of experience combined with NBS’ very successful property management track record will allow us to shine in the multifamily management industry.”

Cassandra Haavisto will serve as NBS Multifamily Management’s Regional Manager for the Puget Sound area. Haavisto’s industry experience spans 20 years; she has managed more than 13,000 units during her career and worked for major companies like Harsch Investment Properties and Trammell Crow.

Portland Apartment Vacancy Rising, According to NAI NBS 2Q09 Report

Overview

Multifamily vacancy continued creeping upward to 5.03% during Second Quarter. Vacancy a year ago was 3.46%, for comparison. Vacancy in SE Portland increased considerably to 7.37%, and SW Portland vacancy also saw a large jump to 5.70%. Vacancy in both the Gresham/Troutdale and Lake Oswego/ West Linn submarkets decreased, remaining below 4%. Rents stayed essentially flat, hovering around where they were last quarter.

Market Trends

Apartment vacancy is on the rise, and our report, which polls select apartment complexes, may be slow to reflect this trend. The increase in vacancy isn’t due to residents moving away from Portland; even with the second highest unemployment rate in the nation, the area’s population is still growing at a healthy rate. Rather, tenants are doubling up, moving in with family, or moving to single-family rental homes. Landlords are now competing for the fewer active tenants by dropping rents and offering other incentives.

Downtown multifamily construction was booming in 2007 and 2008, with a large number of new units entering the market at the same time. As a result, 2,200 new units delivered from mid 2008 to March 2009. These new arrivals will take time to absorb and cause pressure on the entire market. But since very few new projects are in the pipeline, many of these units should be absorbed by 2011 evening out supply and demand.

The balance of the market has seen very light construction activity over the past two years. The lack of suburban building is allowing the small number of new units to be absorbed quickly. We expect to see a strong rebound to the suburban multifamily market when tenants start circulating. Though unemployment in Oregon is at an all-time high, Moody’s Economy.com predicts that Oregon will help lead the country out of the recession, with the state’s job market beginning to recover in late 2009, so leasing activity should increase and rental rates trend higher as unemployment decreases.

Transaction volume for apartment complexes remained very slow during Second Quarter. Cap rates are currently unpredictable and difficult to calculate, partially because of the volatility in interest rates and the lack of transaction data. But there is still some activity and financing available, especially through lenders like Fannie Mae and Freddie Mac.