City County Insurance Services has purchased the 13,593 sf office building at 11625-11675 SW 66th Ave. in Tigard for $2.25 million. NAI Norris, Beggs & Simpson's Chris Johnson, MaryKay West and Charlie Floberg represented the seller.
The building was constructed in 1963 and is close to I-5 and Pacific Highway. It sits on more than an acre of land.
Check out Costar's coverage of the sale here.Robert Black
, Associate Vice President, NAI NBS
Portlanders may be noticing more “For Rent” signs on apartment buildings around the city this summer, one of the more noticeable signs of how this recession has affected the apartment market. Apartment vacancy is rising across the metro area and multifamily investment sales are down, but the Portland market will recover from this economic downturn and be well-positioned for a comeback.
NAI Norris, Beggs & Simpson’s Second Quarter 2009 reports show a slight increase in apartment vacancy from the previous quarter to an overall 5.03 percent; this report only surveys select apartment complexes with more than 100 units, so vacancy across complexes of all sizes could likely be a bit higher.
The increase in vacancy doesn’t mean that people are moving out of the city. In fact, the Portland metro area’s population has been increasing in recent years. The U.S. Census Bureau estimates that Multnomah County’s population rose 2.2 percent in 2008, and that the greater Portland area’s population reached 2.2 million people last year. Portland’s relatively low cost of living, in addition to diversified job prospects and plentiful outdoor activities, continue to attract new residents.
So where are the renters living, if they’re not leaving Portland? Many of them are doubling up in apartments, moving in with family, or renting single-family homes. Though Portland unemployment decreased slightly to 11.6% in June, renters are still concerned about job security and layoffs, so they are taking any steps they can to save money.
Some tenants are also choosing to purchase homes. With median home sale prices down 13.8 percent from this time last year, an $8,000 first-time home buyer tax credit from the federal government and historically low interest rates, buying a home is becoming an option for more people.
Landlords are doing everything they can to attract the fewer active renters in the market. Concessions today in certain submarkets are sizeable, including up to two months free rent on a 13-month lease for some new properties in the downtown area. Renters looking for a new place to live are shopping around for the best deals they can get, and existing tenants are also tuned in and looking for bonuses to extend their leases on expiration.
The Portland-area submarket that everyone is keeping an eye on is downtown. Downtown has seen a building boom over the past five years, and with the condominium market softening at the end of 2007, developers looked for conversion options for projects proposed and under construction.
What resulted was one of the largest deliveries of new units the market has ever seen. Between February 2008 and today, the market added about 2,030 new units in the Central Business District (CBD), according to NAI NBS’ research, with another 450 units under construction delivering between fall 2009 and spring 2010.
This may seem like a large number, but there’s a reasonable explanation. From 2003 to 2007, more than 1,500 existing apartment units in the CBD were actually converted into condominiums. This loss of rental units helped drive the surge in the CBD apartment market, and when the new units began delivering in early 2008 the CBD had strong fundamentals, with the largest historic rental rate growth and vacancy below 3 percent.
If history is our guide in estimating demand for CBD apartments, it will take time to absorb the new product, but once the market stabilizes, in about 24 months, vacancy will tighten and rent growth will return, since there will essentially be no building in the remainder of 2009 and 2010.
Vacancy in the suburban markets is increasing, but because much construction of the past few years occurred nearer to the city’s core, they are well-positioned for when tenants become more active again. And when this happens, the suburbs will likely be underbuilt, driving demand and pushing rental rates back up to 2008 levels and beyond.
Multifamily investment sales have been seriously affected by the recession. The Portland metro area has seen approximately $137 million in apartment sales so far this year through the end of July, according to data gathered from CoStar, a commercial real estate information company. That figure for January to July of 2008 was around $656 million. This equates to a nearly 80 percent drop in sales.
2008 was a record year for apartment sales, and one critical component to the sales volume that year was the number of institutional sales, which we define as sales valued at $20 million and above. In 2008, $380 million worth of transactions was in individual sales over $20 million, while thus far 2009 has produced just one transaction above $20 million. When we omit the institutional transactions, the volume in 2009 compares more favorably, at about 43 percent of the volume in 2008.
Despite the impact of the recession on the apartment market, Portland is in a good position for the upswing. U.S. News & World Report recently named Portland and its commercial market one of the ten cities “primed for a real estate recovery,” due to its green economy and overall economic health. When the job market and overall economy starts to improve, Portland’s multifamily market will be in a strong position for a rebound.
NAI Norris, Beggs & Simpson has been named a CoStar Group Power Broker top leasing and sales firm in Portland, OR, for the fourth year in a row. Many individual NAI NBS brokers also received recognition:
-Top Office Leasing Brokers: Jeff Borlaug, Chris Johnson, MaryKay West
-Top Retail Leasing Brokers: Gina Barendrick
-Top Industrial Leasing Brokers: Randy Young, Scott MacLean
-Top Sales Brokers: Chris Johnson, MaryKay West
You can find all award recipients for the Portland metro area here.
CoStar Group is a leading information provider for the commercial real estate industry. CoStar tracks data on commercial properties and transactions throughout the U.S., UK and France. The Power Broker Awards are presented annually to the top brokerage firms and individual agents in major U.S. markets based on their leasing and sales transaction activities the prior year.
Tualatin Valley Fire & Rescue has purchased Dartmouth Square, a 38,000 sf office building in Tigard, for $8.2 million. NAI Norris, Beggs & Simpson Executive Vice President Chris Johnson, SIOR, and Vice Presidents MaryKay West, CCIM, John Medak and Jennifer Medak represented the seller, Dartmouth Square LLC.
Dartmouth Square, a three-story Class A building, is at 11945 SW 70th in the Tigard Triangle, close to I-5 and Highways 217 and 99. Tualatin Valley Fire & Rescue was attracted to the location and quality of the building, and will use it for administrative offices.
Dartmouth Square delivered in November 2008 and has been vacant until now.
“We were very fortunate to line up an owner/user such as Tualatin Valley Fire & Rescue in this very challenging, capital-starved real estate market,” Johnson said. “The fact that they were an all-cash buyer made this transaction doable.”
Read CoStar's write-up of the sale here.
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.
Overview
Retail vacancy rose slightly to 7.1% during Second Quarter, with 240,321 sf of newly vacant space. Central City vacancy increased by a percentage point to 9.2%, with a large portion of this area’s negative 30,000 sf of absorption in the Close-In NW area. The suburban submarkets saw significant absorption, both positive and negative, in larger spaces. Vacancy in the 122nd/Gresham submarket rose nearly a percentage point to 8.4%, partly due to Joe’s Sports & Outdoors vacating 55,120 sf at 
Gresham Town Fair. But, the good news is that Grocery Outlet opened a 20,020 sf store at Sandy Marketplace on Highway 26 in this submarket in May.
Southwest retail vacancy rose nearly one percentage point to 7.5% with 88,722 sf newly vacant, due in large part to the more than 20,000 sf Zupan’s at Appleway Corner closing, and the departure of Linens-N-Things from Cascade Plaza Shopping Center. Retail vacancy in Vancouver also increased to 8.7%, with 91,000 sf newly available at Vancouver Plaza.
Noteworthy News
Some recent indicators, such as May consumer confidence that reached a 9-month high, are suggesting that the retail slump may end soon. But national and local retailers alike continue to struggle. Joe’s Sports & Outdoors liquidated in early April after filing for bankruptcy. The closure of stores like Joe’s and other big-box retailers is injecting an excess of large retail spaces into the market, and not many big-box retailers are looking to expand and fill them. So retail brokers are getting creative in trying to fill this vacant space, including marketing to non traditional tenants like thrift stores, service retailers or call centers, and trying to attract tenants who are surviving the recession better than others, like discount retailers.
Retail tenants aren’t the only ones feeling the recession. General Growth Properties, which operates Pioneer Place and Clackamas Town Center and some community shopping centers in the Portland metro area, filed for bankruptcy in April. GGP, the second largest mall owner in the country, is expected to keep all of its malls open, but may sell some properties.
Construction of new retail properties has slowed considerably in recent months, but some projects are still in the works. During Second Quarter 2008, just one year ago, Vancouver alone had nearly 300,000 sf under construction, while today it has only 16,080 sf at Lacamas Square. Portland’s Eastside retail submarket has the largest amount of retail currently under construction at 193,919 sf, largely due to the 140,625 sf Cascade Station Target, which is expected to deliver this November.
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