Healthy demand drivers and a modest amount of new construction will support the Portland apartment market this year and into 2008. Buoyed by robust employment expansion across all job sectors, the metro is on pace to add more than 15,000 households annually over
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the next several years, a growth of 2 percent. While the housing market has cooled throughout much of the nation, Portland’s home prices continue to push higher, which, when combined with increased borrowing costs and tighter lending standards, will cause affordability to decline and support additional demand for rental properties. New construction is modest, and the metro’s residents tend to be resistant to unchecked development, suggesting that long-term overbuilding presents little concern. While areas in Northwest Portland and close to the city’s core will remain popular with renters, gentrification efforts such as the future University of Oregon campus in Old Town could offer some long-term upside potential. The investment market remains strong for Portland’s apartment properties, with current fundamentals healthy and forecasts calling for future growth. Over the past year, cap rates have averaged in the low-to mid-6 percent range, slightly lower than one year ago but still high enough to attract out-of-state investors, albeit in smaller numbers than in the recent past. While fewer out-of-state buyers are entering the market, local investors, many of which have built up large equity stakes in their properties due to rising prices, have increased buying activity and are expanding and/or upgrading their holdings. While investor demand for rental properties should remain elevated, condo conversion deals have essentially reached a standstill, and future deals could become less attractive going forward due to recent legislation that requires additional renter protections and notification requirements for conversion projects.
By the numbers, Portland’s employers are expected to add 18,400 new jobs this year, a 1.8 percent gain. Early forecasts call for more moderate expansion in 2008. Multi-family developers are on pace to bring 770 new apartment units to Portland this year, just below the metro’s long-term average of 1,000 units annually. With the market showing strength, builders are becoming more active, and more than 1,500 units are scheduled for completion in 2008. Vacancy is expected to inch higher in the fourth quarter as developers bring new units to the market; however, the overall trend is positive. Year-end vacancy is expected to improve 30 basis points to 4.9 percent, following a 70 basis point decline in 2006. Steady economic growth continues to fuel renter demand for apartment properties%