Tuesday, June 10, 2014

Portland Rents Forecast to Ascend at Compound Annual Rate of 3% Through 2018

According to Red Capital Group, Portland employers added more than 24,000 jobs last year, a pace of 2.3% with the construction industry expanding at an 8.9% annual rate – the fastest in 10 years. Tech hiring also accelerated as professional services firms and health care slowed. 

Trends in Vacancy Rates
According to REIS, Portland renters absorbed 984 units in 2013, the highest in three years and vacancy was set at 2.9%the lowest in 24 years that RCR has been monitoring.

Axiometrics reported the following Portland metro vacancy rates (Q1 2014):
Class A – 5.0% vacancy
Class B – 3.7% vacancy
Class C – 3.7% vacancy

Red Capital Occupancy Rate Forecasts
Red Capital reported that apartment demand is expected to decelerate through 2015 but predicts vacancy rates will fall to 3% in 2016 and possibly lower in 2017.
2014 – 96.8%
2015 – 96.8%
2016 – 97.4%
2017 – 96.9%

Rent Trends*
REIS reported a 4.0% year over year rent increase 2012-2013 among all properties while Axiometrics’ same-store surveys of stabilized properties indicated a robust 8.1% year-over-year advance. This was the strongest recorded in two years and indicates Portland may be resisting rent slowdowns widely being observed in other U.S. markets. Rents in Q1 2014 rose at an annual rate of 4.3%. Rent increases were sharpest in Beaverton (8.3%) and Tigard (9.4%) with competitive pressure in NW Portland keeping increases somewhat lower (5.7%).

Axiometrics reported that surveys of larger properties found considerably stronger rent growth averaging 7.6--the fourth consecutive annual metric exceeding 6%.

Red Capital reports that "We estimate Portland rents will rise at an above average 3% - 4% rate through Q3 2016 before slowing to the 1.9%-2.3% range.”

Red Capital Effective Rent Forecasts
11th best performing in the U.S. top 50 (2013)

2014 forecast: 3.7%
2015 Forecast: 3.1%
2016 Forecast: 2.5%
2017 Forecast: 1.9%

Property Markets and Total Returns
Red Capital reported that for 2013, trophy property cap rates ranged from 4.5% to 5.2% while standard class-B assets were trading at about 5.5%

Average cap rate was 6.1%
Average price per unit $110,881
Expected total return 7.5%
18 Sales over $5 million

*Numbers in this report were updated in July 2014 with new numbers from RCR.