Portland’s Low Vacancy Rate Points Towards More Development to Come

Portland Unemployment and Vacancy by Year. From the PSU Center for Real Estate Quarterly-2011

According to an article in Friday’s Oregonian Portland is tied with Minneapolis for the second lowest apartment vacancy in the nation, behind only New York. This data comes from a National Association of Realtors Survey that puts the vacancy in Portland at a shockingly low 2.5%, well below the national average of 4.7%. This is backed up by similar, if slightly differing numbers from other real estate reports from groups such as the PSU Center for Real Estate or Norris, Beggs, and Simpson’s market reports. This is clear to anyone who has looked for an apartment lately as the competition is noticeable. An example of this is the Move the House Apartment in Southeast Portland. Completed in July 2011 by the Urban Development Partners it was fully leased almost immediately while asking Northwest/Pearl rents for its humble Division Street location.

Move The House at 3810 SE Division by Urban Development Partners. Image from UDP website

The Portland unemployment rate has fallen to 8.7%, which while too high is the lowest it has been in three year. The economy both nationally and locally seem to be heading in a positive direction but the area has seen low levels for new apartment construction. According to the Barry Apartment Report permits where issues for only 1,559 units for the year ending in October 2011, up from 1,000 units for the same period a year earlier. For comparison, 4,700 permits were issued per year on average between 2004 and 2009. The Barry report estimates permits wil be issued for 2,000 to 2,500 units next year, substantially more than we have seen since the onset of the great recession, if a lot fewer than before.

This all lead to the prospects of many of the projects we have seen proposed recently actually materializing and being joined by others. More development, especially housing, could help invigorate parts of the city in need of life. Portland as a whole is still relatively un-dense. In 2010 the city had a density of 4,346.8 people/square mile which puts us just ahead of Las Vegas (4,298.6) and well behind such cities as Seattle (7,254.6), Minneapolis (7,084.8) and Los Angeles (8,091.8). This would not be bad in and of itself, but when I look around the city I see numerous neighborhood that could benefit greatly from increased residential density. Areas such as Lloyd Center/Rose Quarter, parts of Downtown, Gateway, and many of the neighborhood commercial strips such as Interstate, East Burnside, Broadway and Sandy could be aided in their revitalization by having more residents. This in addition to part of the city that are on-going development projects such as South Waterfront, the North Pearl and Conway that have yet to be fully built out. In addition, the city has already laid the foundation for long term growth by spending billions on transit and other infrastructure to support more residents and has plans to spend billions more.

Portland Streetcar System Concept Plan. From The City of Portland.

But what about the potential for over-building? The issue was recently raised in the DJC by Creston Homes project manager David Mullens. The article points out that many of the new projects are relatively small and that demand is high. So while the risk always exists, and past real estate practice has been to always over build, the trend now seems sustainable. It is also worth reiterating the current permit trend versus past permit trends discussed above in light of population growth. According to the US Census, from 2000 to 2010 the population of Portland proper grew by 10.3 % or about 54,000 (the equivalent of adding all of Corvalis, Sherwood of Tigard to the city). All of those people need places to live. Presumably the city with its growing national prominence and reputation, west coast location and affordability will continue to experience growth in the next ten years like we have in the previous ten. Barring the unexpected, I don’t see Portland loosing its appeal to migrants any time soon.

The Pied Piper of Portland?

What do you think about the future of development in Portland? Comment with any thoughts about where we have been and where we are going.

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