MFNW Apt Report Spring 2018 PDF

VOL.
28 SPRING 2018
THE Apartment Report

UP AND DOWN MARKET Portland/Vancouver Overall average rents per unit type:
VACANCY: UNIT TYPE SPR 18 SPR 17
Craig McConachie, C&R Real Estate Services, Co.
Apartment Report Committee The Portland/Vancouver vacancy factor Studio $1115 $1078
increased by 48 basis points from our Fall 1 bdrm/1 bth $1182 $1127
Vacancy is up, rents are down and new units report, and currently stands at 4.85%. The 2 bdrm/1 bth $1152 $1102
keep getting delivered. The Portland area is Outer Northeast, Troutdale and North 2 bdrm/2 bth $1400 $1374
in the midst of one of the strongest Portland/St. Johns areas have the lowest 2 bdrm th $1341 $1228
economies and building cycles in decades, 3 bdrm/1 bth $1169 $1220
vacancy factors, all below 4%. Downtown is
and the trends bode well for improving 3 bdrm/2 bth $1507 $1489
pushing close to 7% vacant, followed by
affordability in the apartment market. Northwest and Clackamas, with vacancy over (continued on page 2)
Prospective residents who can afford the 6%. Two-bedroom, townhouse style units
higher rent rates in new projects, are no have the best occupancy of all unit types, with 1
longer competing with prospects for class B average vacancy of 3.9%. Studio units have 2
surveyed areas
and C apartments. With increasingly less the highest vacancy of 5.75%.
3 1. Portland & Vancouver
4 2. Salem & Vicinity
competition for lower priced units, availability Please note that our survey excludes new 3. Eugene & Springfield
for affordable units is on the rise. New projects in the lease-up phase that haven’t 4. Bend & Redmond
multifamily development has created a more reached stability. Numerous sources are
oregon
balanced market, as supply meets demand. reporting slower than anticipated absorption,
The Portland MSA can expect to see an increasingly aggressive concessions and SURVEY SAYS!
additional 7,000 to 8,000 new units be delivered competition in many close-in neighborhoods.
by the end of 2018. The construction pipeline Vacancy Rises
RENT RATES:
has over 40,000 units slated. However, with Rents Decrease
market conditions weakening, new inclusionary Total average rent rates have declined for the
Affordability Increasing
zoning regulations, and construction costs first time since 2010. Seven of the twenty
areas surveyed experienced rent declines, Expenses Up 6%
escalating, it’s expected that some projects
will never be delivered. while most of the remaining areas stayed the
same, or had minimal increases. Two areas TABLE OF CONTENTS
The Portland area unemployment rate is still
that saw stronger increases were Lake
seeing record lows, and household income PORTLAND METRO MAP . . . . . . . . . . . . . . . . . . 2
Oswego, with an 8% bump, and Inner and
growth is strong. Average operating expenses SEC 42 SURVEY RESULTS . . . . . . . . . . . . . . . . . . . 2
Central Northeast, with a 7% bump. Aloha
per unit have increased 6% year over year, as AVERAGE RENT PER SQUARE FOOT
and Wilsonville led the declining areas, with
rent growth has stalled, putting downward AVERAGE MARKET VACANCY RATE
3% reductions. There is no question that AVERAGE NO. OF DAY VACANT . . . . . . . . . . . . 3
pressure on net operating income. For sale
overall rent growth in the Metro area has SURVEY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . 4–5
inventory for apartments remains low,
peaked. Projections of 4% or 5% rent growth TREND REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
as demand remains high. The number of
for 2018 are starting to look overly optimistic. ECONOMIC UPDATE . . . . . . . . . . . . . . . . . . . . . . . 7
closed transactions in Portland Metro
INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
continues to decrease. Only 62 closed sales Average rent per sq. ft. for all areas combined
CURRENT & PROJECTED MARKET
in 1Q18, compared to over 100 in each of the is $1.56. The Downtown core continues to
OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9
three previous quarters. CAP rates are also have the highest rates at $2.43, with NW
OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . 10
declining, averaging 5.15% in 1Q18. The Portland coming in second at $2.07. Outer BUYER’S DAY IS COMING . . . . . . . . . . . . . . . . . 11
median price per unit in 1Q18 was $152,000 NE Portland and West Vancouver have the TENANT PAID UTILITIES . . . . . . . . . . . . . . . . . 12
and the median price per square foot was $171. lowest rates, at $1.24 and $1.28 respectively.
1
portland metro area
multnomah county washington county
5 DOWNTOWN PORTLAND 3 ALOHA
1 NW PORTLAND 4 BEAVERTON
13 INNER & CENTRAL SE (PTLD) 2 HILLSBORO | NORTH OF HWY 26
17 INNER & CENTRAL NE (PTLD) 7 TIGARD | TUALATIN | SHERWOOD
18 NORTH PORTLAND | ST. JOHNS
6 SW PORTLAND clark county
14 OUTER SE (PORTLAND) 19 WEST VANCOUVER
16 OUTER NE (PORTLAND) 20 EAST VANCOUVER
15 TROUTDALE | FAIRVIEW
WOOD VILLAGE | GRESHAM
clackamas county
12 CLACKAMAS
8 LAKE OSWEGO | WEST LINN
11 MILWAUKIE
10 OREGON CITY | GLADSTONE
9 WILSONVILLE | CANBY
(continued from page 1)

The “Buyer’s Day is Coming”, according to Liz Tilbury, from Tilbury
MARKET CONDITIONS: Ferguson Investment Real Estate, Inc. Liz contends that supply and
Over 10% of all properties are offering rental incentives. This has demand is beginning to come back in balance. Sales volume has been
nearly doubled since our Fall report. Concessions are no longer limited restricted due to lack of willing sellers, but this may be shifting.
Because of high prices in the Portland area, many buyers are looking
to new lease-ups, but have become more prevalent in stabilized
to secondary markets. “This has caused prices to rise markedly in
properties across the region. The average number of days that a unit
markets like Salem, Eugene, Corvallis, Albany and Bend.”
will stay vacant for the entire Metro area is 35. East Vancouver is 56
days, Aloha is 63 days, and Clackamas, with 91 days, is particularly Josh Lehner, State Economist from the Oregon Office of Economic
slow for re-renting. The Outer Southeast and Northeast areas enjoy Analysis, writes that the “The feel good part of the business cycle has
the quickest turnover times of 17 days or less. (They also have some arrived.” He points out a fact that most employers will readily agree
of the lowest rent rates in the area). with, finding workers is the number one issue for local businesses.
Josh discusses why economists remain bullish for near-term growth
Other Areas in Oregon. “Clearly there is a demand for housing. In fact, the region
Vacancy rates in Bend/Redmond are back to a more normal range of will need to build considerably more than it already has.”
3.5%. They had an amazing .5% in the Fall. Average rent rates have This survey represents a total of 72,051 units from 997 properties. All
declined by almost 9%. The turnover time in Bend/Redmond has of the articles have been reprinted without editing the content, in
increased to 29 days. Eugene/Springfield has seen vacancies increase order to present unbiased opinions. We’d like to thank all of the
slightly to 4.1% and rents are down 2%, to $1.24 psf. The Salem management companies and property owners who have submitted
market vacancy is up to 3.6%, with rents staying relatively flat. information. Their participation is critical in insuring the accuracy of
Operating Expenses our data and the continued success of this report.
This issue includes our annual survey of apartment operating
expenses. The numbers are derived from 2017 year-end operating
statements at 104 stabilized properties, representing 6,578 units seCTIon 42 survey resuLTs sprIng 2018
throughout the Portland Metro area. Newer garden style apartments TTL # of properTIes = 137 TTL # of unITs = 10,723
in Washington County have the highest per unit expenses at $6,536,
while garden style units in Multnomah County have the lowest per vaCanCy avg. renT
unIT Types raTe (%) per sQ fT ($)
unit expenses of $4,359. Property taxes average $1,203 per unit.
Insurance expenses average $218 per unit, and total expenses average sTudIo 2.99 2.03
$5,562, up from $5,255 one year ago (+6%). 1 Bed / 1 BaTH 2.14 1.20
2 Bed / 1 BaTH 2.88 1.04
Our Contributors 2 Bed / 2 BaTH 3.61 0.99
Jerry Johnson, with Johnson Economics, has contributed a detailed 2 Bed / TH 5.15 0.87
article discussing new construction pipeline trends, and examines the 3 Bed / 1 BaTH 4.62 0.95
impact that millennials are having on our local market. Jerry predicts 3 Bed / 2 BaTH 1.63 0.85
vacancy rates will top 7% in 2021 and rent rates will start declining ToTaLs 2.70 1.23
in 2020. “…The millennial boost to apartment absorption already has taken
place, and we are beginning to see the effect of millennial homebuying”.
2
0
10
20
30
40
50
60
70
80
90
100
110
120
1
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
NW Portland
28
38
1
NW Portland Northwest Portland
2
6.4
2.07
Hillsboro | N of Hwy 26
46
46
2
3
4.5
1.42
Aloha
74
63
Aloha
3
Aloha
4
4.7
1.43
Beaverton
19
36
4
Beaverton Beaverton
5
4.6
1.42
Downtown Portland
43
Downtown
28
Downtown Portland
6
6.9
Portland
2.43
SW Portland
22
17
SW Portland
6
SW Portland
7
5.8
1.85
Tigard | Tualatin | Sherwood
40
30
7
Tigard | Tualatin | Sherwood Tigard | Tualatin | Sherwood
8
4.2
1.44
7
Lake Oswego | West Linn
33
8
Lake Oswego | West Linn Lake Oswego | West Linn
9
4.6
1.66
Wilsonville | Canby
88
50
9
Wilsonville | Canby Wilsonville | Canby
4.9
10
1.41
Oregon City | Gladstone
57
30
Or City | Gladstone Oregon City | Gladstone
10
5.0
11
1.30
Milwaukie
23
32
Milwaukie Milwaukie
11
4.1
12
1.43
Clackamas
85
3
91
Clackamas Clackamas
12
6.1
13
1.41
Inner & Central SE (Portland)
12
18
Inner & Central SE (Ptld) Inner & Central SE (Ptld)
13
5.0
14
1.69
Outer SE (Ptld)
16
average market vacancy rate %
16
Outer SE (Ptld) Outer SE (Ptld)
average rent per square foot $
14
4.5
15
1.33
Troutdale | Fairview | Wood Village | Gresham
25
Troutdale | Fairview Troutdale | Fairview
31
15
3.8
Wood Village | Gresham Wood Village | Gresham
16
1.31
Outer NE (Ptld)
26
17
Outer NE (Ptld) Outer NE (Ptld)
16
3.4
17
1.24
Inner & Central NE (Portland)
21
20
Inner & Central NE (Ptld) Inner & Central NE (Ptld)
17
4.4
18
1.96
N Portland | St. Johns
16
21
N Portland | St. Johns N Portland | St. Johns
18
3.9
19
1.75
West Vancouver
28
28
West Vancouver West Vancouver
19
4.7
20
1.28
East Vancouver
30
56
East Vancouver East Vancouver
20
4.8
1.30
Salem average number of days vacant — portland/vancouver
33
22
Salem Salem
3.6
1.21
Eugene | Springfield
34
31
Eugene | Springfield Eugene | Springfield
4.1
1.24
sprIng 18
faLL 17
Bend | Redmond
16
other areas
29
Bend | Redmond Bend | Redmond
3.5
other areas
1.37
survey results—spring 2018
portland/vancouver metro area
# of faLL 17 1 Bed 2 Bed 2 Bed 2 Bed 3 Bed 3 Bed
area name daTa aLL CHange sTudIo
prop reporT 1 BaTH 1 BaTH 2 BaTH TwnHs 1 BaTH 2 BaTH
downTown porTLand 32 avg markeT vaCanCy raTe % 6.92 5.54 0.25 5.68 7.37 2.38 11.18 20 0 12.5
(5) avg renT per sQ fooT $ 2.43 2.31 0.05 2.65 2.3 2.21 2.39 2.04 1.66 2.6
avg renT per unIT Type $ 1071 1481 1777 2530 2418 1580 3024
sum of unITs surveyed 1936 2616 740 936 84 152 15 1 8
nw porTLand 60 avg markeT vaCanCy raTe % 6.44 5.03 0.28 6.91 6.26 6.48 6.81 1.15 2.63 6.67
(1) avg renT per sQ fooT $ 2.07 2.09 -0.01 2.61 2.18 1.61 1.78 1.47 1.44 1.33
Inner & CenTraL se 132 avg markeT vaCanCy raTe % 5.02 4.26 0.18 5.47 5.1 4.72 5.52 5.14 4.35 0
porTLand avg renT per sQ fooT $ 1.69 1.68 0.01 2.53 1.73 1.39 1.67 1.3 1.18 1.24
(13) avg renT per unIT Type $ 1063 1129 1191 1778 1221 1311 1310
Inner & CenTraL ne 95 avg markeT vaCanCy raTe % 4.39 4.29 0.02 4.49 3.91 5.06 7.22 4.41 0 16.67
porTLand avg renT per sQ fooT $ 1.96 1.84 0.07 2.56 1.96 1.51 2.06 1.46 0.74 1.69
n porTLand | sT JoHns 17 avg markeT vaCanCy raTe % 3.89 3.96 -0.02 4.17 4.56 1.37 8.77 0 0 0
sw porTLand 39 avg markeT vaCanCy raTe % 5.78 5.14 0.12 7.23 6.34 4.85 4.65 9.76 7.14 2.24
ouTer se porTLand 40 avg markeT vaCanCy raTe % 4.54 4.52 0 8.43 5.37 3.98 3.61 4.1 0 5.06
ouTer ne porTLand 27 avg markeT vaCanCy raTe % 3.39 3.43 -0.01 0 3.24 3.51 4.03 5.88 0 2.47
TrouTdaLe | faIrvIew 37 avg markeT vaCanCy raTe % 3.81 3.82 0 4.35 3.7 4.26 3.93 4.74 5.26 0.43
wood vILLage | gresHam avg renT per sQ fooT $ 1.31 1.27 0.03 2.04 1.5 1.25 1.19 1.43 1.26 1.18
CLaCkamas 8 avg markeT vaCanCy raTe % 6.08 3.88 0.57 9.09 4.41 7.36 7.32 3.13 - 3.68
(12) avg renT per sQ fooT $ 1.41 1.43 -0.01 1.95 1.57 1.33 1.32 1.33 - 1.32
avg renT per unIT Type $ 896 1053 1164 1281 1275 - 1468
Lake oswego | wesT LInn 18 avg markeT vaCanCy raTe % 4.57 4.17 0.1 11.11 4.24 4.74 4.95 5.65 0 0
mILwaukIe 21 avg markeT vaCanCy raTe % 4.08 4.19 -0.03 4.65 2.28 5.05 6.54 4.85 0 2.8
oregon CITy | gLadsTone 9 avg markeT vaCanCy raTe % 5.03 3.64 0.38 0 2.8 1.59 10.08 0 0 9.84
wILsonvILLe | CanBy 15 avg markeT vaCanCy raTe % 4.91 4.86 0.01 0 5.96 4.73 4.24 2.24 0 6.37
aLoHa 43 avg markeT vaCanCy raTe % 4.72 3.71 0.27 3.23 4.67 3.93 5.09 5.76 2.44 5.12
4
portland/vancouver metro area
# of faLL 17 1 Bed 2 Bed 2 Bed 2 Bed 3 Bed 3 Bed
area name daTa aLL CHange sTudIo
prop reporT 1 BaTH 1 BaTH 2 BaTH TwnHs 1 BaTH 2 BaTH
BeaverTon 56 avg markeT vaCanCy raTe % 4.56 3.81 0.2 2.25 3.59 4.48 5.36 6.73 13.01 3.02
HILLsBoro | n of Hwy 26 14 avg markeT vaCanCy raTe % 4.45 4.69 -0.05 0 4.93 1.2 4.37 2.38 0 5.18
TIgard | TuaLaTIn 55 avg markeT vaCanCy raTe % 4.19 4.55 -0.08 5.45 4.44 3.24 5.19 3.56 4.73 3.13
sHerwood avg renT per sQ fooT $ 1.44 1.44 0 2.38 1.63 1.35 1.31 1.3 1.28 1.27
wesT vanCouver 38 avg markeT vaCanCy raTe % 4.71 4.06 0.16 0 3.37 3.49 7.1 0.92 12.5 6.82
(19) avg renT per sQ fooT $ 1.28 1.27 0.01 2 1.44 1.25 1.21 1.18 1.47 1.12
easT vanCouver 21 avg markeT vaCanCy raTe % 4.81 4.78 0.01 5.88 4.87 5.13 4.6 0.6 - 6.34
(20) avg renT per sQ fooT $ 1.3 1.28 0.02 1.92 1.45 1.25 1.21 1.24 - 1.21
avg renT per unIT Type $ 926 1014 1117 1207 1227 - 1390
ToTaL avg markeT vaCanCy raTe % 4.85 4.37 0.11 5.75 4.81 4.28 5.42 3.94 4.84 4.67
ToTaL avg renT per sQ fooT $ 1.56 1.57 -0.01 2.47 1.75 1.34 1.39 1.29 1.14 1.27
ToTaL avg renT per unIT Type $ 1115 1182 1152 1400 1341 1169 1507
ToTaL sum of properTIes surveyed 777 738 200 630 522 257 116 83 196
ToTaL sum of unITs surveyed 57988 52537 4018 19479 13548 13795 2465 703 3980
vacancy rate since fall 2013—portland/vancouver metro area

14 14
sTudIo
12 12
1 Bed/1 BaTH
10 10
2 Bed/1 BaTH
8 8
2 Bed/2 BaTH
6 6
2 Bed TH
4 4
3 Bed/1 BaTH
2 2
3 Bed/2 BaTH
0 0
faLL 13 spr 14 faLL 14 spr 15 faLL 15 spr 16 faLL 16 spr 17 faLL 17 spr 18
other areas
saLem & vICInITy 113 avg markeT vaCanCy raTe % 3.61 2.63 0.37 2.4 3.23 3.57 4.21 3.16 5.26 4.09
avg renT per sQ fooT $ 1.21 1.2 0.01 1.68 1.41 1.15 1.16 1.05 1.51 1.08
eugene | sprIngfIeLd 93 avg markeT vaCanCy raTe % 4.1 3.7 0.11 2.7 2.86 3.16 6.14 3.9 4.55 8.22
avg renT per sQ fooT $ 1.24 1.27 -0.02 1.88 1.3 1.15 1.17 1.13 1.12 1.13
Bend | redmond 14 avg markeT vaCanCy raTe % 3.47 0.48 6.23 2.17 3.7 2 3.51 - - 6.25
avg renT per sQ fooT $ 1.37 1.5 -0.09 1.91 1.58 1.2 1.27 - - 1.13
avg renT per unIT Type $ 1087 1092 1216 1270 - - 1374
ToTaL avg markeT vaCanCy raTe % 3.81 3.03 0.26 2.53 3.09 3.41 4.96 3.54 4.93 6.16
ToTaL avg renT per sQ fooT $ 1.24 1.24 0 1.82 1.39 1.15 1.19 1.09 1.33 1.11
ToTaL avg renT per unIT Type $ 726 890 967 1199 1104 1167 1300
ToTaL sum of properTIes surveyed 220 150 42 132 125 73 31 39 58
ToTaL sum of unITs surveyed 14063 12126 633 3524 4810 2959 988 142 1007
Surveys received from Sec 42, Sec 8 and other subsidized affordable housing programs are not included in the current survey data.
5
trend report : portland metro area
CoStar: Search criteria—Research Status: Published; Market: Portland; PropType: Multi Family; Sale Date: 1/1/2015—3/23/18; unit: 5 units and greater.
CAP RATE NUMBER OF TRANSACTIONS

6.0% 110
5.9% 100
90
5.8%
80
5.7% 70
5.6% 60
5.5% 50
40
5.4%
30
5.3%
20
5.2% 10
5.1% 0
15
15
15
15
16
16
16
16
17
17
17
17
18
15
15
15
15
16
16
16
16
17
17
17
17
18
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
MEDIAN PRICE PER SQUARE FOOT MEDIAN PRICE PER UNIT (in thousands)
$190 $160
$180
$150
$170
$160 $140
$150
$130
$140
$130 $120
$120 $110
$110
$100
$100
$90 $90
5
15
15
15
16
16
16
16
17
17
15
15
15
16
16
16
16
17
17
17
17
18
1
1
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
year 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
# of Trans 103 100 86 81 102 94 72 97 74 116 108 103 62
TTL $ voLume $506,748,854 $557,876,713 $725,999,878 $534,944,829 $542,637,528 $421,972,808 $454,788,632 $1,634,594,743 $373,114,896 $253,220,929 $474,752,043 $647,311,076 $342,793,825
TTL BLdg sf 3,844,680 3,724,302 4,168,678 3,563,358 3,176,039 2,384,832 2,674,749 16,020,061 2,354,530 2,540,599 3,441,906 3,004,606 2,042,251
TTL unITs 3,927 3,957 4,462 3,596 3,520 3,155 3,088 8,048 2,550 2,856 3,345 3,539 55.89
avg prICe $6,105,408 $6,887,367 $9,189,872 $7,328,011 $6,617,531 $5,702,335 $7,708,282 $21,794,597 $9,100,363 $3,723,837 $6,686,648 $10,274,779 $9,264,698
avg # of sf 37,327 37,243 49,043 43,992 31,138 25,371 37,673 88,356 32,254 21,902 32,167 29,171 32,940
avg prICe BLdg sf $147.62 $156.82 $178.95 $152.47 $179.52 $184.74 $174.89 $206.77 $189.67 $157.06 $203.62 $279.76 $252.29
med prICe p/sf $98.92 $136.27 $126.38 $121.21 $117.07 $132.18 $138.82 $158.35 $152.50 $147.72 $164.77 $190.81 $171.10
avg prICe p/unIT $142,083 $145,966 $163,489 $150,097 $159,960 $137,924 $150,623 $217,696 $179,018 $137,770 $192,407 $231,739 $209,660
med prICe p/unIT $102,647 $98,611 $109,220 $122,500 $105,982 $113,750 $117,925 $149,562 $137,062 $130,398 $140,000 $160,895 $152,000
avg # of unITs 41 43 54 46 36 34 44 89 36 25 32 35 36
aCTuaL Cap raTe 5.96% 5.38% 5.73% 5.76% 5.69% 5.51% 5.70% 5.22% 5.42% 5.65% 5.69% 5.19% 5.15%
avg grm 9.83 10.20 8.48 10.49 9.91 11.30 9.48 11.56 11.82 14.67 11.16 13.64 14.22
avg gIm 8.78 — 8.67 11.40 9.44 10.73 — — — — 9.01 — —
6
portland’s economic Now, rising interest rates, slowing economic growth, and sizable multifamily
deliveries cause some concerns among developers, lenders, and property
growth remains healthy owners. Refinancing of newer buildings may be more challenging. However,
Josh Lehner, Economist, State of Oregon, Office of Economic Analysis any potential short-term pain or adjustments should be balanced with
longer-term expectations.
Over the next five years the Portland region will welcome nearly 6,000 new
residents each year between the ages of 20 and 34 years old, the core apartment
demographic. Over this same period the area is set to add 90,000 new
households overall. The following five years should see similar, albeit
slightly lower gains. Clearly there is demand for housing. In fact, the region
will need to build considerably more than it already has.
The Portland region continues to see healthy economic growth and an
influx of new residents each year. These trends will continue until the next
recession. Barring an international trade war, near-term growth prospects
The Portland region is enjoying the fruits of the best economy remain bright this year and next. The biggest benefit, and thus risk for the
in decades. Among the nation’s 100 largest metropolitan areas, Portland economy remains the region’s ability to attract and retain young,
Portland’s growth over the past decade stands out. The region working-age households. Should migration dry up, due to a poor economy
is Top 5 for high-wage job gains, educational attainment or the lack of housing affordability, the region’s longer-run growth prospects
increases, and household income growth. The unemployment would be revised lower.
rate is flirting with record lows even with the influx of new
Josh Lehner is a Senior Economist with the State of Oregon’s Office of Economic
working-age households. Crucially, housing affordability has Analysis. He develops the quarterly Oregon Economic forecast, including outlooks for
stopped getting worse for most residents. As rents slow and employment, income and housing. Additional responsibilities include the Oregon Index
incomes grow, affordability is set to improve over the next few of Leading Indicators, tracking international developments in Oregon’s export markets and
years. The feel good part of the business cycle has arrived. forecasting revenues for the Oregon Lottery, Oregon Judicial Department and state tobacco
taxes. Mr. Lehner earned a B.A. in Economics from the University of Colorado and an M.S.
However, the past eight years has been about recovering from in Economics from Portland State University.
the Great Recession. Some scars remain, but the Portland region
has healed overall. As such, the economy is now in a new phase
of the business cycle. The expansion has matured. And as in real
life, as we age, we tend to move a bit slower. Economic growth,
do you offer incentives?
while still healthy, is not quite as robust as a few years ago. The map area faLL 2017 sprIng 2018
economy is running into some capacity constraints. Finding NW Portland 11.3% 18.5%
workers is the number one issue for local businesses. No longer
Hillsboro/North of Hwy 26 0% 0%
is an army of unemployed Portlanders waiting around for a job.
Aloha 4.1% 8.7%
As such, regional employment gains have slowed as the economy
transitions down to sustainable rates of growth. Beaverton 7% 6.7%
Downtown Portland 6.3% 22.2%
The good news is economic expansions do not die of old age.
SW Portland 15.2% 22.7%
They die due to imbalances, policy mistakes, and external
Tigard/Tualatin/Sherwood 10.3% 11.3%
shocks. Today, economists remain bullish on near-term growth
for two main reasons. First, the flow of economic data remains Lake Oswego/West Linn 0% 4.6%
healthy. Here in Oregon no leading indicator is flashing red, Wilsonville/Canby 8% 4%
signaling ongoing growth in the coming quarters. Second, the Oregon City/Gladstone 9.1% 14.3%
U.S. is running a federal fiscal experiment of stimulating a Milwaukie 7.4% 11.5%
relatively strong economy. Tax cuts and spending increases add
Clackamas 0% 12.5%
a sizable fiscal stimulus this year and next. The result is a boost
Inner & Central SE (Portland) 3.1 6.3%
to economic growth. However medium and long-run economic
Outer SE (Portland) 0% 0%
gains are marginal due to the design of the tax cuts and the timing
of the business cycle. Troutdale/Fairview/Wood Village/Gresham 7% 4.3%
Outer NE (Portland) 2.4% 11.8%
One major concern is the fiscal stimulus simply results in higher
Inner & Central NE (Portland) 2.7% 9.7%
inflation and no real growth. This may be due to the lack of
economic slack or supply side constraints that are harder to North Portland/St. Johns 7.4% 5.9%
overcome. In this case the Federal Reserve will raise interest West Vancouver 4.9% 11.1%
rates faster to slow economic growth and tame inflation. This East Vancouver 8.7% 19.2%
plausible scenario could also signal the end of the expansion. Salem/Vicinity 6% 9.4%
Should the Fed choke off growth entirely, it would also signal
Eugene/Springfield 15.3% 15.2%
the onset of recession. However, this is far from a foregone
Bend/Redmond 0% 15%
conclusion. The Fed will adjust policy based on economic
conditions. Today, the Fed indicates they will raise interest rates
by 75 to 100 basis points this year and next.
7
CURRENT & PROJECTED MARKET OVERVIEW
PORTLAND METRO AREA
Jerry Johnson, Managing Principle, Johnson Economics
PIPELINE TRENDS
Johnson Economics apartment pipeline currently includes a total of 43,737 units. During the fourth quarter we added 17 new projects to the
pipeline database with roughly 1,800 units, while 21 projects with 1,400 units were completed. The greatest pipeline increase over the quarter
was on the Close-in Westside, roughly equivalent to the urban portion of West Portland. The pipeline in this submarket increased by nearly
1,600 units over the quarter, bringing its total to over 12,000 units (28% of the regional pipeline). Three new projects with pre-application
conferences were added, including a 296-unit project in Goose Hollow and a 150-unit complex in the Pearl. If these move on to file formal
land use applications, they will be the first 20+ unit proposals in Portland since the inclusionary zoning mandate took effect in February.
Capacity constraints in the construction industry and at planning and building departments have caused projects to move more slowly through
the pipeline. Based on our preliminary delivery estimates for projects currently in the pipeline, the output is likely to increase over the coming
years. However, with softening market fundamentals, we expect many of the projects to be shelved or scrapped. We therefore expect to revise
these estimates down in future reports.
ESTIMATED APARTMENT DELIVERIES

BY YEAR QUARTER–END 4Q17
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
+
09
10
11
13
14
15
16
17
18
19
20
21
1
20
20
20
20
20
20
20
20
20
20
20
20
20
The following chart illustrates the regional market impacts if new from 2014 revealed that nearly 80 percent of early millennials (born
supply over the next five years is limited to 6,000 units per year and 1980-84) were moved out before turning 27. In fact, 90% had moved
net absorption stays at 4,600 units, which is the 2017 average of out (78% before age 23), but many were at some point forced to move
Multifamily NW and CoStar calculations. We also average the two back in due to economic hardship in the wake of the 2008 recession
datasets for historical occupancy and rent growth rates. The scenario (the respondents reached age 27 between 2007 and 2011).
suggests a vacancy rate above 6% in 2019 and above 7% in 2021.
Based on data provided in these studies, we estimate that at least 76%
Based on the historical relationship between vacancy and rent growth,
of all millennials (19-38 years old) nationwide have already moved
this should lead to flat rent growth by 2019, and rent declines in
out from their parents as of 2018. This suggests that the millennial
following years.
boost to apartment demand has already taken place, and that the
MILLENNIALS younger half of the apartment market will at best grow more slowly
Future apartment absorption in the Portland Metro Area is heavily in coming years.
dependent on the housing preferences of the two largest generational
The population distribution in the Portland Metro Area differs from
cohorts: the baby boomers and the millennials. Millennials have been
the national distribution. The local population is somewhat younger
credited for much of the surge in apartment demand in recent years,
overall, but with a smaller share of college-age residents and a larger
and the question is whether this cohort will continue to drive demand,
working-age population. This twist is a result of relatively few
or if they are ready to move into ownership housing.
universities located within the region, but a large tech sector that
If the cusp of the millennial wave currently is 27 to 28 years old, we can attracts young workers. The following chart indicates that there are
assume that the wave of millennial move-outs (household formation) relatively few millennials at the typical “move-out” age of 18-22
is already behind us. Though research has shown that millennials tend within the region, and that the apartment market is dependent on
to live with their parents longer than previous generations – even after continued in-migration of college graduates for absorption.
they have become financially able to form their own households – the Population estimates from the Census Bureau indicates even fewer
large majority are out by the time they are 27. A national study younger millennials.
(continued on page 9)
8
(continued from page 8)
MODELED VACANCY & RENT GROWTH, PORTLAND METRO AREA (2018–2022)
7,000 14%
VACANCY & RENT GROWTH

6,000 12%
5,000
APARTMENT UNITS
10%
4,000
8%
3,000
6%
2,000
4%
1,000
2%
0
0%
-1,000
-2,000 -2%
-3,000 -4%
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
New Supply New Absorption Vacancy Rate Rent Escalation
POPULATION DISTRIBUTION, PORTLAND METRO AREA

1.8%
PORTLAND METRO
1.6%
UNITED STATES
1.4%
1.2%
POPULATION
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100+
AGE
Continued in-migration of college graduates to the Portland Metro One factor that might stem the flow of millennials from the rental
Area is contingent on healthy job creation. The region remains well market to the ownership market is the limited supply of small
above national levels in terms of percentagewise job growth, though ownership homes appropriate for first-time buyers. The number of
the spread to the national rate appears to have narrowed somewhat sales involving homes smaller than 1,500 square feet has remained
over the past 18 months. As of November 2017, the growth rate was below 500 units per year since 2010 (mostly townhomes), compared
2.1% in the Metro Area, compared to 1.4% nationally. The nationwide to a peak level of 3,500 units in 2006 (townhomes and condos). Starter
population distribution, with a declining college-age population in homes with 1,500 to 2,000 square feet have seen stronger improvement,
coming years, might be a greater challenge to future in-migration than but is limited to 1,000-1,500 sales per year. It is the smallest homes
job growth. that have seen the strongest price gains in this recovery, suggesting
that these are paticularly undersupplied in the current market.
Judging from the census data, it appears that the millennial boost to
apartment absorption already has taken place, and that we are beginning As a Principal with Johnson Economics, Jerry Johnson is involved in research
design, economic and financial modeling, and market analysis. He has consulted
to see the effect of millennial homebuying. We expect the latter to
on the economics of land use planning and real estate for 26 years and is
increase over the next years, as the millennials settle into a family
recognized as a top expert in the field of land use economics. He is a member
lifestyle. Current birth data from Washington State indicates 27 as
of the Governor’s Council of Economic Advisors for the State of Oregon,
the median age of first-time births (not available for Oregon). and is an adjunct professor at Portland State University’s Center for Real
Assuming this is representative also for the Portland Metro Area, we Estate, teaching graduate-level real estate market analysis and f inance
are right at the peak of millennial first-time births in 2018. courses. He has managed over 500 projects, working with a range of private
Homebuying often follows first-time births. National data pins the and public sector clients. Jerry holds a Masters of Urban Planning with a
median age of first-time homebuyers at 32 or 33 years, depending on specialization in economic development from Portland State University,
dataset, suggesting that there is another four-five years before we reach as well as undergraduate degrees in architectural design and economics.
the peak of millennial homebuying in the Portland Metro Area.
9
muLTnomaH CounTy wasHIngTon CounTy CLaCkamas CounTy CLark CounTy
g a r d e n -s T y L e garden-sTyLe garden-sTyLe u r Ba n - s T y L e u r Ba n - s T y L e garden-sTyLe garden-sTyLe garden-sTyLe garden-sTyLe garden-sTyLe

2 0 0 0 -C u r r e n T 1 9 5 1 -1 9 9 9 1910-1950 2000-CurrenT 1910-1950 2000-CurrenT 1951-1999 2000-CurrenT 1951-1999 1951-1999
ToTaL # of unITs: 6,578 191 1593 300 226 720 76 1693 259 953 567
ToTaL # of properTIes: 104 3 25 8 2 27 2 19 2 9 7
medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan medIan
per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit per sq ft per unit
expenses
reaL esTaTe Taxes 1.29 1,011 1.39 1,178 1.60 1,093 2.50 1,529 2.03 982 2.02 1,476 1.21 1,027 1.74 1,683 1.22 1,103 1.19 950
properTy InsuranCe 0.27 212 0.26 239 0.40 280 0.35 231 0.46 221 0.32 241 0.23 211 0.19 180 0.16 153 0.30 212
professIonaL
off-sITe mgmT
0.73 559 0.64 548 1.23 1,110 0.89 567 2.41 1,137 0.79 614 0.62 519 0.55 525 0.55 447 0.58 467
on-sITe mgmT/LeasIng
maInT sTaff
0.82 640 1.02 863 0.56 354 1.36 901 0.75 418 0.99 776 0.75 697 0.85 819 1.01 702 1.11 898
offICe/admInIsTraTIon 0.23 205 0.35 310 0.04 27 0.66 427 0.14 75 0.84 562 0.23 194 0.22 215 0.20 158 0.19 151
eLeCTrICITy 0.08 66 0.09 89 0.16 112 0.50 323 0.25 109 0.13 97 0.11 90 0.07 67 0.07 62 0.05 45
waTer and sewer 0.55 404 0.81 689 1.32 1,007 0.66 409 1.24 560 0.99 806 0.95 847 0.54 525 0.94 782 0.63 506
10
garBage CoLLeCTIon 0.25 177 0.29 231 0.19 140 0.18 117 0.21 108 0.23 204 0.22 192 0.19 182 0.19 183 0.32 295
gas/oIL — — — — 0.23 163 0.13 90 0.24 116 0.01 10 0.01 6 0.00 2 0.01 7.14 0.00 —
TeLepHone/InTerneT 0.13 95 0.07 61 0.06 42 0.15 88 0.15 72 0.16 106 0.05 50 0.04 37 0.05 41 0.07 66
adverTIsIng/markeTIng 0.07 52 0.05 44 0.04 26 0.42 297 0.05 30 0.25 174 0.06 51 0.07 64 0.03 28 0.07 61
(not including capital expenses or reserves)
LandsCape/grounds 0.26 211 0.22 183 0.47 304 0.19 145 0.44 169 0.18 162 0.42 400 0.22 212 0.27 208 0.31 305
maInTenanCe
maInTenanCe and 0.70 552 1.19 1,001 1.94 1,304 1.38 885 2.52 1,049 1.37 1,033 1.05 871 0.35 333 0.95 901 1.48 1,228
repaIrs (int&ext)
Turnover CosTs 0.24 175 0.34 280 0.84 565 0.37 248 0.69 295 0.36 275 0.32 264 0.27 257 0.22 186 0.28 225
(painting, cleaning, etc.)
mIsCeLLaneous — — — — 0.00 0 0.00 0 — — — — — — 0.00 0 0.00 0.00 0.00 0
ToTaL $5.83 $4,359 $6.73 $5,716 $9.06 $6,526 $9.73 $6,255 $11.56 $5,342 $8.65 $6,536 $6.22 $5,417 $5.30 $5,103 $5.88 $4,961 $6.58 $5,410
2017 portland msa apartment operating expenses
buyer’s day is coming price, but anything less desirable or with problems is taking
longer to sell.”
Liz Tilbury, CCIM
Year-to-date sales volume through February is on track with
2017. However, the data may be somewhat misleading because
total sales volume
the number of transactions is down by about 13%, according
$1,750,000,000 to Mark. The disproportionate share of newer and larger
$1,500,000,000 properties has somewhat skewed the figures, however.
$1,250,000,000
There are still lots of out-of-state exchange buyers. As long
$1,000,000,000 as buyers from other areas, especially California, can sell
$750,000,000 their properties, acquisitions in Oregon (even with cap rates
$500,000,000
considerably lower than they were a few years ago) remain very
attractive. Because of upward pressure on pricing in Portland,
$250,000,000
there is much more demand than there was a few years ago
$1,000,000
from both local and out-of-state investors for properties
15
15
15
15
16
16
16
16
17
17
17
17
18
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
outside of Portland metro which offer significantly higher
returns. This has caused prices to rise markedly in secondary
The market is shifting. After years of demand exceeding very markets like Salem, Eugene, Corvallis, Albany and Bend.
limited supply, we are finally beginning to see more opportunities
in the marketplace. Sales volume for 2017 was down by about A segment of the market, which is performing well and for
40% from 2016 because there was so little for sale, but this is which there is strong demand, is work force housing. As rents
beginning to change. A combination of factors is causing owners and prices have continued to climb in the inner city on both
who have plans to sell in the few years to think about doing it sides of the river, the boundaries of what is considered
now. These include flattening rents, increased concessions, “close-in” continue to push outward. The flight to affordability
more vacancy and higher operating costs (especially property has put pressure on values and rents in these outlying
taxes in the City of Portland). We are no longer seeing the big neighborhoods (which were affordable, but marginal). This in
rent increases of the past few years and all this comes at a time turn has caused these areas to appreciate rapidly so they are out
of rising interest rates (with more to come) and legislative of reach of many of the low wage workers who formed their
restrictions on property owners at both the state and local level, rental base, and investors in these neighborhoods have had to
but especially in the City of Portland.
reduce their cash flow expectations.
Just as more owners are considering selling, the prospect of
The apartment sales market in the greater Portland area has
rising rates has spurred buyers to put sales in escrow as soon as
benefited from a remarkable combination of favorable
possible. As more properties come on the market, supply and
conditions in the last six or seven years: rapid rent growth, lots
demand will begin to come back into balance. For five or more
years, the apartment sales market has been characterized by of in-migration, low unemployment, very low interest rates,
many more buyers than sellers. This has given rise to multiple limited supply of new units as well as favorable national
offers and buyers trying to distinguish themselves and be more publicity, all of which has given rise to exploding demand and
competitive by waiving financing contingencies, granting sellers rapidly rising prices. Brokers have been very busy and are
multiple extension options to closing if time is needed to a getting busier. According to Grayson Pounder of Pounder
replacement property, and even making attention getting Realty, apartment sales activity continues at a blistering pace
non-refundable earnest money deposits on contract signing. and we have yet to see any significant impact from rising
According to Mark Barry, apartment values are up slightly for interest rates.”
YTD 2018 as shown by higher price per unit and higher price The close to ideal circumstances, which we have experienced,
per sq. ft. as well as a slightly lower cap rate. However, the 36 are beginning to change and the market is showing early
sales that occurred likely include a higher proportion of new signs of returning to a more normal balance between supply
construction, which would distort the figures. It is should be and demand.
noted this is based on only two months of data and there are Liz owns Tilbury Ferguson Investment Real Estate, Inc., and has been in the
many sales which are currently in closing, but have not yet apartment brokerage business since 1982. During that time she has closed over
recorded. It is a very busy time for brokers and likely to get $600,000,000 in sales ranging from historic, inner city buildings to newer, suburban
garden courts. As a fifth generation Oregonian, she is very familiar with the local
even busier. According to Clay Newton of Kidder-Mathews,
area. Liz Tilbury has been a CCIM since 1986 and has built her success on repeat
“We are seeing some phenomenal sales. Well located properties business. She attended Vassar College in Poughkeepsie, N.Y. and graduated from
in good condition will attract a lot of interest and bring a high University of Oregon with a B.S. in Journalism.
11
Apartment Report 2018
THE
multifamily nw
board of directors
Thank you to all who contributed to the making of this report. Amy Alcala
Princeton Property Management
president
AFFINITY PROPERTY MANAGEMENT GREYSTAR
AMERICAN ASSETS TRUST GUARDIAN REAL ESTATE SERVICES
Maureen MacNabb
Capital Property Management
AMERICAN PROPERTY MANAGEMENT IMAGES PROPERTIES vice president
AVENUE5 RESIDENTIAL INCOME PROPERTY MANAGEMENT
Ericka Hargis
B & C DEVELOPMENT, LLC JENNINGS GROUP INCORPORATED
WPL Associates
BARKER & CALKINS, INC JK MANAGEMENT secretary
BOWEN PROPERTY MANAGEMENT JPM REAL ESTATE
Chris Hermanski
BRISTOL EQUITIES INC MDI, LLC Mainlander Property Management
BUNTING MANAGEMENT GROUP PINNACLE treasurer
C&R REAL ESTATE SERVICES PRIME GROUP
Jeff Edinger
CAMBRIDGE REAL ESTATE SERVICES PRINCETON PROPERTY MANAGEMENT Tokola Properties
CARLA PROPERTIES QUANTUM RESIDENTIAL immediate past president
CASCADE MANAGEMENT REGENCY MANAGEMENT INC Scott Arena
CTL MANAGEMENT, INC. STERLING MANAGEMENT GROUP, INC. Income Property Management
DALTON MANAGEMENT TOKOLA PROPERTIES director
FPI MANAGEMENT WPL ASSOCIATES Barb Casey
Kennedy Restoration
director
TENANT PAID UTILITIES
Amanda Clark
MAP AREA water/sewer HEAT GARBAGE Guardian Real Estate Services
nw porTLand 64.2% 86.4% 59.3% director
HILLsBoro | n of Hwy 26 65% 100% 60% Rebecca Cook
aLoHa 89.1% 100% 84.8% Dalton Management, Inc.
director
BeaverTon 71.7% 90% 53.3%
Gary Fisher
downTown porTLand 60% 82.2% 60%
Background Investigations, Inc.
sw porTLand 84.1% 95.5% 72.7% director
TIgard | TuaLaTIn | sHerwood 82.3% 100% 82.3% Andy Hahs
Lake oswego | wesT LInn 77.3% 100% 72.7% Bittner & Hahs, P.C.
director
wILsonvILLe | CanBy 60% 92% 52%
oregon CITy | gLadsTone 64.3% 100% 50% Salvador Llerenas

Cascade Management, Inc.
mILwaukIe 84.6% 100% 57.7% director
CLaCkamas 100% 100% 87.5%
Jesse Miller
Inner & CenTraL se pTLd 26.6% 72.% 23.1% Greystar
42.4% 98.5% 19.7%
director
ouTer se porTLand
TrouTdaLe|faIrvIew
wood vILLage|gresHam
61.7% 100% 51.1% Lisa Nerheim
Greystar
ouTer ne porTLand 64.7% 97.1 % 41.2%
director
Inner & CenTraL ne pTLd 22.8% 54.4% 20.2%
Ryan Ridgeway
norTH pTLd | sT. JoHns 29.4% 79.4% 17.7% GSL Properties, Inc.
wesT vanCouver 66.7% 97.8 53.3% director
easT vanCouver 80.8% 100% 73.1% Mark St. Pierre
47.5% 95% 41%
Interstate Roof ing
saLem | vICInITy
director
eugene | sprIngfIeLd 42.9% 97.3% 40.2%
Jami Sterling
Bend | redmond 50% 80% 35%
Sterling Management Group. Inc.
director
Multifamily NW ® 16083 SW Upper Boones Ferry Road Suite 105 Tigard, OR 97224 503 213 1281 Amanda Williams
This report would not be possible without the dedication and commitment For more information on Multifamily NW or to comment on this report, please
C&R Real Estate Services
of the Multifamily NW staff and the Apartment Report Committee. Thank visit us on the web at www.multifamilynw.org. The opinions contained director
you to the many contributors, writers and consultants who have generously in this report are those of the authors and do not necessarily represent the
taken the time to provide this information. opinions or positions of Multifamily NW.
12

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VOL.

THE Apartment Report

(continued from page 1)

Tigard | Tualatin | Sherwood

Oregon City | Gladstone

Inner & Central SE (Portland)

Troutdale | Fairview | Wood Village | Gresham

Inner & Central NE (Portland)

N Portland | St. Johns

Salem average number of days vacant — portland/vancouver

vacancy rate since fall 2013—portland/vancouver metro area

ToTaL sum of properTIes surveyed 220 150 42 132 125 73 31 39 58

CAP RATE NUMBER OF TRANSACTIONS

# of Trans 103 100 86 81 102 94 72 97 74 116 108 103 62

avg gIm 8.78 — 8.67 11.40 9.44 10.73 — — — — 9.01 — —

ESTIMATED APARTMENT DELIVERIES

MODELED VACANCY & RENT GROWTH, PORTLAND METRO AREA (2018–2022)

VACANCY & RENT GROWTH

POPULATION DISTRIBUTION, PORTLAND METRO AREA

g a r d e n -s T y L e garden-sTyLe garden-sTyLe u r Ba n - s T y L e u r Ba n - s T y L e garden-sTyLe garden-sTyLe garden-sTyLe garden-sTyLe garden-sTyLe

mIsCeLLaneous — — — — 0.00 0 0.00 0 — — — — — — 0.00 0 0.00 0.00 0.00 0

oregon CITy | gLadsTone 64.3% 100% 50% Salvador Llerenas

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