Office Market Steady While Industrial Gains Greater Ground
10 Jan, 2006, Portland, OR
Industrial Product Types and Submarkets Advance Significantly in 2005
The Portland commercial real estate market continued on a path of recovery in 2005. The industrial market, which saw a more broad-based recovery, advanced significantly over the year to close out at 7.4% vacancy, while the overall office market finished with a 14.2% vacancy rate, down just 1.1% from 2004.
Vacancy rates are down in both the CBD and the suburbs. At 8.9%, the overall vacancy rate for class A space in the CBD is down from 10.9% a year ago. The number of full floor class A options in the CBD dwindled over the past year, placing considerable pressure on larger tenants looking for expansion options. Vacancy rates for class B and C space are up, however, a result of negative net absorption and the addition of a few large owner-occupied availabilities that returned to the market.
The office market activity was heaviest in the CBD, 1.8 million square feet of leasing activity versus the 1.2 million square feet in 2004, but much of this activity was driven by tenants moving within the CBD, as net absorption, though positive, was down considerably. Seven of the ten largest office deals in 2005 occurred in the downtown area. The largest lease transaction, CH2M Hill and IDC, was a 140,000 square foot (sf) consolidation at Parkside Center (IDC, a subsidiary, already occupied 117,329 sf of space at Parkside). Multnomah County's lease of 99,478 sf at the Lincoln Building and OHSU's lease of 66,891 sf at 1515 SW Fifth finish out the top three respectively.
Other notable transactions include: the CMD lease of 65,000 sf at the Lutz Tire Building, the 46,500 sf Unitus lease at Columbia Financial Center (renamed Unitus Plaza), and the move by UPS to Montgomery Park where they will occupy 40,000 sf of space at the landmark building.
But the real story is the industrial recovery, after treading water in 2004. Leasing activity was particularly robust in two submarkets: Rivergate and Airport Way. Rivergate posted a strong recovery in 2005 after a 450,000 sf contraction in occupied space in 2004. Net absorption of almost one million sf in Rivergate caused its vacancy rate to fall from 12.9% to 7.2%. The largest industrial lease of 2005 was the Central Garden & Pet lease of 258,125 sf at Rivergate Corporate Center Building A. Norvanco International's lease of 120,000 sf at Kelly Point Distribution Center and the 106,000 sf lease by Richards Homewares at 10675 N. Lombard round out the top five industrial deals.
Airport Way absorbed over one million sf of industrial space in 2005. Leases in new construction by Nautilus (250,100 sf at Riverside Parkway Corporate Center) and LaCrosse Footwear (144,600 sf at Southshore Corporate Park) were big contributors to Airport Way's strong performance.
"The biggest story in industrial leasing activity is the amount of industrial space under construction in 2005," says Mike Williams, Senior Research Director at Cushman & Wakefield. "As of December 2005, a total of 1.5 million sf of industrial space was under construction in 23 buildings. That is more than double the amount of space that was under construction just a year ago."
"The industrial market has some of its swagger back, as construction activity of 1.5 million sf is double the total at this time last year," says Williams.
Approximately two-thirds, or 1,000,000 sf, of the space under construction is in the North/Northeast market, including the fully leased LaCrosse Footwear space at Southshore. Another 212,000 sf is under construction in seven buildings covering two parks in the Clackamas area. 223,000 sf is under construction in six projects in the Southwest market area.
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