MARKET DRIVERS
Average asking lease rates fell year-over-year (YOY) but increased quarter-over-quarter (QOQ); dropping $0.03 and increasing $0.01 respectively to $0.85 to start off the year. Direct vacancy rates grew 100 basis points (bps) YOY from 3.8% to 4.8%, while total availability rates also increased by 130 bps YOY to 8.3% in 1Q, both holding steady at 10-year record highs from the previous quarter.
Leasing activity decreased approx. 41% YOY from 2.6M SF to 1.5M SF in 1Q, partially due to the drop in larger sized deals across the region. This notable decline in leasing volume marks a new low not experienced since 4Q 2008. Although industrial sales activity increased 20% YOY to 667K SF, this is still a drastic drop from last quarter which posted at 1.86M SF and well below the 5-year average of 1.5M SF in sales volume. New construction posted at 729K SF for industrial space to start off 2025 in Q1, with another 4M SF of industrial space under construction, approximately 2.5M SF of the pipeline projected to complete by year end.
ECONOMIC REVIEW
In January, the Manufacturing sector within the Portland-Vancouver-Hillsboro MSA decreased by 3.7% YOY to 117.9K jobs, and the Trade, Transportation, and Utilities sector fell by 0.5% to 221.5K jobs. The statewide unemployment rate in Oregon increased slightly from 4.3% to 4.4% QOQ, while the Portland-Vancouver-Hillsboro MSA reported 5.0%, up from 4.0% last quarter.
NEAR-TERM OUTLOOK
Inflation and other economic uncertainties over the past year have forced tenants to carefully evaluate expansions and, in some cases, reduce space as their requirements change. Additionally, there have been several proposed policies such as tariffs, reduced corporate taxes, and deregulation. These policies have yet to be implemented, making it difficult to predict the future direction of the market. Once decisions are made about which policies will be enacted, there will be greater clarity regarding their impact on the market, enabling decision makers to respond accordingly.
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