MARKET DRIVERS
Average asking lease rates remain unchanged quarter-over-quarter (QOQ) but fell 3.4% year-over-year (YOY) to $0.85 NNN. Direct vacancy rates increased by 80 basis points (bps) YOY and surpassed the 4% threshold for the first time in a decade, posting at 5.4% in Q2. Similarly, availability rates jumped by a notable 210 bps YOY to 9.4% in Q2 reaching a 15-year record high.
Leasing activity was quiet for the first half of 2025, dropping almost 50% in volume when compared to the first half of 2024, posting 2.7M SF YTD. Although there were two new leases over 200K SF in Q2, there has been an evident shift away from regional larger sized deals in recent quarters. Industrial sale activity in Q2 experienced a drastic 56% drop QOQ, posting 914K SF. Economic uncertainty coupled with high interest rates continue to limit sales activity in the first half of 2025. 665K SF of industrial space delivered in Q2, with another 2.6M SF of projects currently underway. Construction starts have been down the first half of 2025, helping any further upward pressure to vacancies and availabilities.
ECONOMIC REVIEW
In May, the Manufacturing sector within the Portland-Vancouver-Hillsboro MSA decreased by 5.3% YOY to 116.6K jobs, and the Trade, Transportation, and Utilities sector fell by 0.5% to 219.7K jobs. As of May 2025, the unemployment rate for the Portland-Vancouver-Hillsboro MSA was 4.4%, up from 3.6% at the same time last year. This is compared to 4.8% for the state of Oregon and 4.2% for the nation.
NEAR-TERM OUTLOOK
Space decommitments from large users over the past year have resulted in a record high sublease availability, which is expected to continue into the second half of 2025. Additionally, elevated commercial mortgage rates continue to limit capital market liquidity, keeping acquisition activity subdued. Furthermore, the shifts in tariff policies have created ongoing uncertainty among businesses which could stall commitments in the near-term.
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