MARKET DRIVERS
Average asking lease rates saw slight increases both year-over-year (YOY) and quarter-over-quarter (QOQ); Starting at $0.86/SF NNN in 1Q 2023, increasing to $0.86/SF NNN in 4Q 2023, and ending at $0.88/SF NNN in 1Q 2024. Although face rental rates are maintaining stable, net effective rates persist at lower levels, primarily attributed to heightened instances of rental abatement and above-standard tenant improvements as well as the significant amount of quality sublease space coming on the market.
Direct vacancy rates grew 130 basis points (bps) YOY from 2.6% in 1Q 2023 to 3.9% in 1Q 2024. Total availability rates increased by 300 bps YOY from 4.7% to 7.7% in 1Q 2024. This increase is just below the 5-year high of 4.0% measured in 1Q and 2Q of 2021.
Leasing activity decreased 40.0% YOY from 1.9M SF in 1Q 2023 to 1.1M SF in 1Q 2024. This is the lowest recorded quarter in the past 2 decades. Throughout 2023, there was 9.8M SF of activity, the lowest since 2020. To reach these marks, there will need to be a large uptick in activity in the following quarters.
Industrial sale activity dropped from 1.2M SF in 1Q 2023 to 360.3k SF, a steep departure from previous quarters.
2.5M SF of industrial space was delivered in 2023, with another 3.2M SF under construction.
ECONOMIC REVIEW
In February, the Manufacturing sector within the Portland-Vancouver-Hillsboro MSA fell slightly by 3.7% YOY to 122.5k jobs. The Trade, Transportation, and Utilities sector also fell YOY by 2.1% to 220.7k jobs. The statewide unemployment rate in Oregon was 4.2% and the Portland-Vancouver-Hillsboro MSA reported 4.7%.
NEAR-TERM OUTLOOK
Direct vacancy and total availability ticked up QOQ to 3.9% and 7.5% respectively.
Net absorption totaled 13.6k SF in 2023, the lowest annual total recorded this century. The Rivergate submarket accounted for negative 1.3M SF of the region’s net absorption in 2023, and continues to drag the region down, accounting for 68.2% of the negative 763.7k SF.
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