Why investors will continue to pour money into Portland real estate

Portland Business Journal

Posted In — News & Press | In the News

Portland’s been a darling for commercial real estate investors over the past few years. And according to a new report from CBRE, that’s not likely to change anytime soon.

The results of the CRE giant’s 2018 Americas Investor Intentions Survey found Portland, for the first time, cracking the top 10 list of the most attractive markets in the country for property investments. Last year, the Rose City was at No. 16 on the list; this year it’s No. 9, tied with Boston and Nashville. Los Angeles landed the top spot for the second year in a row. Seattle, San Francisco and New York were also among the hottest cities for investors.

“Portland’s jump into the top 10 illustrates the tremendous amount of growth we’ve seen over the past few years,” said Jason Green, CBRE’s Managing Director for Oregon and SW Washington.

He also noted that investor interest in Portland is being largely fueled by shrinking unemployment rates and an increase in jobs that take up office space across the city. According to Kidder Mathews, more than 4.1 million square feet of space were leased in 2017. Rental rates were up more than 5 percent to an average of $25.88 per square foot, though rents north of $30 per square foot are quickly becoming the norm.

According to the Bureau of Labor Statistics, unemployment in Portland bottomed out at 3 percent last May before crawling back up to a still-low 3.4 percent in November. Portland’s job growth in 2017 was up more than 2 percent last year, with more than 27,300 jobs added in the first 10 months of the year alone.

Investors will likely stay interested in Portland this year as a result, Green said.

“That trend is likely to continue in our region,” he said.

The CBRE survey, which polled 300 real estate investors about their feelings of the overall market and what cities are most desired, also found that markets like Portland are attractive in part because of relatively high capitalization rates compared to other cities.

According to Tim Harrison, a senior research analyst with JLL, the average cap rate – basically the net operating income of a building divided by its value – for office sales of more than $10 million in Portland in 2017 was about 6 percent. Investors bought more than 5.3 million square feet of office space in Portland last year, a slight drop from the roughly 5.4 million that sold the prior year.

Investors prefer higher cap rates, as that means the purchase price of a building is comparatively low. Meaning, in Portland, investors have been able to buy buildings at value prices, invest in upgrades and then sell them at a premium. One example of that: in December 2014, San Francisco’s New Urban Properties bought the Board of Trade Building in downtown Portland. They paid $9.8 million for it. Two years later, after some minor upgrades, they sold it to Kensington Investment Group LLC for $18 million.

Starwood Capital will likely make a similar move with the Wells Fargo Center, which it purchased for $188 million last year. The investor got the asset at an attractive price because the building was out of date and only about two-thirds leased. It’s planning extensive upgrades and, when the time is right, will likely unload it.

CBRE’s survey noted that, despite potential risks like interest rate hikes and global economic uncertainty, investors are confident in the year ahead. Most investors who focus on the Americas will continue to invest largely in North America, not only in office assets, but also in industrial, multifamily and retail ones, as well. All of which means that Portland will continue to be an investor darling, at least for a little longer.

For the full story, go to the Portland Business Journal.

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