Tight Fundamentals Kick Portland Spec Industrial Development Into High Gear

A tight Portland industrial market is inspiring developers to respond the way they know best, provided lenders will lend: spec development.

Historically low vacancy rates are driving an increase in speculative industrial development, CBRE first vice president Cara Nolan said.

"We currently have nearly 2.2M SF under construction," she said. "Seven of the eight projects currently underway can accommodate 100K SF or larger tenants in one or two buildings."

CBRE data puts overall vacancy in Portland industrial as one of the lowest in the nation at 2.9% in Q1, or 112 basis points lower than this time last year. Business park vacancy has reached a new low to close the quarter at 4.9%.

Staples' signing at Interstate Crossroads helped business park vacancy decline 35 basis points during the first quarter. Year-over-year vacancy is down 51 bps, and in just two years, business park vacancy has declined 301 bps.

Although slightly off from Q1 2016, leasing and sale activity ticked upward to start the year with 1.17M SF of positive net absorption.

All of this activity comes after adding more than 1.3M SF during the past nine months, Nolan said.

"This increase in inventory is proving that the market for over 100K SF spaces is strong, though limited by the amount of development that can occur within this period of demand," she said.

Deal size was a significant factor in net absorption in the first quarter of 2017, as the top five deals accounted for nearly 75% of the positive net absorption, Nolan said. Portland saw six deals over 100K SF in Q1 2017, while the quarterly average is only three. The overall average deal size is up 50.8% in the last 36 months to 21,800 SF.