“Both the Central Business District (CBD) and suburban markets have endured the economic downturn and are showing increased leasing activity,” reports Cushman & Wakefield (see sidebar for commentary on the downtown market). “This activity is being somewhat dampened by residual effects of the recession; however the nearly 21% year-over-year increase is a notable turning point for the market.” In a broader context, this “turning point,” by Reis’ measure, may be seen as the return of positive net absorption, which was particularly strong last year. On the other hand, however, the first half of 2012 brought back the sluggish activity seen in 2010. Including second quarter’s positive 65,000 square feet, the total for the first two quarters of the year all told was negative 39,000 square feet. A return to positive absorption, beginning with 31,000 square feet in July, is expected over the remainder of the year, however. Meanwhile, the second quarter’s small positive absorption total was roughly doubled by the volume of new supply added during the period, as the 121,000-square-foot FBI at Cascade Station building completed in April. No other projects are scheduled to complete construction this year.
Indeed, actual construction of competitive general purpose, multi-tenant space is minimal. Only the 19,400-square-foot redevelopment of the American Brush Company site in Portland is expected to deliver in 2013, according to Reis’ late-September report on individual construction projects. Additional activity, however, may be brewing. While 360,000 square feet broke ground in 2008 at TMT Development Company’s Park Avenue West development at SW 9th Avenue and SW Morrison Street, Portland, construction was halted in 2009 and has yet to resume. Late last year, however, TMT announced that it would resume work on Park Avenue West in late 2013, The Oregonian reported at the time.
Data on vacancy and rents do not suggest a greatly distressed market. Nor, however, is great progress indicated. Reis put second quarter vacancy at 14.9%, up 10 basis points from a quarter earlier. At $21.45 psf and $17.01 psf, mean asking and effective rents for the quarter were up one cent each for the period and were up 0.5% and 0.7% since year-end 2011, following gains of 0.4% and 0.7% all told in 2011. “Landlords are looking to capture deals and rental rates are expected to be stable with the potential to inch upward into 2013,” comments Cushman & Wakefield. Reis’ reporting on July activity includes a 10-basis-point decline in the vacancy rate and gains of 0.1% for both average rents.
With no new supply added, modest positive net absorption over the remainder of the year should take 10 additional basis points from the vacancy rate. Gains of 1.2% and 1.4% are forecast for the mean asking and effective rents for the year. Gradual improvement should follow in 2013.