Occupancy rates here have fallen for seven consecutive quarters and now stand at 92.3%. The good news is the drop this past quarter was the smallest since the fall began in the second quarter of 2001 (when occupancy was 96.3%), and rates increased by the same amount, balancing out the rise in vacancy.
The average rent at the 299 complexes (63,973 units) surveyed was $745 at the end of the second quarter compared to $740 a year ago. The highest average rents, $1,123, can be found in West Linn. The lowest average rent, $475, is in Springfield. Portland averages $792.
In 1998 and 1999, the Portland market raised its occupancy from 93.5% to 95.7% while absorbing more than 5,000 new housing units. Construction dropped off a cliff in 2000, when only 296 units were built, but close to 800 more units were absorbed, raising occupancy to 96.3%.
In 2001, only 131 units were built but no units were absorbed; indeed, a net of 1,345 units were vacated, dropping occupancy to 94.3%. Negative absorption continues through the first half of 2002, and with upcoming layoffs by Intel and the precipitous drop in the stock market, the situation doesn't look to get any better any time soon.
As far as the apartment investment market is concerned, a recent mid-year report by Marcus & Millichap predicts transaction activity also will dip in 2002 compared to 2001, "due primarily to a lack of product available for sale," states the report. During the first quarter of 2002, sales activity matched last year's first quarter levels, but preliminary second quarter information indicates a decline, according to the report.
The only significant transaction in the last six weeks seems to have been by a group that plans to convert the apartment building to condos. A Phoenix-based partnership of three investors, Phil Carroll, Ken McElroy Ross McCallister purchased a 301-unit, 15-building apartment community on the Willamette River for $30.4 million and now plan to spend $12.5 million to renovate and convert it to condominiums. The seller was the Naito family.
The complex, which is located in downtown Portland's vibrant Pearl District at 600 Naito Blvd., is the only two-story, garden-style apartment community in the area. The renovation project is expected to take between 36 and 48 months. Residents living in apartments included in phase one of the renovation project will be given 120 days to move.
The new owners plan to keep units rented until renovation begins, providing 120-day notice to tenants as the project progresses. However, tenants displaced by the renovation will be offered another unit and all current residents will be given the option to buy their units when the renovation is completed, he adds, noting that the condos will be priced 25% to 30% below the average $300,000 selling price for a comparable-size condominium in this popular area of Downtown.
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