The overall industrial vacancy rate in the metro region shrunk by more than one-half a point to 11.6% on net absorption of 1.4 million sf, an amount not seen since the early part of 2000, according to Patricia Raicht, G&E's local research director. Net absorption for the year was around two million sf, she says.
The warehouse/distribution sector is recovering more rapidly, with vacancy rates dropping almost a full point to 10.7%. The flex market is still struggling with vacancy at 14%. Rental rates have stabilized in the high $0.30s for newer manufacturing, warehouse and distribution space, but there continues to be some downward pressure on flex rental rates, which range from the $0.50s in Clark County to $1.05 on Swan Island, according to the report.
"The worst is definitely behind the Portland industrial market and now begins the recovery," says Raicht. "Property owners holding flex space will need to continue to reach for deals if they want to capture market share."
Market activity was again dominated by owner/user and build-to-suit transactions, according to the report, with Clark County, Rivergate and the NE/Columbia Corridor the top performing submarkets. Accounting for a good portion of the net absorption was a spate of larger deals. Clark County posted 788,000 sf of net absorption, virtually all of it attributable to thecompletion of Dollar Tree's new 687,000-sf distribution center. The activity pushed vacancy rates in Clark County down a full point to 10.1%. The NE/Columbia Corridor continues to perform well with solid net absorption and vacancy rates dropping to 8%, according to the report.
The biggest drop in vacancy occurred in the Rivergate submarket, which racked up 215,000 sf of net absorption in the fourth quarter and saw vacancy decrease two full points to 16.6%; however, for the year, Rivergate showed negative net absorption of 297,000 sf, and vacancy is twice as large as when the year started.
There is another large deal rumored to be in the final stages of negotiations in Rivergate which will go a long way toward mitigating the blows that the submarket suffered earlier in the year with the consolidation of Georgia Pacific into the new Rivergate Corporate Center, which filled 400,000 sf of new space but left 500,000 sf of older space vacant.
In addition to the Dollar Tree completion, some of the larger deals hitting the books this quarter include: Dean Foods leasing 250,000 sf at Kelley Point in Rivergate; Subaru expanding into 162,000 sf at 158th Commerce Park in NE/Columbia Corridor; Ryerson Tull leasing 87,000 sf at 3136 NW 35th; Sewing Supply Center moving into 84,192 sf at Southshore Corporate Center in NE/Columbia Corridor; Nike occupying 80,000 sf at Wilsonville Distribution Center, and; Bioject Medical Technologies leasing 44,000 sf at Tualatin Corporate Center.
Looking ahead, G&E predicts that build-to-suit and owner/user activity will again dominate the market in 2004, presenting the best opportunity for developers. In the warehouse/distribution sector, momentum will follow those developers willing to lease, giving tenants the option to buy as users try to capitalize on low interest rates while they still can. Landlords with state of the art facilities will see theirs get leased first and owners holding mediocre or functionally obsolete space will have a very hard time finding users, according to the report.
As for the flex market, with almost five million sf of vacant space available, there is a lot of space to absorb before there is a return to market equilibrium. The best deals likely will show up in the 217/Beaverton and Sunset Corridor submarkets, as they have been stung the worst by the recession. The 217 Corridor/Beaverton submarket saw more than 250,000 sf of negative net absorption in 2003, pushing vacancy rates from 17% to 22.2%.
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