Report: Rose City Retail Remains Strong

PORTLAND-The Portland retail market remains strong despite slow growth in rent and employment, according to a just released retail research report by Encino, CA-based Marcus & Millichap Real Estate Investment Brokerage Co. The national report includes an index that ranks 40 retail markets based on a series of 12-month forward-looking supply and demand indicators. In the latest ranking, Portland dropped six places to No. 30 based on low scores for rent growth and employment. Regardless, Gary Lucas, acting regional manager for M&M’s Portland office says the local retail market has been extremely resilient over the last two years. “In 2004, the high-tech manufacturing industry is expected to begin a slow recovery as businesses begin to update IT equipment following the recent corporate spending freeze,” he says. “The resumption of job growth along with anticipated increases in retail spending and household income will keep retailers optimistic about the Portland market.”The key points and predictions in the report include:–After three years of job losses, Portland will see positive growth of 1.3%, led by professional and business services and education and health services. “The most encouraging news for the region is the rebound of the manufacturing industry, which is expected to post growth of 1% in 2004,” states the report. “All indications are that the Portland economy hit bottom in the second quarter of 2003 and has been in recovery ever since.”–Retail completions in the Portland region have outstripped absorption over the last three years, causing the vacancy rate to rise. This year, however, absorption is expected to outpace the 1.2 million sf in expected new supply, as a significant share of the single-tenant space coming online will be large build-to-suit buildings such as grocery stores and discount retailers, states the report.–Owners of retail properties can anticipate a decrease in vacancy and a rise in rents.The overall vacancy rate will decline from its current rate of 7% to 6.2% by the end of 2004, according to the report, while the completion of high-end retail centers in 2004 will push the average rent up by 0.7% to $18.78 per sf. –Demand for single-tenant properties in the Portland MSA will remain strong in 2004 despite a low supply of product on the market, and sales prices will remain relatively low, with cap rates dipping to the low-8% range as some higher-quality projects in suburban sub markets sell at below-average cap rates. The median price per sf in the market in 2003 was close to $120, which is nearly equal to the 2002 figure.”Portland is attractive to investors because it is difficult for the market to become over-retailed, and there is continued demand for retail space,” says Lucas. “New multi-tenant developments lease-up quickly as do vacant single-tenant properties. Investors continue to view Portland as a superior market in which to invest their capital, as cap rates in the 8% range compare favorably to other West Coast cities.