Although Portland continued to outperform much of the rest of the country in 2008, both Office and Industrial vacancies here increased.
The Portland Industrial vacancy rate jumped to 7.1%, with negative net absorption (-90,713 sf) in the 4th quarter alone. Companies downsizing or going out of business left a whopping 698,268 sf of Industrial sublease space on the market at year's end. These factors, together with weak demand, continue to drive lease rates down.
Portland Office vacancy jumped to 9.7% at year's end, with huge holes even in the normally strong Kruse Way submarket, home to many mortgage and financial services companies.
This means great bargains for financially strong Tenants. However, Landlords are scrutinizing prospective Tenants' P&Ls and Balance Sheets, offering very attractive lease packages to those solid companies. Weaker companies are not receiving rent concessions, and company owners are being required to personally guarantee their leases and/or put up significant security deposits.
Since late 2008, Sellers have begun to accept the reality of lower prices for their properties. Capitalization rates for investment properties continue to rise, with many investors demanding 8% and above, resulting in lower prices. This downward pressure on investment property prices has carried over to owner-occupied properties, which prices are also dropping. In both cases, lenders are demanding higher down payments, higher debt coverage, and more conservative underwriting.
As 2009 begins, we've seen increased activity from both Buyers and Tenants taking advantage of the current market. If this positive activity continues, and if the large amount of sublease and vacated space continues to be absorbed, we expect to see lease rates and sales prices begin to stabilize by mid-2009. That's a big and unknown “IF” at this time.
