Is the Industrial Real Estate Market Slowing Down in 2023?

By Clifford Hockley, CPM, CCIM

The Portland industrial market remains strong with low direct vacancies and high asking lease rates. However, it is experiencing a slight increase in sublease space, resulting in higher availability rates than vacancy rates. Portland’s Industrial market posted a negative 149,176 sq. ft. of net absorption in Q1 2023, a significantly slower start than the ~1.6 million sq. ft. posted in Q1 2022 and the first negative quarter since Q1 2020. Industry professionals note isolated moveouts that cast doubt on negative absorption becoming a trend, but there is a sense of a market-wide slowdown.

Key Indicators

  • In the first quarter of 2023 the average asking lease rate for industrial properties in Portland was $0.85/SF NNN, up 14.3% year-over-year (YOY) from $0.74/SF NNN in Q1 2022. While the overall asking rent for industrial properties in the United States was $0.94/SF per month in Q1 2023, up from $0.91/SF per month in Q4 2022. We expect to see newly constructed product edge to the $1.00 per foot asking rate NNN.
  • The direct vacancy rate for industrial properties in Portland was a low 2.6% in Q1 2023, down 50 basis points (bps) YOY from 3.1% in Q1 2022.
  • The total availability rate for industrial properties in Portland was 5.4% in Q1 2023, up 60 bps YOY from 4.8% in Q1 2022.
  • The total net absorption for industrial properties in Portland was positive 489,025 SF in Q1 2023, down from positive 804,530 SF in Q1 2022.
  • The total leasing activity for industrial properties in Portland was 1.4 million SF in Q1 2023, down 56.3% YOY from 3.2 million SF in Q1 2022.
  • The total sales volume for industrial properties in Portland was 1.1 million SF in Q1 2023, down 21.5% YOY from 1.4 million SF in Q1 2022.
  • There was only 40,088 SF of industrial space delivered in Portland in Q1 2023, while there was 3.4 million SF of industrial space under construction.
  • The most active submarkets for industrial leasing activity in Portland were Northeast and Southeast, with 486,105 SF and 319,315 SF respectively. Though the SW is not too far behind.
  • In Q1 2023, Class A industrial assets accounted for 68.5% of leases signed in the United States, indicating they remain the most attractive and active asset subtype.

Recent Lease and Sale Transactions for Industrial Properties in the Portland, Oregon MSA

  • In Q1 2023, Amazon leased 486,105 SF of industrial space at Bridgeport I-5 Logistics Center in the Northeast submarket. The lease was the largest in the quarter and represented a new-to-market deal for the e-commerce giant.
  • In Q1 2023, Harsch Investment Properties sold a 192,960 SF industrial building at Portside Industrial Park in the CBD/West Vancouver submarket to Dalfen Industrial for $32.5 million. The property was fully leased to FedEx Ground at the time of sale.
  • In Q1 2023, Prologis acquired a 319,315 SF industrial facility at Southeast Distribution Center in the Southeast submarket from Clarion Partners for $46.8 million. The property was fully occupied by Columbia Sportswear and DHL Supply Chain.
  • In Q1 2023, Pacific NW Properties completed the construction of a 40,088 SF industrial building at Sunset Highway Business Park in the Sunset Corridor submarket. The property was pre-leased to Brew Dr. Kombucha and Pacific Coast Fruit Company.
  • Surewerx leased 154,648  square feet from Prologis PDX 19 Located in the Northeast Submarket.
  • Modomi Modular Housing Leased 120,000 sq feet from the Port of Portland in Terminal Two, in the Northwest,  where they are prototyping the construction of modular buildings using mass timber.
  • Portland Bottling leased 104,500 sq feet at the Clackamas industrial center in Southeast Portland.
  • The industrial development pipeline in Q1 2023 totaled 2.5 million sq. ft., all of which is expected to be delivered no later than Q1 2024. Vancouver Logistics Phase II broke ground, with construction underway at the North Building, a speculative 175,119 sq. ft. light industrial property next to the Phase I building that Thermal Supply leased in Q1 2022.

Portland Industrial Activity and Snapshot of the Marketplace in Q1 2023

Submarket Total Inventory (SF) Direct Vacancy Rate % Total Availability Rate % Total Leasing (SF) Total Sales Volume (SF)
Northeast 80,183,658 3.8 5.6 486,105 192,960
Southeast 35,838,296 2.4 4.1 319,315 319,315
I-5 Corridor 29,396,514 1.4 4 82,691
Rivergate 16,074,674 5.4 6.3 162,528
Airport Way 16,783,171 3.8 6.1 179,042
CBD/West Vancouver 10,040,298 9 10.4 75,150
Sunset Corridor 7,717,789 2.9 3.8 40,088
Gateway 2,806,157 1.6 2.2 10,466
Gresham 1,142,705 1.8 5.9 1,344
NE Close-In 3,975,447 2.8 3.2 1,700
NE Outlying 64,692 13 13


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