Quick turnover and a tight market make real estate investments in Portland area multifamily housing a great deal right now. Experts say we are in a “sweet spot” with apartment vacancies lasting just nine days in some parts of town.
Apartment market grows tighter, but rent increases slow
It's getting increasingly difficult to find an apartment in and around Portland, but new construction may soon bring some relief.
The apartment vacancy rate across the Portland area has fallen to 3.55 percent, according to a twice-annual survey of apartment owners and managers by the trade group Multifamily NW.
That means fewer units actively on the market and short turnover periods for those that are. Across the Portland area, apartments are rented out again in an average of 39 days. But in inner Southeast Portland, for example, the average vacated apartment is rented out again in just nine days.
That's good news for landlords, who don't want to see units out of commission for long. But it means fierce competition between potential tenants.
That's resulted in rising monthly rents for several years. The most recent figures do suggest, however, that the growth seems to be slowing.
Rents reached an average of $1.04 a square foot across the metro area, an increase of 4 percent compared with a year ago. But over the past six months, rents have increased by less than 1 percent.
An average one-bedroom apartment -- the most common apartment configuration in the survey -- now rents for $784 a month, the survey found.
The slowdown might be explained, at least in part, by growing competition from new construction, as well as rental houses and for-sale homes.
High rents and low vacancy have prompted a surge in construction. Apartment appraisers Patrick Barry and Mark Barry say more than 2,600 new apartments reached the market in 2012 in the Portland area and 5,300 are under construction and scheduled for completion in 2013 or 2014.
"Many developers have been champing at the bit to get back in the game," said Mark Barry, speaking Wednesday to members of Multifamily NW.
And construction is only accelerating, he said. Twice as many units are currently under construction as have been recently completed.
Despite all the new construction, Barry said, Portland isn't in danger of overbuilding -- yet. But the new units will slow rent increases and ease the rental shortage over the next 18 to 24 months.
"In 2013, we're in a sweet spot," said Barry. "When we get into 2014 and 2015, the apartment market will be more in balance. It will no longer be a landlord's market."
Meanwhile, investors are buying up single-family homes -- many from foreclosure -- to rent out. And real estate agents and homebuilders are making appeals to renters to become buyers by taking advantage of low interest rates and post-bubble home prices.
Regardless, investors remain bullish on rental housing, particularly as the homeownership rate falls and surveys suggest younger generations look more favorably on renting than did their elders.
"For capital looking to invest, apartments -- and especially the Portland apartment market -- offer a favorable opportunity," said Greg Frick, a partner with HFO Investment Real Estate in Portland.
Vacancy rates spiked in Hillsboro and north of U.S. 26, hitting 5.7 percent as newly constructed apartment projects reached the market.
But those developments target new hires as major employers in the area expand. As those expansions attract new residents, that rate is expected to fall.
Lake Oswego, West Linn and Clackamas also have vacancy rates over 5 percent.
At the other end of the spectrum, areas with vacancy rates below 3 percent include: Southwest Portland; the Tigard, Tualatin and Sherwood area; inner and central Southeast Portland; and North Portland. The Bend-Redmond area reported a vacancy rate of 2.1 percent.
-- Elliot Njus
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