Recent Completions in Lease-Up Are the Weak Link in Portland

Portland's overall occupancy rate for apartments was at 94.8 percent as of March, looking good by national standards. Furthermore, the metro displayed strong momentum in recent months, with occupancy improving by nearly 2 percentage points just during the initial quarter of 2010. Most of Portland's individual properties, in fact, now are performing even better than those overall stats would suggest. Roughly two-thirds of Portland's individual properties that MPF Research surveyed in 1st quarter posted occupancy of at least 95 percent, and about two of every five individual projects were no more than 3 percent vacant.

The metro's average occupancy in early 2010 was being held down a little by the rates seen in a pretty sizable block of recent completions still moving through the initial lease-up process.

Portland added properties totaling about 2,200 units during calendar 2009 and the first three months of 2010. While most of these individual communities are leasing reasonably well, taken as a group, they registered occupancy of just 69 percent as of March.

It will be interesting to see what ultimately happens to this recent block of completions in Portland. Almost all of the additions are found in the urban core, and several of them were intended to be for-sale condominiums when construction was initiated. That means rents are very high at some of the projects. The average for communities finished since the start of 2009 is more than $1,600 monthly, quite aggressive for a metro where the norm for the previous generation of product is around $1,000 and where the average for all existing units is $803.

Developers obviously would like to push most of Portland's new urban core rental pool back into the for-sale arena as soon as possible, but it's not clear when sales opportunities will recover to a point that makes the move feasible or if pricing can rebound enough to even approach the construction costs of these very luxurious developments.

A portion of the data used in this post is acquired through property management systems, which provides property owners and managers the ability to report baseline statistics to county recorder's offices, news publications, and other reporting agencies. Improvements to property management systems will allow us to more efficiently track occupancy and rent/price fluctuations at city and county levels.

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