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Portland Multifamily Market Report – November 2023

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Portland Multifamily Market Report – November 2023

Chris Nebenzahl

Chris Nebenzahl

Portland Apartment Fundamentals Soften as Weak Demand Drags Performance Down

The apartment market is slowing down in a number of metros nationwide, with most markets falling into one of two buckets of underperformance. Metros in the southeast and southwest are experiencing some of the most new construction since the 1980’s resulting in immense new supply pressure, despite some of the strongest demand drivers in the nation. On the other hand, a few west coast markets are seeing property fundamentals decline as the result of reduced demand, even though new supply has not been a major issue. Portland falls into the latter category, with limited demand and moderate supply.

Job growth has remained steady and the employment market is tight, however outmigration from the Portland MSA as well as some social and regulatory challenges has put a damper on performance. Leading apartment metrics are down in Portland and are indicating a challenging period ahead for the multifamily industry.

MSA Market Snapshot Portland, Oregon

Rent and Operating Trends

Portland rental performance has slowed, trailing the national average on most metrics. Traffic and leasing have shown some improvement over the past year but remain well below the national average. Rent and occupancy have also fallen, with net effective rents declining by roughly 4% over the past year. With soft demand, the new supply that is delivering will face additional pressure through lease up.

Traffic and Leasing

  • Portland properties average 5.8 tours per week as of mid-October, nearly two full tours below the national average. While the metro’s leasing activity is also below the national average, the 2 new leases signed per week result in a fairly steady conversion ratio of 34%.
  • The Northwest submarket is averaging 8.1 tours per week, the highest in the metro, yet the submarket along the Willamette River, inclusive of Old Town and the Pearl District, is only averaging 2.1 new leases signed per property. Recent social challenges in Portland’s urban core have contributed to lower leasing activity.
  • Demand is softest in Milwaukie and East Gresham, with both submarkets averaging 4 or fewer tours per week. The suburban submarkets have maintained tight occupancy and good ATR, but the limited traffic and leasing activity is stifling growth.
  • The Tigard/Oswego/Wilsonville submarket leads the metro with 2.6 new leases signed per week and a conversion ratio of 48%.
  • While traffic and leasing are low in most submarkets and across the market as a whole, one silver lining is the year-over-year growth. Portland properties have picked up an average of 1 tour per week and 0.5 leases per week compared to this time last year.
Traffic and New Leases Signed Portland OR
Source: Radix

Occupancy and ATR

  • Market occupancy in Portland is 94.06%, in line with the national average. Over the past year, occupancy has dropped 108 basis points across the metro.
  • Most submarkets in Portland maintain similar occupancy, somewhere in the 94% range. The two urban submarkets Northwest Portland and Northeast Portland are the only submarkets with occupancy lower than 94%. The challenges in the urban core have resulted in occupancy rates of 92.63% and 93.41% respectively in Northwest and Northeast Portland. These two submarkets have also seen the largest annual declines of any submarket in the metro over the past year.
  • ATR has remained limited, with the average property maintaining 11 units available to rent over the next 60 days. East Gresham has the fewest units available, as properties have an average ATR of 3.
Occupancy Rate Portland OR
Source: Radix

Net Effective Rent and Concessions

  • Net effective rent in Portland is down 4% over the past year. All submarkets have seen rents decline with the most severe losses in the Tigard/Oswego/Wilsonville submarket.
  • The best performing submarket is Milwaukie, where rents are down only 1.1% from last year.
  • Despite the drop in rents, concessions have not increased drastically. Concessions are up 30% over the past year, or roughly half the national average.
  • With the highest concentration of new supply, the lowest occupancy, and the highest rent, it is no surprise that concessions are steepest in the Northwest and Northeast submarkets. Concessions average $111 and $89 in each submarket respectively.
Net Effective Rent Portland OR
Source: Radix

Employment Trends 

  • The Portland job market remains tight as steady new job formation continues on a monthly basis. The market has lost jobs only once over the past 12 months.
  • Unemployment is in line with the rest of the country, as the metro’s unemployment rate sits at 3.7%.
  • Portland remains a secondary tech hub and will likely continue attracting some tech jobs from more expensive locales in Seattle and San Francisco.
New Job Formations Portland, OR
Source: Bureau of Labor Statistics
Unemployment Rate Portland OR
Source: Bureau of Labor Statistics

New Supply Pipeline

  • Apartment construction is limited in Portland, but not completely non-existent. The majority of development is in the urban areas on either side of the Willamette River.
  • Pockets of new development in Old Town and the Pearl District are putting pressure on the Northwest submarket, while continued development along Interstate 5 is challenging the Northeast submarket.
  • Including projects in planning phases, the new supply pipeline in Portland exceeds 350 projects. In addition to the Northeast and Northwest submarkets, many planned projects are east in Gresham and south in Oswego.
  • Domestic out-migration is adding to the pressure on apartment performance. According to the Census Bureau, Portland lost nearly 9,000 residents in 2022. If this continues, and the planned projects in the pipeline come to fruition, Portland could be facing an extended down cycle for multifamily.
Construction Pipeline Portland OR
Source: BuildCentral

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