Western Real Estate Business

OCT 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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M A R K E T H I G H L I G H T: P O R T L A N D 30 • October 2018 • Western Real Estate Business www.REBusinessOnline.com PORTLAND'S RETAIL MARKET REMAINS ONE OF THE STRONGEST IN THE NATION Substantial increases in construc- tion and land costs, as well as a strict, decades-old Urban Growth Bound- ary, has caused the Portland real estate investment market to remain consistent for a number of years now. According to a recent RLB Crane In- dex report, Portland has seen the sec- ond highest increase in construction costs in the nation this year. When you couple construction costs and growth restrictions with an urban landscape that contains a large per- centage of generational ownership, you get a supply shortage for core retail investment properties. With the supply-and-demand imbalance comes record-setting cap rates that have prevailed for at least three years now. It is commonplace to see well- positioned retail investment proper- ties trading in the 4.5 percent to 5.5 percent cap rate range. Evidence of the market's consistency over the past three years can be seen by the number of sales that have traded at a sub-5.25 percent cap rate during the first nine months of each year. This includes 14 sales in 2016, 14 in 2017 and 13 in 2018. Not every retail segment has fared as well as the core, urban properties, however. While there's little reason to believe any shift has occurred in the grocery-anchored market, it's nearly impossible to determine as only one center has sold so far in 2018 — King City Plaza. At the other end of the spectrum, the big box and power center market has seen un- precedented shifts in demand and pricing expectations. There wasn't a single power center that sold above a 7 percent cap from 2015 to 2017. So far, we've seen two in 2018 and likely would have seen others if they weren't pulled from the market. The best example is Gresham Station, a 342,000-square-foot lifestyle center in the east metro area. The property sold at a 5.75 percent cap in 2015. It sold again in mid-September of this year at a 7.6 percent cap with a nearly identical tenant roster. There has been talk of big box risk and the "Amazon Effect" for several years now, but it appears that perceived risk is finally making a substantial impact on pricing for certain retail property types. The single-tenant retail market re- mains strong in the Portland area. Fast food/QSR investment sales are still trading at record level cap rates between 4.5 percent and 5.25 percent. Interest rate hikes have had little im- pact on the local single-tenant mar- ket, and 1031 exchange capital is the primary buyer profile for these as- sets. The local unanchored retail market is likely the most bifurcated segment that exists today. Well-positioned, newly constructed centers are trad- ing at near-record cap rates while seasoned properties with less desir- able tenant rosters have experienced softening demand and pricing. New construction of multi-tenant prop- erties like Crossroads at Mill Plain and 164th are trading in the mid-5 percent cap rate range, while well- positioned, older centers are trading in the 6.5 percent to 7 percent range. Lance Sasser Director of Research and Analytics, Capital Pacific Multi-tenant retail properties like Crossroads at Mill Plain and 164th are trading in the mid-5 percent cap rate range, while well-positioned, older centers are trading in the 6.5 percent to 7 percent range. Gresham Station, a 342,000-square-foot lifestyle center in the east metro area, sold at a 5.75 percent cap in 2015. It sold again this past September at a 7.6 percent cap with a nearly identical tenant roster. Your Pacific Northwest Hub I-5 Freeway, Exit 271 Woodburn, Oregon • One of the largest available industrial sites in the region, and located just 11 miles south of Portland, Oregon • Up to 15 year tax abatement available through Oregon's Strategic Investment Program • Available for Build-To-Suit development for sale or lease please visit www.i5logisticscenter.com for more information 108 acres shovel-ready industrial land on I-5 Freeway Interchange Peter Stalick 503.221.2272 pstalick@kiddermathews.com Patricia Loveall, SIOR 206.248.7340 ploveall@kiddermathews.com Steven Klein 503.221.2260 sklein@kiddermathews.com LEASING INFORMATION

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