BY Dennis Kaiser

Demand continues to drive the Portland apartment market to new pricing highs, and despite new local regulations, cap rates compressed for a record 8th year in a row and average price per unit continued to rise. Kidder Mathews reports there was $2.3 billion in apartment sales in 2019. Transactions in the Portland Metro and the Willamette Valley dipped 5%, yet overall volume increased by 30%.

Kidder Mathews’ Clay Newton says, “It’s always eye opening to go back and see what happened from a market perspective versus your own at the end of the year. I was most surprised to see that overall sales volume was down because our Portland and Seattle offices had very busy years.”

There were some interesting sub-market year-over-year changes that also stood out, notes Newton. For example, the Vancouver market saw an astounding 38% increase in sales volume, while the Portland’s close-in eastside market sales volume decreased by 40%.

All counties, except Washington, reported continued rising prices and declines in cap rates. Portland Metro accounted for more than 85% of the state’s total sales. Washington County captured more institutional sales in 2018 than 2019, which drove pricing exceptionally high and cap rates exceptionally low.

Newton says, “Portland has seen phenomenal growth over the last several years, which has inflated some investors’ assessments of the area and deflated others. For investors who have been in the area a long time, they are really frustrated with Oregon, and Portland in particular, for legislative actions politicians took to deal with growth.” He cited passage of statewide rent control and several new laws Portland has enacted as the prime examples of changes that are untenable for some. “Conversely,” he adds, “we’ve seen a flood of new investors to the market who are attracted by the area’s population growth and potential for rent growth. Portland is still viewed as being very affordable in terms of rents, compared to other major metro areas on the West Coast.”

The Portland Metro and Willamette Valley recorded 177 multifamily sales transactions in 2019, a drop from a high of 206 in 2018. Kidder Mathews reports average price-per-unit rose to 186,813 in 2019, up from $180,465 the previous year and average cap rates held steady the past two years at 5.3%.

“There are a lot of investors out of California looking to invest in the Portland Metro area,” Newton says. “We’ve seen a lot of mom and pop investors who’ve sold something in California for a small fortune, looking to avoid paying capital gains. They’ll look to a market like Portland, as they have a lot more purchasing power.

On the institutional side, Newton says “you’ve got groups from all over the country looking to invest on the West Coast, and Portland is attractive because there is still room for rent growth. In our report, you’ll notice cap rate compression, or at least cap rates holding steady year over year, and that is in part driven by really strong demand. The most sought-after investments in our market are well-located, high-quality apartments newly constructed, or value-add opportunities in our suburban markets.”

For example Newton says, “We sold the George Besaw apartment in 2019 at pricing that blew the doors off previous sales to an investor who knowingly did so in exchange for quality and … location!”

Having been through some serious growing pains and now on the backside of the development curve, Newton notes, “our data shows Portland remains a strong, resilient apartment market. It is our expectation that as politicians start to figure out how to purposely enact legislation — and not just react with legislation — we’ll have a set of rules that investors can live with and play by. With continued in-migration of people to the area, demand will out-pace supply, and rents will steadily rise, increasing investors returns and stimulating new development.”

For comments, questions or concerns, please contact Dennis Kaiser