Is the multifamily party over?

What is in store for Lake Oswego?  Will we be the low-cost alternative to downtown, uptown Portland?

Daily Journal of Commerce

Multifamily party still raging

By: Shelby King in Scrolling Box October 17, 2014 2:43 pm

Two multifamily projects under construction on adjacent bloacks in the Pearl District – the Overton Apartments, foreground, and Block 17, background – will have a combined total of 566 units. (Sam Tenney/DJC)

Excerpts:

At a breakfast event presented by Multifamily NW on Wednesday, speaker Greg Frick of HFO Investment Real Estate wondered aloud what multifamily investors and brokers have been wondering since the boom in new construction began: When will it end?

“The last few years in the Portland apartment industry have been the best of times,” he said. “But as we all know, every party must end. Everyone wants to know when we’ll see a transition to a renters’ market.”

Keynote speaker Jerry Johnson of Johnson Economics hinted that it may be soon.

“We’re all hoping to feel a second wind,” he said. “But it also might be time to start thinking about the hangover.”

Low vacancy rates translate to higher rents, because landlords are able to charge more due to increased demand. Johnson said there was a time when charging tenants $1 per square foot was normal. That crept up to $2 per square foot for new construction. Now, Johnson said rents have increased to the point where landlords can sometimes charge up to $3 per square foot for high-end apartments.

The predicted rise in vacancy rates could cause a drop in the amount that landlords can charge tenants.

“Pricing power is decreasing, which means people will have to be smarter about what they’re delivering – and (it won’t be an owners’ market where) any idiot can make money,” Johnson said. “But in my opinion the high desire for apartments in an urban location makes the risk worth it.”

Johnson thinks that high-amenity construction in the suburbs, coupled with lower rents those areas bring, could begin to draw similar tenants who want to live downtown but can’t afford it.

“Everybody wants to live downtown,” he said. “Millennials aren’t remarkably different than baby boomers – they want the same things; they just can’t afford them.”