Self-storage projects around the Portland-metro area are on hold amid a burst of oversupply, and few are likely to be built anytime soon, according to analysts and developers.

For years, Portland has been one of the nation’s busiest markets for self-storage construction. In the Pearl District, for example, inventory has risen from 250,000 square feet five years ago to 550,000 square feet today.

“The negative is Portland is the number one most overbuilt market in the world,” said Kevin Howard, owner of Northwest Self Storage, a large operator based in Clackamas with 97 facilities around the region. “Not just in the country – in the world.”

Rental rates in Portland for 10-feet-by-10-feet climate-controlled units have dropped 10 percent since 2017, according to a Cushman & Wakefield report released July 7.

Self-storage companies were attracted to Portland, which was touted along with Denver and San Antonio as a growing market. Self-storage has some of the highest operating margins of any real-estate class – upwards of 60 percent to 70 percent margin on net operating income, according to Cushman & Wakefield. High-dollar sales helped pique interest.

“There was a lot of pent-up money,” Howard said. “Developers were looking to release that money.”

More recently, however, in-migration has slowed and the COVID-19 pandemic sent shockwaves through the economy. And as developers rushed to meet demand for self-storage, they quickly exceeded it.

Portland was among the leading markets of a long expansionary bubble, with construction spending on storage nationally surging 584 percent from January 2015 to January 2020, according to the U.S. Census Bureau. Yardi Matrix, a national real estate analysis firm, recently forecast new self-storage deliveries in the U.S. to fall 52 percent by 2023, Cushman & Wakefield reported.

Some local projects were paused, and may never be built. A six-story self-storage facility from Hoyt Street Properties in the North Pearl District was approved by the Portland Design Commission in April 2018. Construction of the 129,520-square-foot facility designed by MCA Architects has not begun.

“We have put the project on hold for now,” Tiffany Sweitzer, president of Hoyt Street Properties, stated in an email. “We still think storage is a viable option for a future project on our property, but just not sure when we might take up the project again. Given the density built in the Pearl, this would be a great asset to those living in both condos and apartments.”

Hoyt Street Properties would have more time to begin building the facility under a plan being considered by the City Council to extend development deadlines. If proposed amendments were approved, the project team would have until Jan. 1, 2024, to begin construction.

Northwest Self Storage recently opened a new facility at 4716 S.E. Powell Blvd. Before that, the company built one on Southeast 82nd Avenue. Another facility opened in Camas, Washington, after a lengthy delay in obtaining an elevator inspection because of the pandemic, Howard said. But no more will follow in the foreseeable future, he added.

“That’s all on hold,” he said. “Obviously, with this kind of market, there’s a couple of them I wish I hadn’t built.”

Others stopped short of construction. A PacTrust proposal to build a multistory storage facility north of Benson Polytechnic High School went before the Portland Design Commission for design advice in 2018, but the project has not moved forward.

Occupancy has held up amid the pandemic, Howard said. Few people are moving, but some renters are consolidating apartments or moving back in with their parents and need storage, he said.

Other large self-storage projects have popped up around Portland, including West Coast Self-Storage, a four-story (three above grade) building at Southeast McLoughlin Boulevard and 17th Avenue; and Extra Space Storage, a four-story, 126,820-square-foot facility at 685 S.E. Division Place that is part of a Salt Lake City-based chain. Both projects were completed in 2019.

Storage unit rents in the Portland-Hillsboro-Vancouver area fell 4.9 percent in May, compared to a year earlier, according to a survey by Yardi Matrix. The metro region remained among the most expensive self-storage markets in the U.S., with the 10th-highest rent among the top 100 markets. The average rent for a standard unit was $135 in May.

Nationally, self-storage has largely avoided the rush of consolidation that has transformed other industries. Approximately 20 percent of the market is owned by the five largest real estate investment trusts – Public Storage, Extra Space Storage, CubeSmart, Life Storage and National Storage Affiliates (NSA) – while the remainder is owned mainly by small operators, according to the Cushman & Wakefield report.

“Self-storage remains relatively resilient with minimal fundamental changes to underlying drivers of demand in the long term,” the analysts stated.

Yet in Oregon’s largest city, the expansion has created a massive oversupply, Howard said.

“It’s a bloodbath in Portland,” he said.

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A proposal for a two-building mixed-use development that could add 289 residential units to Portland’s South Waterfront District is set to go before the Bureau of Development Services on Tuesday for a pre-application conference.

TriMet owns the 2.33-acre parcel on Southwest Moody Avenue, and is working with TVA Architects and Portland developer Phil Morford to convert the narrow property, known as the Tilikum Moody site, into a transit-oriented development. As proposed, the development would be constructed on the property’s southern end – between the Ross Island Bridge and Southwest Harbor Avenue.

“It’s a little early, but this is probably the most exciting project that we’ve ever done,” Morford said. “We look at it as being a very public project.”

TriMet earlier this year hired Cushman & Wakefield to market the property without a stated asking price. Floor area ratio regulations allow construction of a total of 944,574 square feet; also, the property is subject to Portland’s Central City 2035 Plan.

According to a sales flyer, the property contains roughly 36,446 square feet of usable land area and is located in an opportunity zone. Zoning is central commercial. Maximum building height in this area is 250 feet.

Morford and TVA Architects have worked together on a number of developments, and are doing so on four projects – including this one – in Portland.

Early documents submitted to the BDS suggest that both buildings would feature residential units above ground-floor retail space and at-grade vehicle parking. The proposal calls for a total of 40 parking spaces.

Two vehicle access points to the property from Southwest Moody Avenue would be constructed.

Project plans are subject to change, Morford said, as development continues and stormwater management issues are explored more fully.

“It’s going to be in the middle of a lot of OHSU medical buildings and mass transit,” Morford said. “All that is going to affect our unit type and design. We hope to have at least 300 units, and at this time it would comprise two buildings, but whether or not we can do all this is largely up to the infrastructure restrictions and parameters.”

Among those are stormwater issues as well as street easements that were replaced on Moody Avenue when Portland Streetcar tracks were constructed.

Morford said that he and TVA Architects lead designer Robert Thompson believe this project can be great.

“Bob and I are extremely excited about this project,” he said. “Of all the things we’ve been involved with, due to its special location, we’re very excited about its potential.”

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Soon might be your last chance to find a good horse to back at Portland Meadows: An industrial developer has the inside track on the prime North Portland site.

A major industrial redevelopment is planned where the racetrack, which opened in 1946, now operates. A pre-application conference request was submitted Friday to the Bureau of Development Services for the property at 1001 N. Schmeer Road.

An unidentified developer is examining two schemes for the site, according to the BDS conference request. Both call for large-scale industrial redevelopment that would presumably require demolition of the historic racetrack.

The first scheme would center on a 942,000-square-foot warehouse, along with three smaller buildings to the west and additional small buildings scattered along the property’s perimeter. The second option would include a somewhat smaller anchor building of 822,000 square feet, with two buildings to its immediate west.

Potential uses include warehouse, distribution and light manufacturing, according to the BDS document.

The applicant was listed as Lee Leighton, a veteran land-use planner in Mackenzie‘s Portland office. When reached, Leighton said he could neither comment on the project nor identify the developer.

The racetrack is operated by The Stronach Group, based in Ontario, Canada. The company, which acquired Portland Meadows from MI Developments in 2011, did not respond to a call seeking comment. Some of Portland’s large industrial developers either declined to comment or didn’t return calls.

The North Portland site is owned by a series of companies and individuals. The land-use application lists 20 owners. The proposal involves seven parcels totaling 116.8 acres. Of that area, 89 acres are zoned for industrial use. The rest is zoned for employment (22.3 acres) or environmental conservation (5.5 acres).

The area is famously flood-prone, most notably in the devastating 1948 Vanport flood. The flood did approximately $250,000 damage to the racetrack, and hundreds of horses were evacuated.

Portland’s industrial market has sizzled amid strong demand from Internet-economy shippers such as Amazon and UPS. Users absorbed 1.3 million square feet of industrial space during the second quarter, according to Cushman & Wakefield.

Industrial space is attracting strong rents, finishing the second quarter at $0.63 per square foot on a triple-net monthly basis, up 14.5 percent from a year earlier.

Another 3.8 million square feet was under construction, according to Cushman & Wakefield.

Industrial developers have long complained the Portland-metro area lacks sufficient industrial land to meet demand for warehouses and other uses. Now, one developer is putting on spurs.

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A warehouse near Portland International Airport has sold for $8 million.

The warehouse at 5825 N.E. Skyport Way is 100 percent leased to a single tenant: Silver Eagle Manufacturing, a maker of heavy-duty vehicle trailers.

The buyer was Adler Realty Investments, a commercial real estate investment company based in the Los Angeles area. The seller was Ederer Properties II. No company of that name was found in Oregon Secretary of State corporate records.

The 77,960-square-foot warehouse also has 7,000 square feet of office space. The facility occupies 6.21 acres, and is close to interstates 5 and 205.

Kidder Mathews brokers Scott Murphy, Zach Francis and Karla Hansen represented both parties in the transaction.

“The buyer was looking to buy an industrial building in Portland for the last two years,” Murphy stated in a news release. “The inventory has been very low with high barriers to entry for these types of properties. This was one of only a few industrial investment sales between $5 million and $10 million in the past year.”

Capitalization rates remain compressed, Murphy stated.

Portland’s industrial market remains hot, with 1.3 million square feet absorbed during the second quarter, according to a Cushman & Wakefield report. Rents have escalated as well, reaching $0.73 per square foot, according to the firm.

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Capstone Partners‘ Custom Blocks project has gained its first tenant.

Archrival, an advertising agency with a focus on youth culture, will lease 5,000 square feet at the southwest corner of the development located at 1350 S.E. 10th Ave. in Portland’s Central Eastside Industrial District.

Custom Blocks encompasses 72,000 square feet of commercial space formed from eight separate buildings. Capstone Partners hired Scott | Edwards Architecture to design a renovation to join the structures on two blocks.

Core and shell completion is on track for late February or early March.

The North Block contains 22,790 rentable square feet; spaces range from 1,200 square feet to 10,000 square feet, including 7,111 square feet for a brewery, production kitchen or event space.

The South Block is 48,804 square feet, with spaces available from approximately 9,000 square feet to 23,000 square feet.

Capstone and Premium Property USA are partners in the joint venture.

Rob Moneyhan of Urban Works Real Estate represented Archrival in the lease negotiations. Brad Carnese, Mark Carnese and Doug Deurwaarder of Cushman & Wakefield represented Capstone and Premium Property USA.

Archrival has worked with advertisers such as Red Bull and Adidas. The agency currently operates out of Washington High School and expects to move to Custom Blocks by July, according to a news release.

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The Leland James building in Northwest Portland has attracted a trio of tenants to the fast-developing Slabtown area.

Software and analytics firm Jet Reports International Inc. is moving its corporate headquarters from Tigard to take 30,000 square feet in the Leland James building. Jet Reports will be joined by local coffee maker Good Coffee and Orange Theory Fitness on the ground floor.

The building has 117,000 square feet of space on four floors. Jet Reports’ office will be on the fourth floor, including a heavy-timber penthouse pop-up built inside and a portion of the third floor.

The office space is about one-third leased, Capstone Partners co-founder Chris Nelson said. The rest of the building remains available.

Capstone Partners and Cairn Pacific developed the building at Northwest 22nd Avenue and Raleigh Street in a partnership. It was designed by SERA Architects and constructed by JBA-Andersen Construction. Dave Squire and McCoy Doerrie of Newmark Knight Frank represent office space in the Leland James building. Andrew Rosengarten and Jake Lancaster of JLL represented Jet Reports in the transaction. LRS Architects is assisting Jet Reports with design of the internal space.

“Our Tigard location no longer meets the dynamic needs of our staff, and we’re excited to see how this beautiful new space will spark our creativity and improve employee engagement,” Jet Reports vice president of finance and operations Michael Smythe stated in a news release.

The Portland office market had an overall vacancy rate of 10.3 percent in the fourth quarter, according to Cushman & Wakefield. Almost 1.5 million square feet of office space was under construction at the end of 2017, with 500,000 square feet pre-leased.

The office market, Nelson said, is “good, not great.” He pointed to a couple of newly signed large leases as signs of strength – Amazon agreed to take 85,000 square feet in the Broadway Tower now under construction, and Oregon State University signed up for nearly 40,000 square feet in the newly renovated Meier & Frank building.

“There’s good activity,” Nelson said. “It could certainly be better.”

Capstone Partners is nearing completion of the Custom Blocks, which will offer 72,000 square feet of creative office and retail space in Southeast Portland.

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An industrial campus in Tualatin has sold for $26.5 million.

The three-building campus is fully leased by Nortek Air Solutions. The company uses the 329,474-square-foot space as its headquarters and manufacturing facility.

The seller was Huntair Properties, a limited liability company. The buyer was an affiliate of Meriwether Partners.

The 25.14-acre property is located at 19855-19866 S.W. 124th Ave. in Tualatin, close to Oregon Route 99 West and the junction of interstates 5 and 205.

Cushman & Wakefield brokers Jim Lewis, Gary Griff and Aaron Watt represented the buyer in the transaction. Stu Peterson and Rhys Conrad of Macadam Forbes represented the seller.

“This is a prime example of a buyer looking outside of the traditional real-estate boxes in search of higher yields,” Lewis stated in a news release. “This campus represented a high-quality and highly functional asset in an excellent Tualatin location occupied by a strong tenant – all desirable attributes for an investor.”

Lewis stated it’s become more challenging for buyers to find good assets at reasonable prices.

“Buyers are beginning to look at more unique opportunities that have potential to provide higher returns,” he stated. “In this case it was a manufacturing campus instead of a more traditional big-box distribution warehouse.”

According to Cushman & Wakefield’s report for the third quarter of 2017, Portland’s industrial market remains healthy, with 3.5 percent overall vacancy. Net absorption in the third quarter was 870,000 square feet.

The Tualatin submarket ranked among the strongest growth areas in the region, the brokerage firm reported.

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Tucked among industrial buildings in the Central Eastside, the Custom Blocks from Capstone Partners are due to be delivered in late November.

The development is an adaptive reuse of two buildings stitched together from two blocks and multiple pre-existing structures built in the 1940s and ’50s. The property was most recently home to Custom Stamping and Manufacturing Co.

In all, the development includes 72,000 square feet of creative office space targeted at tech firms or similar tenants – save for about 3,000 square feet of retail space envisioned as a brewpub.

The south block is the larger of the two properties, with 48,804 rentable square feet. The north block has 22,790 rentable square feet.

The blocks are bound by Southeast Madison and Salmon streets, and Ninth and 10th avenues.

Inside the south block building, massive wooden bow trusses support the roof. Capstone opted to keep the Douglas fir timber in place, sandblasting it to revitalize the wood’s appearance.

Large windows were removed and will be replaced with modern and energy-efficient windows that reflect the vintage industrial aesthetic. A full sprinkler system was installed.

Capstone’s renovation involves full seismic upgrades on both blocks. The developer is keeping in place some of the interior walls that were reinforced with rebar.

Capstone secured a conditional-use permit to allow for office space in the industrial neighborhood.

“The change of use triggered a full seismic upgrade,” said Chris Nelson, co-founder of Capstone Partners.

Nelson said he wants to give each tenant the chance to customize their spaces, including with murals instead of exterior signage if they choose.

A roof deck on the south block building will have views of downtown, Mount Hood and other landmarks. A smaller, cube-shaped glass office will intrude from the second story.

Peter Grimm, principal at Scott | Edwards Architecture, was the designer. He said the adaptive reuse project involved “getting out of the way, and letting the building tell its own story.”

“There’s just a wow factor that you can’t fake,” he said. “It’s there; it’s baked into the original architecture.”

Capstone purchased a massive industrial stamping machine from Custom Stamping. The machine – nearly a story tall – will decorate the south block building.

Creative-office projects have sprung up in the Central Eastside, often serving as a boutique alternative to pricey downtown offices. Developers such as Beam Development and Killian Pacific have specialized in finding large, underutilized industrial buildings to transform into office properties.

Office space in the close-in Eastside had average asking rents of $31.06 per square foot during the second quarter, according to Jones Lang LaSalle. The vacancy rate was 6 percent. Developers had 425,155 square feet of office space under construction.

Capstone Partners is asking $29.50 on a triple-net basis for space in the Custom Blocks.

Tenant spaces of 8,930 square feet to 23,047 square feet are available in the south block. The north block has spaces of 1,242 square feet to 10,199 square feet to rent. All the spaces have three-phase power and ceiling heights up to 24 feet or 30 feet.

Cushman & Wakefield brokers Brad Carnese, Mark Carnese and Doug Deurwaarder are representing the property.

Capstone is in discussions with brewpub operators to take over the small retail space, Nelson said. There’s enough room for a 10-barrel brewing system, he said.

Capstone has had success with brewpubs before. The developer worked out an agreement with Breakside Brewery to open a large brewery and restaurant in Northwest Portland’s Slabtown neighborhood.

Fortis Construction is serving as general contractor for the Custom Blocks. Capstone obtained investment from Premier Properties U.S.A. in a joint-venture partnership.

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Watumull Properties Corp. saw an opportunity at a printing plant in Gresham that the longtime owner was looking to unload. In many ways, it was a typical Watumull investment.

Watumull purchased the 13.6-acre manufacturing site at 17401 N.E. Halsey St. for $5.75 million from R.R. Donnelley and Sons, an Illinois-based printing company that opted to close the plant last year and lay off 113 workers.

It was the largest sale of an individual industrial building in Portland for the year to date. Watumull rebranded the property as the Halsey Corporate Center and selected CBRE as leasing agent.

“We hope to use part of it for distribution and part of it for manufacturing,” said J.D. Watumull, president of Watumull Properties Corp.

The property off of Interstate 84 adds to the company’s growing real-estate portfolio in the Portland area. Watumull Properties, founded in 1914, owns dozens of properties in the Portland market.

“We are very pleased to be able to acquire such a well located industrial property so close to I-84 to add to our growing real-estate portfolio in the Portland metro area,” Watumull stated in a news release announcing the deal.

Operating from an office in a luxurious waterfront district in Honolulu, the fourth-generation family firm has quietly become one of Portland’s largest property investors.

The company typically buys properties and holds them for the long term, earning income from lessees. Watumull still owns the first Portland property it purchased, a building in Heintz Industrial Park on Riverside Way in Northeast Portland.

The company has benefitted from a long run for industrial property. Rents have risen steadily in recent years as shipping companies, fulfillment centers and general industrial users bid up locations near population centers and transportation corridors.

Watumull Properties is careful not to overextend in the booming market, Jaidev “J.D.” Watumull, the company’s president,  said.

“We always like to think we’re cautious,” he said. “It’s been a long expansion period. You always need to be conservative.”

Watumull is the grandson of the company’s founder, Jhamanda, who hailed from India, and son of Gulab, who also leads the family company. J.D. Watumull’s son Jared is also active in the family business and regularly visits Portland, brokers said.

The Watumull business empire started out as a chain of Hawaiian retail stores before transitioning into real-estate investments. The family is well known in Hawaii for supporting a variety of charitable causes and arts organizations.

Robert Niehaus, a longtime Portland commercial broker, said he’s done “dozens and dozens” of deals with Watumull Properties since the 1980s. The Watumulls invest in industrial, office and retail properties – in that order of priority. They have not delved into the residential market in Oregon. Another guideline: The Watumulls are interested only in investment properties within an hour’s drive of Portland International Airport.

“Their model is to offer cash, typically without a financing contingency,” Niehaus said. “Brokers love it and sellers love it.”

He added: “Their model is a quick look and a quick close. So they’re ideal for brokers and sellers. For that, they like a premium on the cap rate.”

The capitalization rate, or cap rate, is a ratio of a property’s value or sale price to the income generated by the property. A high cap rate implies a low purchase price relative to the owner’s revenue on the property.

Watumull Properties primarily invests in three markets: Hawaii, Portland and Denver. In Portland, the company has established a large footprint.

“I enjoy working with them because they’re in tune with the market and can move quickly,” said Cara Nolan, first vice president at CBRE. “That says a lot. Sometimes – but not always – with some of the larger ownerships, they can’t jump on opportunities as quickly as Watumull.”

Nolan, who is representing Watumull’s Gresham property, said the company’s hands-on family leadership is an asset.

“It could be a 2,000-square-foot lease deal or a $15 million sale – you’re still talking to the same decision makers,” Nolan said.

Watumull pulled off one of Portland’s biggest industrial deals of 2016 in September, when the company purchased the Crosswhite Industrial Park, at 6461 S.E. Crosswhite Way, from Crosswhite Enterprises for $20 million, according to a Jones Lang LaSalle report. The off-market transaction equated to $75 per square foot, and came at a 7.5 percent cap rate. The 267,000-square-foot facility was fully leased by Precision Castparts.

Watumull Properties has diversified geographically throughout the Portland metro area.

“They’ve invested in pretty much all our submarkets,” Nolan said.  “Vancouver, Northeast, close-in Southeast. They’re in Sunset Corridor. They’re in Southwest. The type of product they have runs from smaller, flexier-type spaces to 350,000-square-foot manufacturing facilities.”

As industrial demand has grown, vacancies fell to 3.5 percent and asking rents rose to $0.58 per square foot.

Much of the demand for industrial space in metro Portland is driven by e-commerce. Amazon is backing the largest industrial development in recent years with plans for an 855,000-square-foot fulfillment center at Troutdale Reynolds Industrial Park near I-84.

Watumull made a splash earlier this year when the company announced a joint venture with Winkler Development to create The Hopper in Northwest Portland. The project aims to transform 167,000 square feet of industrial space on 5.3 acres at 2000 N.W. Wilson St. The site is a former Cenveo Corp. printing plant.

The project, adjacent to Slabtown and the Pearl District, is being marketed as an urban campus for a possible tech tenant. The property could be used by a single tenant or multiple tenants for a range of industrial or office uses, according to brokers.

Unlike many Watumull properties, The Hopper includes a retail component. The space will be configured to attract a “destination retail” outlet.

Cushman & Wakefield is representing the property. Senior director Brad Carnese declined to comment. But in a prepared statement, Carnese said Portland’s “invigorated economy and growing commercial real estate markets remain propelled by a slew of companies wanting to expand or position themselves in the Portland market, which we believe bodes well for the timing of this new job center.”

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Urban Renaissance Group and Security Properties have closed on their $20 million purchase of the Press Blocks properties in Goose Hollow from Advance Publications.

Advance, the parent company of The Oregonian, unloaded the properties to make way for a pair of major mixed-use projects. Cushman & Wakefield represented the seller.

The proposed development would include a 22-story residential building that would reach 250 feet in height, an eight-story office tower and a 41,000-square-foot pavilion building that would have 14,000 square feet of ground-floor commercial space and two floors of creative office space.

The site – a retired newspaper printing facility – encompasses one and a half blocks at 817 S.W. 17th Ave. It’s located near Providence Park with access to Interstate 405 and U.S. Route 26.

Demolition of the concrete press buildings is expected to begin this year, with construction scheduled for completion in mid-2020.

Portland’s GBD Architects is the lead designer of the half-block office component, while Seattle-based Mithun is designing the full-block residential and pavilion project.

The project is Urban Renaissance Group’s largest to date in Portland, founder and CEO Patrick Callahan stated in a news release.

Security Properties’ tower would have 337 apartments, with a mix of one- and two-bedroom units and eight large penthouse suites.

The project team has twice received design advice from the Portland Design Commission and is scheduled to return for design review on March 2. The commission has scheduled three hours of discussion for the project.

The development proposal drew a largely positive response from design commissioners during an October discussion.

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