Rents continued to rise throughout Oregon and in Vancouver, Washington, this year amid broadly positive signs for the multifamily sector, according to a new regional multifamily report.

Older and cheaper apartments were especially in demand, while a steady supply of downtown Portland multifamily projects created some softness among Class A properties.

Rents for Portland studio apartments grew 1.1 percent during the past six months to $1,183 per month. One-bedroom apartment rents rose just under 2 percent, to $1,293.

The data is from Multifamily NW‘s semiannual Apartment Report. The fall 2019 edition was released Tuesday.

“Overall the market’s still looking very strong,” said Greg Frick, partner at HFO Investment Real Estate in Portland. Frick also served on the Apartment Report committee. “There’s still a low vacancy rate. All of the new construction, we’re absorbing that. Sure it’s a little slower than the last couple of years, but there’s not a lot in the pipeline behind that.”

Vacancies in the Portland-metro area fell to 4.42 percent, down from 4.96 percent six months earlier.

New housing regulations in Oregon are beginning to impact the multifamily market in Oregon and Southwest Washington, according to the report.

“New construction is slowing, and investors are losing confidence, as the political climate continues to be very challenging for landlords,” wrote Craig McConachie, president and principal broker at C&R Real Estate Services in Portland.

Oregon’s rent restrictions and high prices have led to renewed interest in Vancouver, the report states. A state law has capped rent increases at 9.9 percent in 2020 for apartments that are at least 15 years old. Newer buildings are exempt from the rent cap.

Some investors are sitting on the sidelines, brokers said.

“Most of the investors that I speak with are telling me they think things are overpriced,” said Gary Winkler, a Keller Williams-affiliated multifamily broker based in Lake Oswego.

“Transaction volume is continuing to slow down,” he said. “I’m seeing a lot more stuff on the market, just sitting.”

Vacancies vary by submarket. But the ongoing building boom has led to a surplus of new, high-priced apartment units in downtown and surrounding neighborhoods.

“Class A stuff downtown is getting competitive,” Winkler said. “There’s a lot of studios left they’re trying to lease up at different buildings.”

Rent spiked 32 percent in Lake Oswego, but the report stated that’s due largely to one new building. The report does not identify the building, but the description fits that of The Windward, PHK Development‘s 200-unit mixed-use building.

Rents were highest in downtown Portland, Northwest Portland and Lake Oswego. Among Portland’s close-in suburbs, Beaverton and Milwaukie both had tight markets, with vacancy rates near 3.5 percent.

Larger apartments have proved popular, with a vacancy rate of 3.7 percent in the Portland-metro area. Studio apartments had the highest vacancy rate at 5 percent.

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It’s not uncommon for prospective homebuyers in today’s competitive market to send sellers a letter, perhaps with a family photo, pleading for their offer to be accepted.

So, instead, one licensed massage therapist offered a two-hour massage as part of an offer on a home in Southwest Portland. It worked.

“We’re just having to be super creative,” said Lindsey Culver, a principal broker with Premiere Property Group.

Culver is advising potential buyers on ways to stand out from competing offers. In another case, a prospective buyer dropped off cookies.

The unusual approaches reflect a strong seller’s market, with few homes on the market and new migrants flooding into the area amid a surge in employment.

The Portland-metro area had only 1.8 months of inventory for sale in April, according to the listing service RMLS. That was slightly more than both in March (1.6 months) and a year ago (1.7 months), but not enough of an increase to change the underlying dynamics, brokers said.

“The average buyer is looking between the $300,000 to $400,000 mark,” Culver said. “Those are the hardest ones to get. We try everything we can do to get them in a house.”

As the spring buying season reaches its annual peak, the low inventory is also pushing prices up. The median home price in April reached $405,000, according to RMLS. That was up 8.2 percent from $385,000 a year earlier. Many homes are receiving multiple offers.

Combined with higher interest rates, that’s putting more homes beyond the buying power of prospective first-time homebuyers. Average U.S. interest rates for a 30-year mortgage reached 4.47 percent in April, according to Freddie Mac.

Buyers are fast moving into formerly less desirable neighborhoods farther from Portland’s center, including Foster-Powell, Brentwood-Darlington and Montavilla, Culver said.

“Foster-Powell is popular,” she said.

Most buyers are placing offers on three to five homes before one is accepted, said Alexander Phan, a principal broker at Keller Williams Realty Professionals-Phan Hall Property Group. Phan focuses on the Beaverton and Aloha submarkets.

“It’s not letting up,” he said. “We still are getting multiple offers.”

More prospective buyers, seeking to avoid a bidding war, are putting in offers the second week a property is on the market, Phan said. In some cases, that has just postponed a bidding war by a week.

“Those poor buyers,” Phan said. “There’s still very few homes for sale. Affordable housing is still very challenging to find. There’s not a lot of options.”

Some prospective buyers have decided to jump into the market now with the expectation that interest rates will continue to increase, Phan said.

Sellers must be prepared to move quickly once their home is listed, Culver said.

“We usually can get – from the time we go on the market on a Wednesday – we can get them in escrow by Monday or Tuesday,” she said.

Little new construction is occurring in Portland’s west side, said Edward Petrossian, a RE/MAX agent and president of the Portland Metropolitan Association of Realtors. New homes in Thompson Woods, in the Bonny Slope area, are selling in the $700,000 range, he said.

Construction of a planned development, West Ridge Estates in Forest Heights, is expected to begin in a few months, Petrossian said.

Nationally, the median sales price reached $312,400 in April, up 0.4 percent compared to a year earlier. Sales jumped 11.6 percent.

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