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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Multifamily NW unveiled its 2019 ACE Awards at a May 30 ceremony.

More than 130 entries were evaluated by a panel of executive directors from apartment associations across the country. Scores were based on phone interviews, among other factors, and tallied by an accounting firm.

“There is nothing easy about serving the rental market,” Multifamily NW Executive Director Deborah Imse stated in a news release. “Across the state, our colleagues are grappling with best practices and policies to serve individuals and families with the highest level of quality housing on ever-shrinking bottom lines. By calling out our industry’s success stories we are all inspired to provide the kinds of welcoming communities that renters are proud to call home.”

Multifamily NW, based in Tigard, is a membership-based trade group for apartment owners, landlords and property managers.

The winners were:

Leasing Associate of the Year: Jessica Crown, Sequoia Equities

Rookie of the Year: Kelsey Yaremko, Prometheus Real Estate Group

Compliance Specialist of the Year: Lauryn Cummings, Guardian Management LLC

Property Support of the Year: Hannah Ashcraft, Sequoia Equities

Maintenance Technician of the Year, 1-199 units: Nicholas Mower, Guardian Management LLC

Maintenance Tech of the Year, 200+ units: Vitaliy Chernyavskiy, Princeton Property Management

Maintenance Manager of the Year, 1-99 units: Matthew Ruecker, CTL Management Inc.

Maintenance Manager of the Year, 100-199 units: Michael Yoder, Avenue5 Residential

Maintenance Manager of the Year, 200+ units: Frank Grandstaff, CTL Management Inc.

Assistant Manager of the Year, 1-199 units: Ryan Petersen, Prometheus Real Estate Group

Assistant Manager of the Year, 200+ units: Kristin Batsel, Sequoia Equities

���ڴڴǰ��岹����������dzܲ����Բ����Ѳ��Բ���������Ǵ����ٳ�����۱𲹰�: Lindsay Hart, FPI Management

����Ծ��ǰ�����dzܲ����Բ����Ѳ��Բ���������Ǵ����ٳ�����۱𲹰�: April Olsen, FPI Management

�ʴǰ��ٴڴDZ��������Ѳ��Բ���������Ǵ����ٳ�����۱𲹰�: Rita Crawford, Sequoia Equities

�����Բ�����-�󲹳����������Ѳ��Բ���������Ǵ����ٳ�����۱𲹰�: Michael Magsayo, Sleep Sound Property Management Inc.

Property Manager of the Year, 1-99 units: Kimberly Douglas, ConAm

Property Manager of the Year, 100-199 units: Erica Villarreal, Bridge Development and Asset Management

Property Manager of the Year, 200+ units: Nichole Pederson, Sequoia Equities

���ԴDZ����ٱ�����ʰ��DZ����ٲ����Ǵ����ٳ�����۱𲹰�: Excelsior Lofts, Capital Property Management

Property of the Year, 1-10 years: Eddyline at Bridgeport, Sequoia Equities

Property of the Year, 10+ years: Ladd Tower, Holland Residential

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Multifamily investors are looking anew at underserved midsize markets in the Willamette Valley.

In Salem and Corvallis, in particular, strong rent growth, low vacancy rates and growing populations are driving sales of multifamily properties and some sizable new development projects.

It’s a natural outgrowth of the long economic expansion, said Greg Frick, co-founder and partner of Portland brokerage HFO Investment Real Estate. Portland and Eugene saw waves of multifamily investment in recent years. Now, it’s smaller cities’ turn to attract capital.

“Investment dollars are really trying to get down there,” said Frick, who added that he frequently hears from investors interested in the mid-Willamette Valley.” You’re just seeing capital looking for investments and having to expand their horizons.”

Two major multifamily projects are under construction in Corvallis, where Oregon State University has driven growth. Enrollment at OSU reached 30,986 in fall 2018, up from 20,320 students a decade earlier.

Gilbane Development, based in Rhode Island, is building a 228-unit multifamily complex called Sierra next to the campus. The project is in a mixed-use industrial zone, and includes small storage structures to satisfy zoning requirements. The site, known as Washington Yards, was home to a feed store and a fruit company.

“They had to have a minimum square footage of industrial use, which they satisfied with those (storage units),” said Jared Voice, a senior planner with the city of Corvallis.

Construction of Sierra began recently.

Gilbane Development Director Andrew Ang said he was not authorized to speak on behalf of the company.

The other large project under construction in Corvallis is Witham Oaks from Corvue Holdings, a Chicago-based developer. The 292-unit complex is also student-focused; it’s scheduled to open in the fall, Voice said. Townhomes would follow in a second phase.

Otak Inc. of Portland designed the Witham Oaks master plan and also provided project management, civil engineering and landscape architecture services. The public improvements have been completed, and construction of the residential buildings is under way.

“It’s really going up quick,” said Brian Fleener, Otak’s director of architecture.

Witham Oaks comprises 29 buildings. Units have four bedrooms each. Every bedroom has its own bathroom, but the four units share a kitchen and living room.

Corvue took over the development from Campus Crest after buying several of the latter company’s properties.

Corvue did not respond to messages seeking comment.

A proposal from a local group to build a 125-unit multifamily development in the Timberhill area of Northwest Corvallis has not moved forward.

Deals in Corvallis typically show strong occupancy rates and rent growth, but survey data on the city’s multifamily market is scarce, Frick said.

Corvallis has historically had a high barrier of entry for new construction, with annexations requiring voters’ approval since 1977, according to the Corvallis Gazette-Times. A state law limiting cities’ ability to vote on annexations was challenged by Corvallis and Philomath, and the Oregon Court of Appeals is expected to issue a ruling in the case in coming weeks.

In Salem, vacancy rates have hovered near 4 percent with 4 percent annual rent growth, according to Multifamily NW‘s fall 2018 report. The trade group for landlords will release its spring 2019 report on Monday.

Prices show some appetite for new multifamily product in Salem. A newly built 56-unit apartment building in Salem sold for $166,071 per unit last year. On average, Salem multifamily buildings sold for $95,426 per unit.

More supply is coming. Koz Development of Snohomish, Washington, plans to build a 146-unit multifamily project at 260 State St., a vacant lot in downtown Salem. The building will have small, affordable rental units targeted at 20-somethings.

The project is in the late stages of development, and the team is on track to break ground in late May or early June, said Cathy Reines, Koz’s president and CEO.

The project is backed by local capital investors in Salem, Reines said.

Koz had initially considered a small grocery store as a possible use for the building’s ground-floor retail space, but the developers are reconsidering that concept, Reines said. The average age of tenants in Koz buildings is 26.

“As we’ve talked to younger residents, they’re ordering their groceries online and having them delivered,” Reines said. “We’re starting to challenge ourselves whether a market makes sense given who we believe the resident will be.”

Investors have taken notice of signs of life in downtown Salem, including projects to revitalize historic buildings and the pending purchase of the former Nordstrom building. The department store closed in April 2018.

“It just seems to be more vibrant than it has been historically,” Frick said of Salem. “And I think you’re seeing that across the board with some of these tertiary markets.”

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It’s back to the future for the nation’s suburbs, which are again growing at a faster rate than American cities.

That’s according to an analysis of U.S. Census population estimates by William Frey, a Brookings Institution demographer.

The new data upend a trend that stretched for the previous five years. From 2010-11 to 2014-15, cities grew faster than their surrounding suburbs. People flocked to urban settings, driving up home prices and putting pressure on roads and other urban infrastructure.

In 2015-16, that wave may have crested. Among the nation’s 53 largest metropolitan areas, the suburbs grew at a 0.89 percent annual rate, outpacing cities’ 0.82 percent growth. That may not sound like much, but it’s a change that bears watching, Frey said.

“The difference isn’t very big, but it’s a little bit of a tipping point,” he said.

Portland was no exception to the national trend. Here, suburban growth outpaced the city itself, with 1.8 percent growth in the suburbs topping 1.4 percent growth in Portland.

For decades after World War II, the suburbs expanded faster than American cities. Malls replaced downtown department stores, highways snaked across metro areas and suburban garages grew to the size of small houses.

If faster suburban growth endures, that will signify a return to a historical pattern, Frey said.

“I do think in some ways if that happens, then we’ll see the first years of this decade more as a blip than a long-term trend,” he said.

To be sure, the city of Portland remains a popular destination for people looking for urban living. But growth in Portland proper, as in many attractive cities, is restricted by housing supply.

Single-family housing inventory in the Portland-metro area in August was 2.1 months, far below what is considered a balanced market, according to RMLS, a real estate listing service. Meanwhile, the apartment market remains relatively tight despite some softening this year, with a 4 percent vacancy rate in spring 2017, according to a survey conducted by Multifamily NW.

With scarcity comes escalating prices. The median price of a home for sale in Portland is approaching $400,000, and in the city’s most desirable neighborhoods, it can be difficult to find a home for less than $600,000.

Rents have risen as well, although prices have leveled off this year as new apartment buildings have opened.

As buyers and renters look for alternatives to pricy Portland housing, developers are finding opportunities in the suburbs. Increasingly, they’re bringing the five-story mixed-use apartment buildings with ground-floor retail space that have proliferated throughout Portland’s hip urban neighborhoods.

On Tuesday, Guardian Real Estate Services won final approval from the Milwaukie City Council to build a five-story apartment building in the downtown core of the suburb southeast of Portland.

The structure near the MAX orange light-rail line will be the tallest apartment building in downtown Milwaukie. It will include 110 apartments and 7,300 square feet of ground-floor retail space.

Construction of the MAX orange line was promised to bring development along the light-rail corridor. Slowly, that promise is being fulfilled.

Tom Brenneke, president of Guardian Real Estate Services, grew up in Milwaukie, and attended grade school a few blocks away from the apartment project.

“It’s just ripe for development and opportunities and housing,” he said.

Brenneke said it’s easier to commute to central Portland from areas south of the city, making Milwaukie attractive to professionals. He expects to break ground on the apartment building early next year.

Milwaukie’s City Council in August authorized moving forward with negotiations with developer Farid Bolouri to sell a downtown lot for a mixed-use project known as Coho Point at Kellogg Creek. That project would be next door to Brenneke’s apartments.

“We’re getting a lot of interest, and we want to make sure we do it right,” said Leila Aman, development manager for the city of Milwaukie.

While Milwaukie is having something of a renaissance, West Portland suburbs are growing, too.

Capstone Partners has built many projects in Portland, but the company’s latest to open is in Tigard. Attwell Off Main has 165 apartments in two buildings and small retail spaces. The apartments are 85 percent to 90 percent leased, and a local hair salon took one of the ground-floor retail spaces.

Jeff Sackett, a principal at Capstone Partners, noted millennials are now the largest generation in the U.S., and they’re starting to move to the suburbs.

“When you look at demographics, you really need to look at what the millennials are doing, because that’s going to drive everything,” he said. “I think that what’s happening now with millennials is the same thing that happened to the baby boomers and the greatest generation before them – you get to a certain point in life where you want to settle down and have a wife and a dog and a yard, and that’s hard to do in an urban apartment.”

Beaverton is seeing more interest from multifamily developers, too. Rembold broke ground in August on a 230-unit, two-building project in Beaverton called The Rise Central. That comes after the Portland-based developer built an 87-unit project, The Rise Old Town, in Beaverton.

Suburbs are also more connected to cities than they once were. The MAX orange line can get a commuter from downtown Milwaukie to Pioneer Courthouse Square in fewer than 30 minutes. In coming years, the proposed Southwest Corridor light-rail line would zip down Barbur Boulevard or Interstate 5 through downtown Tigard to Bridgeport Village. That has raised some opposition among Tigard residents who don’t want to be more connected to Portland.

“There’s a fear of light rail amongst many folks that live in the suburbs,” Sackett said. “I think it’s unfounded. I think light rail’s a good thing. I hope it happens, and I hope it happens in my lifetime.”

Portland’s suburbs have another competitive advantage over the city: They lack Portland’s inclusionary housing regulations that require developers to set aside 20 percent of their units as rent-restricted affordable apartments, or pay a hefty fee in lieu of providing affordable housing.

Civic boosters in the suburbs haven’t been shy about pointing that out.

“One of the first things you hear when you talk to any of the suburban economic development folks is, ‘We don’t have inclusionary zoning.’” Sackett said. “It’s a big negative for the city of Portland right now, and it’s going to be until people figure out how to operate with it, or they change it.”

Major single-family housing developments are coming to the suburbs, too.

Infrastructure work is under way in south Hillsboro on the sprawling Reed’s Crossing development that could eventually include 4,000 housing units – mostly single-family homes.

In Wilsonville, the City Council in July adopted a master plan for the area known as Frog Pond into the city’s comprehensive plan. The plan calls for 1,932 single-family housing units in 500 acres.

Single-family development is also burgeoning in Happy Valley and unincorporated Washington County, despite layoffs from major employers such as Nike and Intel.

While the suburbs are booming, most observers expect the city of Portland to continue to see robust growth. Developers are filling in where they can.

Frey said it will take years of data, and an official Census count in 2020, to know for sure whether faster suburban growth is a blip or an enduring trend.

More people would live in urban neighborhoods if they could find homes they could afford, said Joe Cortright, a Portland-based urban economist who writes for the City Observatory website.

“The limit on growth now is how quickly we can build housing, because vacancy rates are extremely low,” he said. “That’s what we’re bumping up against in a lot of cities. In some cases, we haven’t zoned enough land for the kinds of housing and the kinds of places people want to live.”

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A bid to end Oregon rules prohibiting local rent control programs is dead after a Senate committee stripped the provision from a broader renters’ protections bill.

House Bill 2004 is expected to come to the Senate floor soon with a number of protections for renters, but rent stabilization, or rent control to its critics, will not be part of it.

“I could not find the votes to do that,” said Sen. Sara Gelser, D-Corvallis, who sponsored the bill in the Senate. “I would have personally liked to keep that in, but I want to get something for tenants now, and these are robust protections.”

Landlords have opposed any move to allow local governments to cap rent increases. A lobbyist hailed the changes to the bill.

“It’s an acknowledgment that rent control or rent stabilization, whatever you want to call it, is not an answer to the lack of affordable housing,” said John Di Lorenzo, a lobbyist and attorney with Davis Wright Tremaine in Portland.

“If we’re really going to address this issue, we need supply-side strategies, not demand-side strategies,” Di Lorenzo said.

The bill does include some new protections for renters that were created in the Senate Committee on Human Services:

• Landlords would be limited to making one rent increase per year.
• Tenants would be protected from a no-cause eviction within 60 days of notifying their landlord in writing of repairs needed for the habitability of the apartment.

The bill also requires 30 days’ notice before eviction during the first nine months of tenancy.

Gelser acknowledged that tenant advocates are disappointed by the lack of rent stabilization, but said she’d rather have a bill with some renter protections that could be passed this session.

“It’s better to have some protections, and these really are very meaningful protections,” she said. “It’s a pretty robust start and something we can be proud of.”

Multifamily NW, an industry trade group for landlords, opposes the bill but is open to finding a solution to the housing crisis that works for both sides, spokesman John McIsaac said.

“I don’t believe it’s reached its final form yet, but we’re working to make it work for both sides, and ultimately, it’s going to, I believe,” he said.

Gelser said she expects the bill to move forward without rent stabilization.

“It is my full expectation that we will have a vote on (House Bill) 2004 on the Senate floor, and I expect it to pass,” she said.

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Vacancy rates for apartments in the Portland-metro area surged past 4 percent in February, and rents flattened as multifamily property owners and managers adjusted to a flood of units coming online.

Vacancies grew to 4.02 percent, up from 3.71 percent in fall 2016, according to Multifamily NW, a trade organization for the apartment industry.

The spring report, released Tuesday, adds to mounting evidence that the white-hot apartment market of 2015 and 2016 has cooled considerably. The report provides a snapshot of market conditions on Feb. 10, when Multifamily NW surveyed rental companies.

Rents rose 3 percent since fall 2016, according to the report. That’s the lowest increase in the past two years, the organization reported. Some areas saw rents decline. Hillsboro experienced a 6 percent rent decrease, while Northwest Portland and Beaverton saw rents drop 4 percent.

The largest rent gains were seen in Southeast Portland (9 percent), and East Vancouver, Washington, and Aloha (both 6 percent).

The apartment market continues to be backed by solid fundamentals. In-migration to the region continues to provide a major boost, and statewide unemployment in March fell to 3.8 percent – a record low.

Yet new units are beginning to balance the market. The luxury market is showing signs of excess capacity.

“With increased competition among higher-end projects, concessions are getting more and more aggressive, and renters are finding some great move-in deals,” the Multifamily NW report states.

Managers of Yard, at the Burnside Bridge’s east end, are offering one month free with a new lease. The same deal is being offered for vacant units at Hassalo on Eighth, in the Lloyd District.

The lowest vacancies in metro Portland were in the St. Johns neighborhood, at 1.4 percent, and East Vancouver, at 1.8 percent.

The Portland-metro area is expected to gain 6,000 to 7,000 rental units this year.

For investors, property tax increases averaging 7 percent have dented returns, according to Multifamily NW. The inventory of multifamily buildings on the market remains very low.

Average rents in Portland-metro area

Studio: $1,078

1 bedroom/1 bathroom: $1,127

2 bedrooms/1 bathroom: $1,102

2 bedrooms/2 bathrooms: $1,374

2-bedroom townhomes: $1,228

3 bedrooms/1 bathroom: $1,220

3 bedrooms/2 bathrooms: $1,489

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A Los Angeles-based investor has closed on the purchase of a 164-unit apartment building in Bethany for $29 million.

Oak Hill Apartments, at 15800 N.W. West Union Road, in unincorporated Washington County, was sold to Affordable Housing Associates. The seller was Tokola Properties Inc., which built the property in 1991 and had owned the complex ever since.

The sale equated to $176,829 per unit, or $211.65 per square foot. HFO Investment Real Estate partners Tyler Johnson, Cody Hagerman, Greg Frick and Rob Marton represented the seller.

The property had been in escrow for nearly a year as Tokola worked to identify a property for a 1031 exchange – an IRS mechanism that allows investors to purchase another property while deferring capital gains taxes.

Oak Hill’s amenities include a fitness and business center, a clubhouse, a pool and covered parking.

Strong job growth and housing demand continues to make Portland-area properties attractive investments, Johnson stated in a news release.

“This demand for housing is making Oregon a prime investment target for investors from across the country,” Johnson stated. “Oak Hill is a value-add community with significant upside. Its Bethany location makes it especially desirable due to its proximity to downtown Portland, Nike, Intel and its reputation for having some of the best schools in the metro area.”

The Portland-metro area had a vacancy rate of 3.5 percent in spring 2016, Multifamily NW reported.

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