There is no doubt that Portland's commercial real estate market is on fire, and has been for several years. But what goes around comes around, so when is the next down-cycle coming? Based on a recent Portland Business Journal survey, most commercial real estate executives in Portland think 2017 will be even hotter than 2016, but that warning signs of a downturn are starting to appear.
Commonly cited concerns include recent City of Portland legislation providing additional protection to residential renters. Many fear that actions like this are perceived as unfriendly to landlords and will discourage further investment in the city. And if people keep moving to Portland, but the housing supply cannot keep up at a range of price points, then the City's reputation for livability may suffer, putting the current growth spurt in jeopardy.
In fact, while Oregon just minted its 4 millionth new resident, it has recently fallen from its lofty perch as the number one internal relocation destination in the country. Sure, Oregon has only fallen to number three, but this blog is about warning signs – the sky isn't falling yet. Rents have also eased down a smidge in the last six months, reflecting either a softening demand or a slight oversupply. Residential rents are indicators not only of demand for multifamily housing, they also are an early indicator of labor demand – if the jobs aren't there, then people don't move to your city and commercial real estate investment declines.
Other factors cited in the PBJ survey as showing a possible coming downturn are the tense national political atmosphere, the state's current budget deficit, weakness in the labor pool, and rising interest rates. And let's not get started about the traffic, which is 12th worst in the country and 40th worst in the world.
Don't get me wrong – Portland still remains a very desirable location for new residents, which will continue to drive commercial real estate growth as long as those residents can find good jobs with reasonable commutes, and can afford the rents and housing prices. But real estate is famously cyclical, and we are almost certainly closer to the end of this cycle than the beginning. Continued cooling in the rental and home purchase markets could signal the beginning of that end.