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Q3 2020 Portland MSA Industrial Update

Industrial Resilience in the Face of Covid

National Outlook

Nationally, industrial real estate continues to post strong fundamentals making this one of the more resilient asset classes during this recessionary period. Despite falling production in the manufacturing sector, industrial warehousing and distribution continues to benefit from the rise in e-commerce sales and the rebound in rail and truck traffic numbers.

According to Association of American Railroads, a good indicator of economic health, September rail traffic was the 4th best in its history, despite being down 15% year to date. Truck and air traffic are also making impressive gains after digging themselves out of a large hole in the second quarter. Shifts in consumer demands should help continue driving logistics and transportation-focused real estate.

Whereas logistics has been the bright spot during the downturn, the manufacturing sector continues to lag behind. According to the Federal Reserve, the Real Output Index posted a low 88.2 in September which equaled the lowest total seen since the height of the GFC in 2009. Still, as of now industrial manufacturing and flex properties have maintained low vacancy numbers and stable rents, which may be a delayed response function of their typically longer term leases and federal assistance earlier in the Covid outbreak.

Portland MSA

Similar to the national outlook, Portland industrial maintains a historically low vacancy rate and continues to see positive absorption trends and stabilized rents. Vacancy rates for all subcategories (manufacturing, warehouse/distribution, flex) hovered around 4% in the third quarter on a weighted average, although this is the fourth consecutive quarter of rising vacancy.

Rental rates continue to hold onto gains made at the beginning of the year despite a small dip in the second quarter. Average rents amongst all subcategories was around $0.75/psf/month on a NNN basis. Demand continues to remain strong as absorption remains positive in the quarter along with another 3.8 million square feet in the construction pipeline.


Investor demand in this asset class should remain robust as investors look for safe havens during the economic downturn. Capitalization rates continue to remain low in the 5-6% range due to demand and historically low debt interest rates. Logistics hubs and "last-mile" delivery product in prime in-fill locations should continue to remain strong and mirror impressive increases in e-commerce sales and support.

Locally on the other side of the coin, as the recession drags on there could be a significant bifurcation in the asset class with logistics (warehousing/distribution) as a winner and manufacturing and flex properties seeing declines in demand and rental rates. Expect to see initial increases in concessions for manufacturing, flex and small-bay warehousing, with declines in rental rates towards the beginning of 2021 as is typical late in the economic cycle.

About the author:

Michael Hironimus, CCIM is the Certified Investment Advisor and Principal Broker for Duckridge Realty specializing in commercial real estate investment portfolios for high net worth clients and institutions, focusing on market, financial and risk analysis. He is also a faculty instructor for the CCIM Institute, teaching professionals globally in the CI-102 Market Analysis Core Course. For more information, reach out to

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