Portland’s Transition Year

NWV Group’s team recently attended the Multifamily NW 2024 Fall Apartment Report Luncheon and engaged in a discussion with multiple industry leader As we approach the end of 2024, it’s evident that this year marks a significant transition for the Portland apartment market, reflecting broader shifts in governance, economic policy, and market dynamics. From changes in city governance to fluctuations in interest rates, Portland is navigating a complex landscape that could reshape its real estate future.

New Governance Structure

Of course one of the most noteworthy changes this year is the transition to a new form of government in Portland. The City Council will expand from five to twelve members, representing four new geographic districts. This change, which employs ranked-choice voting, is designed to enhance representation and responsiveness to community needs. While it remains to be seen, increased council diversity may lead to more innovative solutions to the city’s well documented housing and policy challenges. While this brings uncertainty, many are hopeful that new policy solutions will come from this model.

Economic Policy and Apartment Market Dynamics

In September 2024, the Federal Reserve made a significant policy shift by cutting interest rates by 50 basis points—the first cut since March 2020. This move was seen as a response to sluggish economic growth and aims to stimulate investment and consumer spending. For the real estate market, particularly the apartment sector, lower interest rates could encourage more buying activity as investors feel more confident about the financial landscape.

Despite these positive economic signals, the apartment market has shown mixed performance throughout 2024. After a historically slow year in 2023, transaction volumes remain low, with only 57 apartment sales reported by September 2024. This number is pretty disheartening, as it projects an annual total significantly below the long-term average of 206 sales. Many industry professionals echo sentiments like “survive until 2025” and anticipate that a rebound in sales could coincide with improved market fundamentals and the easing of interest rates.

Patrick Barry, one of the contributors of the Fall Apartment Report, encapsulated this sentiment well. His tempered optimism is supported by recent reports indicating stabilization in vacancy rates, which may reflect a market that is beginning to stabilize after two challenging years.

Vacancy and Rent Trends

The Fall 2024 report reveals a noteworthy decrease in vacancy rates, dropping from 6.17% in Spring to 4.49%. This 27% decrease suggests that the market is absorbing the influx of units completed in the previous year. Areas such as Lake Oswego/West Linn and Inner & Central SE Portland are experiencing the lowest vacancy rates, further indicating localized demand.

On the rental side, average rents have declined from $2.06 to $2.04 per square foot, mirroring levels from Fall 2023. While this modest drop may seem concerning, the overall trend towards stabilization in 2025 provides a glimmer of hope for both landlords and tenants.

Looking Ahead

As we enter the final quarter of 2024, the consensus is that while challenges remain, the apartment sector appears to be moving past its most difficult phase. With the election and the Fed’s policy shift, many anticipate a rebound in activity by 2025. Improved market fundamentals, including rising occupancy rates and an anticipated stabilization in rents, suggest that the worst may be behind us.

The current slowdown in apartment construction adds another layer of complexity. With fewer new units being developed, supply constraints could contribute to upward pressure on rents in the coming years. Industry forecasts indicate that a lack of new supply may lead to more significant rent increases as vacancy rates stabilize.

Conclusions

2024 is shaping up to have been a pivotal year for the Portland apartment market. As the city undergoes a structural governance change and the Federal Reserve shifts its monetary policy, the market is poised for potential recovery. While sales volumes have not yet rebounded and rents on a slight decline, there are encouraging signs of stabilization that could set the stage for a more robust market in 2025. With cautious optimism, stakeholders in the Portland real estate landscape are beginning to see that light at the end of the tunnel, signaling better days ahead.

Access the 2024 MFNW Fall Apartment Report Here: