On the morning of November, 10th, real estate professionals from various sectors in the Portland market filled the ballroom of the Sentinel Hotel for ULI’s annual Emerging Trends in Real Estate event. Price Waterhouse Cooper’s annual report captures the responses from over 500 real estate professionals in topics ranging from investment opportunities, market sector trends, capital markets and development.
Keynote: Andy Warren, Director of Real Estate Research, PwC
- Moderator: Dennis Allen, Managing Director, Holland Partner Group
- Christian Kaylor, Economist State of Oregon
- Patricia Raicht, Senior VP and National Director of Research JLL
- Eric Winquist Chairman and Chief Strategy Officer, Jama Software
Dennis Allen, Director of Real Estate Research, of Price Waterhouse Coopers was the keynote speaker of this year’s event.
“Playing for Advantage, Guarding the Flank”
- Respondents to ULI’s Emerging Trends survey were ask what three words would describe the market in 2017. Measured, growing, overheated and uncertain were some of the top responses. Overall the sentiment among those surveyed was “good to excellent” for next year.
- Optionality will be more important in the future. The E-Loft or Everything Loft, a new trend the office market, provides more flexibility and gives you the option to use space 16 hours a day.
- Even though we are adding 18,000 construction jobs a month, employment in the sector is still at year 2000 levels and down 1.1 million jobs.
- Income growth is not keeping up with existing home prices. Nationally we are seeing a deficit of 7 million homes and housing shortages will continue to impact affordability. More communities are realizing the value of diversity and that “gaining entry beyond the velvet rope” is vitally important.
- The number of breweries came up often in discussions with respondents. The top ten markets in the US have a strong craft brewing scene. Allen mentioned that cities can “brew themselves up the ranks”, and that people are looking for “the next Austin like market”.
“Portland’s Growing Pains”
Christian Kaylor, an economist for the state of Oregon was the second to speak. He began his presentation discussing the economic and demographic changes Oregon has experienced in recent years.
- The city of Portland ranks #2 in job growth nationally. The Portland metro area’s real Gross Domestic Product grew by 4.6% in 2015 making it the 10th fastest growth rate among the nation’s 100 largest metropolitan areas, twice as fast as all metro areas combined. Oregon grew twice as fast as Texas adding 16,700 jobs between 2015 and 2016.
- The City of Portland’s population only grew by 8% from 2010 to 2015, this is only twice the growth rate of 20 years ago. Though the city feels like its population is booming, Portland’s growth was only half that of Austin TX.
- Portland experienced the 3rd largest increase in median household income, more than seven times the US rate, adjusted for inflation. Median household income has increased to $60,892. Between 2010 and 2015, the number of households earning more than $100,000 annually increased by 50%. Unfortunately, households earning $35,000 and below declined by 20 % during that same time period. Median tier households, between $50,000 and $75,000 only grew by 7 percent.
- Kaylor commented that Portland is doing well but “we are cheating the system.” The increase in median income has come from a substantial increase in high income households. Portland is attracting highly educated, high income households but people in the middle are getting squeezed out.
Patricia Raicht, Senior Vice President and National Director of Research with JLL followed Mr. Kaylor. She began by posing the question, “What is driving demand in Portland’s office and industrial markets?”
- Demand for office space tends to track with job growth but population growth drives demand in Portland’s industrial market, though not as closely. Typically the industrial market experiences a 12 to 24 month lag between population growth and an increase in demand. In 2011 much of the industrial demand was from manufacturing but by 2016 demand had shifted to E-commerce and regional distribution tenants. “Function of following rooftops”.
- It was no secret that technology firms were driving demand in Portland’s office market. Tenants who don’t need to be downtown to recruit talent are looking to the suburbs for space but rents are increasing the suburbs as well. Those companies that need to be downtown to recruit and retain talent are willing to pay a higher rate, as many of them are coming from higher priced markets.
- According to Ms. Raicht, the three main challenges Portland faces are housing affordability, diversity and resilience. If Portland is to stay competitive, more housing needs to be built. Portland’s lack of diversity puts it at a disadvantage for recruiting and maintaining companies. Tech companies, which are having a huge impact on Portland’s real estate market, are activity seeking to increase the diversity of their workforce but given Portland’s lack of diversity, achieving those goals may be challenging.
- Raicht serves as board chair for the Portland council of Urban Teen, an organization that works to “expose and inspire underrepresented youth to become tomorrow’s business and technology leaders.” She stated that Portland must increase education funding for underrepresented communities and challenged the audience to support the efforts of those organizations that work to foster greater educational and career opportunities within those communities.
Next on the agenda was the panel discussion. Each of the speakers participated and were joined by Eric Winquist, Chief Strategy Officer and co-founder of Jama Software. The moderator began by asking Mr. Winquist what he thought were some of the challenges that Portland was facing.
- When Jama first started, finding office space was a challenge. Jama occupied nine different offices in eight years due to the fact that there was “a disconnect” between what was being offered and what tech companies needed. Fortunately the market has changed with the growth of co-working spaces for next generation companies.
- When Jama recruits talent, they search nationally. There isn’t a large enough pool of experienced executive and senior management talent locally, so they have to bring people in. Housing has become a significant challenge for those that they recruit, particularly for those with families.
- When asked “How are we educating talent locally?” Winquist commented that local universities are doing a decent job and but there is a definite need to improve. Mr. Winquist added that “things are getting better.” He agreed with the other presenters in that housing affordability and Portland’s lack diversity was a challenge.
The question was posed to the entire group, “what can Portland do better?”
- Kaylor reiterated, “Diversity, education and housing prices”. He discussed how vitality important diversity is to be globally competitive. “An economy is trade. We are in a global economy. All growth is through trade. To compete globally you need a global caliber of talent”. Businesses have to be able to operate on a global scale. To do so they must have a diverse workforce with multicultural backgrounds and that speak other languages.
- Housing cost and filtering continues to be a challenge. Portland doesn’t build enough housing for everyone. There exists a basket of reasons why people choose to move or stay. Housing is only one part. Oregon does not spend enough on education to cultivate talent locally. Kaylor stated that “We steal them (talent) from other communities”.
- Portland’s housing market is overheated and people are worried about economic failure. “It’s not a left or right issue”. Kaylor also discussed how people have misconceptions about what is impacting housing prices. Many Portlanders believe that new high end supply is driving up housing prices. This goes against basic economic theory and is simply not the case.
Once again ULI hosted an amazing and enlightening event. What are the major takeaways? Portland faces many challenges, but what can we, as real estate professionals, do to help address the challenges we face as a community and create solutions to those challenges? How can we encourage and support diversity within our own organizations? How can the real estate community provide creative solutions to space demands for tenants, particularly for those in the tech sector?
What can we do to educate citizens to effectively address Portland’s housing affordability problems? How to promote the construction of new homes without adding barriers that restrict the creation of new housing stock? How can we do more to support and cultivate home grown talent? What can we do to support increased diversity in our communities? How can we connect with local schools to grow talent at home? What can we do as business leaders and citizens that encourage young minds to consider careers in STEM and the construction trades while embracing entrepreneurship? As business leaders, it is up to us to work with our piers, educators, community groups and the public sector to find strategies that promote prosperity among all income levels.
Ahmed Synkai Harrison
Underwriter, PNC Real Estate Tax Credit Capital