Declining vacancy in Portland drives improving multifamily fundamentals

Development in the Portland multifamily market has tapered off year to date, allowing already strong vacancy conditions to further improve. Vacancy closed the third quarter at 4.9%, as the rate dropped below 5% for the first time since the fourth quarter of 2023. While lighter levels of new supply have played a role in elevated occupancy, operators are also prioritizing occupancy over increasing rental rates. Since the fourth quarter of last year, asking rents have ranged between $1,771 per month to $1,782 per month. Lake Oswego has emerged as a top submarket in the Portland metro during the past year, posting tight vacancy alongside rising rents. Asking rents in this area closed the third quarter at $2,388 per month, up 2.1% annually, while the vacancy rate in this submarket is 3.3%, one of the lowest rates in the region.

Activity continued to accelerate in the Portland multifamily investment market, as total sales during the third quarter outpaced levels recorded in the second quarter by 23%. Properties continue to change hands at a strong clip in Troutdale/Gresham, as this area leads the region in sales activity to this point in the year, slightly outpacing the traditional stronghold, Vancouver. Investors have targeted older, lower vacancy properties in Troutdale/Gresham. Of the properties that changed hands in this submarket so far this year, nearly all were 1970s, 1980s, 1990s, and early 2000s builds, almost all of which are recording sub-5% vacancy rates. This localized trend was reflected across the entire market. Through the third quarter of 2025, properties built between 1970 and 2009 account for nearly 75% of all transactions. In 2024, this figure was 56% and in the year before that, these vintages made up just 43% of sales.

Looking ahead

Multifamily developers are on track to complete 4,900 units in 2025, lagging levels recorded last year by 26%, while closely tracking historical norms. This will likely be the last year of substantial deliveries for some time. Multifamily permitting has been lighter during the past two years, and the development pipeline has just 2,600 units under construction. In the near term, new builds should continue to lease at a solid clip, keeping the vacancy rate at around 5.0%. As the market works through the recent supply growth, vacancy may begin to decline later next year. Once vacancy begins to improve more significantly, rents are expected to advance again. Asking rents are projected to decline by 1.0% in 2025 after rising by 2.2% in 2024.

Looking ahead into the fourth quarter, sales activity will likely lag levels recorded during the past three months, but total sales for the full year will exceed total sales from both 2023 and 2024. Investors will likely continue to target properties built before 2010, but there may be an uptick in sales for newer Class A product as they stabilize. Prior to this year, 2020s vintage assets made up roughly 25% of total sales from 2022-2024. Recent builds should continue to stabilize in the coming quarters, creating more opportunities for the acquisition of top-tier properties. Cap rates should average in the mid-5% range during the fourth quarter and into 2026, following a brief uptick during the third quarter.

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Contact our Portland office for more information.