By Jack Stubbs
The Portland office market looks set for an interesting – if less than active – time ahead, suggests a report recently released by CBRE, titled “Portland Office Report Q3 2022.” The report saw increased subleasing activity and a continued trend of low demand for office space – an increased overall vacancy rate, decreasing net absorption and a slight increase in asking rents confirm this pattern.
Several of the key findings from the report highlight a relative lack of demand for office space in Portland. The overall vacancy rate in the Portland metro area – which encapsulates Multnomah, Washington, Clackamas, and Clark counties – grew to 20.8 percent, marking a 230-basis point increase year-over-year, the report notes. Sublease availability across the overall office market increased to 1.8 million square feet, which marked an 18.3 percent increase from second quarter 2022 to the third quarter.
Notably, the third quarter saw no new consequential office construction deliveries. However, two significant commercial projects in Portland’s office development pipeline – The Offices at 11W, a 117,285 square foot project, and the 167,000 square foot Block 216 project, both located in the Portland Central Business District (CBD) – are on course for their expected delivery dates.
In the third quarter, the suburban average asking rental rate was $28.47 per square foot FSG (full-service gross), which marked a 1.1 percent increase quarter-over-quarter, while the downtown average asking rental rate was $34.68 per square foot FSG, marking a one percent increase quarter-over-quarter.
Leasing activity, in particular, was one metric that highlighted slowing demand in the third quarter. Across the Portland metro area, there were 474,000 square feet transacted, representing a 39 percent increase from the previous quarter, the report states.
Unique tenant requirements played a role in this trajectory, with tenants continually focusing on “right-sizing” assets, a trend driven in part by companies assessing how they might accommodate an increasingly hybrid work-from-home versus in-person employee model.
Some of the notable leases included WCIC-NOCC inking a nearly 18,000 square foot lease renewal for a Class B asset in the Hillsboro submarket, and Propellor, Inc. signing a new lease for 11,747 square feet for a Class A property in the Northwest submarket.
Supply and demand figures, likewise, suggest decreased demand for office space in Portland heading towards the end of the year. The total availability rate (12.2 million square feet) across the metro area stood at nearly 24 percent, reflecting a 220 bps increase year-over-year.
Looking ahead, investment activity suggests a general cooling of interest due to a variety of factors, the report found. Growth will likely remain relatively restrained for the foreseeable future, as buyers and lenders alike look for ways to assess newly emerging variables at play with regards to employees’ shifting and evolving preferences for working at home versus in-person.
