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Portland’s Office Market Comes into Its Own as Major Players Hold Steady Post COVID-19

Colliers International, Portland, Lululemon, Apple, Nike, Intel
Courtesy of Elena Kuchko

By Meghan Hall

The Portland commercial real estate market is smaller than major tech centers such as the San Francisco Bay Area or Puget Sound. However, in recent years, the market has come into its own as major companies and institutional investors made their mark. While the market was still impacted by COVID-19, the presence of such companies has buoyed the market.

“Because it is quite a bit smaller but still has really good industry bases, we don’t see the highs and the lows that the more tech-driven markets have,”explained Colliers International’s Research Manager for the Pacific Northwest, Jacob Pavlik.

Portland’s office market totals about 75 million square feet. A third of that is its central business district. San Francisco’s CBD alone totals 100 million square feet, four times the size of downtown Portland. In Seattle, the CBD is nearly three times larger. Prior to COVID-19, the Portland office market posted a net of 750,000 square feet of absorption, on average, since the Great Recession. 3.8 million square feet of new supply has also come online. 

“Our growth cycle over the past four years was wild, like everyone’s was,” explained Pavlik. “But to have received the attention we did from institutional capital, entering the Portland market is unique. We went from a primarily local landlord market to now, a predominantly institutional landlord market.”  

Over the last five years, institutional investors have been moving into the market. Companies such as Intel and Nike have expanded and developed significantly. These major player have purchased 47 percent more of Class A office space, measured by square feet, than both local and regional players combined. Since 2016, institutional investors have purchased 2.2 million square feet, while local and regional investors have acquired 1.5 million square feet. Colliers notes that while it only tracked “major” transactions that could move the needle, of these deals occurred within Portland’s Central Business District, meaning that more than one quarter of the City’s downtown buildings have traded hands over the past several years.

For now, however, vacancy remains high. Over the past year, vacancy within the market rose 5.6 percent, from 15.4 percent during the second quarter of 2020, to 21 percent to-date. Even with new leases signed, the market has suffered negative 1.7 million square feet of absorption, about half of which was located in the central business district.

Class A asking rents in Portland’s CBD are down to $36.83 per square foot, a 4.5 percent drop from their peak during the second quarter of 2020, at which time they were $38.57 per square foot. Class A rents in suburban markets around Portland, however, have increased by 6.5 percent.

However, the Portland office market is seeing some positive momentum, with nine leases greater than 25,000 square feet of leases signed. Two major new tenants entered the market: Apple signed up to take 50,000 square feet at 3555 SW 253rd St., while athletic apparel brand Lululemon joined the ranks of local sports apparel brands by signing a 26,000 square foot lease just Northwest of downtown Portland.

“I think [those leases] are incredibly significant for two main reasons: First is that companies still need and want office space because there have been a lot of questions about that; how will a flexible workplace arrangement…going to impact office leasing?,” said Pavlik. “Second, there is a strength to periphery submarkets…There is a strength to those submarkets that are close and have urban amenities but aren’t in the core.”

The fact that these tech-savvy, innovative companies are signing up for space before folks have returned to the office is significant for the market. While these leases may not seem large by Bay Area or Seattle standards, in Portland, these are “very big” leases, noted Pavlik.

Additionally, looking ahead, the metro is expected to grow as Portland’s population increases. Over the course of 2020, its population grew by about 0.56 percent. Colliers predicts that as demographics change and the city grows, additional companies will follow suit.

“People like living in Portland,” said Pavlik. “Because people want to live here, companies will want to be here too.”