By Meghan Hall
If there is one sector that remains a question mark two years into the pandemic, it is office. The persistence of the Delta Variant, changing mask mandates and growing momentum among employees to fight for workers’ rights and flexible work policies all continue to have an impact on commercial real estate. Portland, another growing market, has not been immune to these challenges; however, like many other West Coast markets, fundamentals have been at least bolstered by tech leasing activity and rolling leases.
“Right now, the rubber needs to meet the road,” explained Colliers’ Research Manager Jacob Pavlik. “Companies who had their leases rolling early pandemic who wanted to kick the can down the road…those are coming up now. Tenants are being forced to make decisions after almost two years of planning, and because of that I think we’re going to start and actually see market statistics move in whatever direction the future of the office looks like.”
At the end of the third quarter, however, the market recorded a vacancy rate of 16.4 percent and negative net absorption of 397,000 square feet. Availability has reached a historic high of 27.3 percent in the city’s central business district. By comparison, the availability rate in downtown Portland at the end of 2019 was about 18.5 percent. Overall asking rents also declined from $28.60 during the third quarter of 2020 to $28.42 at the end of Q3 of 2021.
Colliers notes that about 20 percent of office space in the Greater Portland area is currently up for lease. Many leasing opportunities are located downtown and in nearby subarkets. Much of the challenge surrounding availability has been brought on by a recent construction boom in the market. The area delivered 3.3 million square feet of space over the past ten years, but since the beginning of 2020, 1.5 million square feet of office was brought to market. While Portland is indeed growing, local office tenants did not have the opportunity to absorb the excess space prior to the start of the pandemic.
Colliers’ most recent office report attempts to answer the question: “When will Portland recover?” While the answer is complicated and eludes experts, Portland has been dubbed the “economic engine” of Oregon and has a number of major companies in its midst that have helped bolster recent fundamentals.
Office demand is ticking up, according to Colliers, although the firm declined to comment when asked about the number of tenant requirements in the market. Much of the demand for office space is driven by “bedrock” firms in the business, financial and tech sectors, which make up for 63 percent of existing requirements. Healthcare and government–two other stalwarts in the office sector–account for 28 percent of demand.
On a more positive note, there is opportunity in the market. Identification software company Q5id and manufacturing firm Planar leased a combined 150,000 square feet. For companies that are looking to expand their presence, now is the time to do so, notes Colliers. Desirable concessions and lower rents could provide opportunity for smaller firms to make their mark on Portland’s downtown core as the city continues to grow.
Companies that are taking space are often those who are anticipating a more concrete return to the office, or have announced return dates in the near future. Pavlik also noted that for those who are leasing, already finished buildings are in much higher demand.
“Because companies are now having to make decisions very quickly…they can’t wait for the tenant supply chain-delayed tenant improvement process,” said Pavlik. “There is so much built-out space in Portland, that if your space isn’t built-out, you’re not competing on a level playing field. For landlords who have invested in speculative suites, those are getting eaten up. And there’s enough of them to satisfy the demand that Portland has right now.”