Home Commercial Report: Portland Office Vacancies Trend Up, Construction Hits 10-Year Low

Report: Portland Office Vacancies Trend Up, Construction Hits 10-Year Low

Portland, Kidder Mathews, Portland Office CRE Market Update, Lake Oswego, Allen Properties, GWG Real Estate, Kolitch Romano Dascenzo Gates LLC, American Bank Building, Block 216, The Offices at 11W
Image Courtesy Adam Blank

By Kate Snyder

As Portland’s economy continued its recovery from the effects of the COVID-19 pandemic, the city’s sublease availability climbed to a record high in 2022’s third quarter, according to Kidder Mathews’ Portland Office CRE Market Update released earlier this year. The report also details an increase in direct vacancy rates and decreases in the construction pipeline and leasing volume.

“The Portland office market may continue to experience a steady increase in sublease space, as companies are still reevaluating their post-pandemic workplace, many downsizing to account for hybrid or remote work models,” the report states.

Across the Portland metropolitan area, direct office vacancies trended upwards with an increase to 11.6 percent in the third quarter, according to the report. Average asking lease rates increased slightly to $28.44 per square foot, and leasing activity dropped 43.2 percent from the year prior with approximately 672,000 square feet of office space leased in the third quarter. Leasing activity for Class B offerings reached 403,000 square feet in the third quarter, outstripping both Class A and C in terms of volume.

Office sales volume in the third quarter also increased 6.4 percent over last year to 710,459 square feet with an average price of $227 per square foot. Newer buildings that offer top quality amenities are performing better across all submarkets, according to the report.

One of the top sales transactions in the third quarter involved a 32,150 square foot office building at 4350 Galewood Street in Lake Oswego that traded hands for $6.4 million, the report shows. Allen Properties was the buyer, and the seller was Nevada-based GWG Real Estate, LLC.

In leasing, the report identifies one of the quarter’s top leases in the city as Kolitch Romano Dascenzo Gates LLC, an Oregon-based law firm, relocating to a new 11,496 square foot space at the American Bank Building, located at 621 SW Morrison.

While sales increased, however, construction dropped. In total, about 401,643 square feet remain under construction, which the report states is a 10-year record low. However, several major projects are underway in Portland that will contribute to the city’s office space inventory. 

One that is scheduled to be completed in the spring is the Block 216 project at 900 SW Washington St., which is a 35-story tower – the fourth tallest building in Portland, according to the project’s website. Among its 1.1 million square feet of mixed-use space, Block 216 includes 168,188 square feet of Class A office space and houses The Ritz-Carlton.

The Offices at 11W, located at 1106 SW Washington St., is another mixed-use project delivering in early 2023, according to that project’s website. The report shows that the project offers approximately 134,185 square feet of office space. 

The city’s suburban markets are on track to continue attracting tenants due to employee proximity and lower crime rates and continue outperforming the downtown market. With an anticipation of increased interest rates, historically high construction costs and supply chain constraints, new development will experience a slowdown. However the area’s population growth and an increase in consumer spending will also help drive the Portland economy in the coming year.