The second quarter of 2023 unveiled a compelling narrative centered on Portland’s retail landscape, characterized by a scarcity of available retail spaces, innovative approaches to address bankruptcies and a surge in rental rates driven by robust fundamentals in the suburban retail sector.
Looking at CBRE’s recent Portland Metro Retail 2Q 2023 report, Portland’s retail space availability in the second quarter settled at 5.9 percent, firmly below the 10-year average of 6.7 percent. This trend mirrored the nationwide strength observed in the retail domain, where the availability of retail spaces reached its lowest point in over two decades.
The quarterly data also indicated that retail developments under construction as of June experienced a four percent reduction since the close of the first quarter of this year. This decrease was even more pronounced, surpassing 15 percent below the 10-year average on a national scale.
“Retail and restaurants in Portland’s downtown core continue to face challenges, including an overall decrease in daytime population due to rising office vacancy. However, the close-in surrounding submarkets are flourishing as tenants that once fought for downtown space are aggressively seeking available opportunities outside downtown. This high demand for retail space in the suburbs is driving rents, resulting in high barriers to entry and historically low inventory,” said Austin Cain, vice president in CBRE’s Portland office.
Despite a quarter-over-quarter decline in shopping center sales volume, there was a discernible upswing in the average sale price per square foot, achieving $265 on average. Notably, the vibrancy characterizing Portland’s suburban markets aligned with a larger national pattern: for the first time since 2006, retail availability in America’s central business districts surpassed that of suburban locales. Nevertheless, urban retail spaces exhibited resilient growth in weekend foot traffic, particularly in neighborhoods that are located in close proximity to central business districts, experiencing a surge in activity. The appeal of Portland’s suburban landscape remained strong, as leasing professionals reported expedited deal closures compared to just six months ago. Timing emerged as a decisive factor, with delayed deal-making potentially leading to escalated rates upon signing.
Construction activity maintained a steady, unvarying trajectory in the Portland metropolitan area throughout the quarter. The combination of limited land availability and escalating construction expenses fueled demand for existing spaces within Portland’s suburbs. This, in turn, triggered notable pre-leasing for newly constructed properties. The prevailing conditions locally and nationally encompassed elevated interest rates, material and supply side costs, as well as constraints in construction financing.
Another development emerging from the report is that of significant retail bankruptcies, exemplified by the case of Bed Bath and Beyond. This event, coupled with the exodus of anchor tenants from malls, set the stage for a paradigm shift. Struggling retailers’ vacated spaces facilitated opportunities for enterprises in need of a brick-and-mortar presence. This shift also helped the inception of a trend towards innovative space partitioning, triggering a nationwide pattern toward increased retail rental rates.
CBRE concludes that the story of Portland’s retail sector unveils a nuanced narrative of scarcity, resilience, and innovation in the second quarter of 2023. The retail environment in Portland and throughout the nation showcases a complex panorama of challenges and prospects, demanding adept maneuvering and a keen grasp of evolving market dynamics.
