Office Expansion Continues in Portland for 10th Consecutive Year
Consistent investment trends, a steady demand for tenants, stable in-migration and several new additions to the skyline have provided Portland with a strong first half of 2019.
With more than 100,000 square feet of positive net absorption this year, the Portland office market shook off any lingering negative sentiment from 2018 and started the year strong. Portland has built a reputation as a second outpost to cities like Seattle and the Bay Area. Companies tend to initially set up small offices before quickly realizing Portland is a viable alternative to other larger hubs. In-migration remains strong but the major growth the market has experienced recently has been from homegrown companies ramping up or expanding their operations.
We’re continuing to see office rents grow at almost 12 percent year over year. Portland office rents average $32.12 per square foot, making them nearly 60 percent cheaper than San Francisco and 25 percent cheaper than Seattle. The city is also well situated to attract companies that are being priced out of primary markets but still need to be geographically close. When you layer on our cost of living and high quality of life, Portland becomes even more attractive, which also contributes to its growth.
There have been several projects recently completed, or soon to be completed, that are creating excitement amongst Portland tenants and brokers. Recent deliveries by Field Office, Leland James, Broadway Tower and Meier + Frank’s have been well received by the tenant and brokerage communities. They all boast well-thought-out designs and outstanding amenity packages. Projects soon to be completed that are creating buzz include Canvas @ Press Blocks, 7 Stark, District Office and 5 MLK.
Investment trends have seen little change, but there is increased pressure on prices as cap rates rise. Montgomery Park, Field Office, Leland James, Heartline and Park Square Campus are some of the large deals providing a solid start to the year. We expect a few additional trades pertaining to buildings that sold earlier in the cycle as those owners look to lock in returns from the current cycle.
Historically, it’s been Portland’s Central Business District that’s attracted the attention of top investors to the city. Over the past year, however, we’ve seen more sales in the greater urban core. About 65 percent of sales were outside the CBD and in the suburbs in 2018. Investment firms like Talon, Easterly Government Properties, Intercontinental Real Estate Corporation and Kennedy Wilson have joined the growing number of firms entering or expanding their portfolio in the Portland market this year. We expect to continue to see more institutional owners making first-time investments in the city over the second half of 2019.
This year is shaping up to be another great one for Portland. We look forward to seeing what 2020 and beyond brings to our market.
— By Buzz Ellis, managing director, JLL. This article first appeared in the July 2019 issue of Western Real Estate Business magazine.