— By Samuel Hatcher, Field Research Manager, CBRE —
Portland’s historically vibrant office market finds itself at a crossroads, striving to regain its footing in the wake of economic headwinds. The city’s unique blend of natural beauty, progressive culture and thriving tech scene has been a magnet for young professionals seeking an exceptional quality of life. However, recent shifting market dynamics have cast a shadow of uncertainty, compelling stakeholders to navigate a path to recovery with adaptability and resilience.
Portland’s overall office market vacancy is currently 22 percent across the metro area. Downtown vacancy — which includes the Central Eastside, Northwest Close-in and Lloyd District — is at about 28 percent. Of that vacant space, 3.3 million square feet is Class A. Moreover, sublease availability across the overall office market is up 67 percent year over year and investment remains paused. Capital is waiting on the sidelines due to elevated interest rates and generally tighter financial conditions.
Despite these stats, the market is showing some bright spots. The rate at which newly available sublease space is being put on the market has slowed compared to when this narrative was dominating headlines. There’s even a chance of a slight quarter-over-quarter decrease in available sublease space in the second quarter as listings expire and, in some cases, tenants decide to reoccupy their offices.
Key projects throughout the metro area also underscore the market’s adaptability. The city’s oldest food cart pod, Alder Street on Southwest Fifth Avenue, is undergoing a significant renovation thanks to a partnership between locally based Expensify and ChefStable. The remodel will include more carts, expanded seating, a bar and an events stage. Expensify has leased the property for seven years and is investing up to $1 million in the project.
Portland is on schedule to welcome an additional 300,000 square feet of Class A office space delivering in 2023, with Block 216 and 11W expected to be completed before the end of the summer. These new buildings in the Central Core of downtown Portland signal a shift toward exceptional office environments and have already attracted interest from traditional law firms and business services companies. Despite this movement, speculative office development will likely pause. There is no denying that the tenant footprint is changing in an evolving hybrid-work environment. This new trend has elevated the amount of existing available office space currently on the market for lease.
Additionally, the completion of Upland in 2022 represents a significant milestone in the growth and development of downtown Vancouver. The Class A office building’s success in attracting tenants and achieving full occupancy is a testament to its quality. It also further bolsters southwest Washington’s reputation as a prime destination for businesses looking to establish a presence there. Construction is also underway at Terminal 1 on the Vancouver Waterfront, where ZoomInfo has pre-leased the 366,000-square-foot office building with plans to occupy it in 2025.
As the office market in Portland pivots toward recovery, the city is going to need to adapt. Amidst the challenges, office leasing is active, new construction is delivering and there’s a returning sense of optimism.