Portland’s office market is experiencing strong growth as it continues to benefit from an influx of Bay Area and Seattle tenants moving into the city. This is due to the relatively affordable rental rates and positioning between the two booming tech hubs along the West Coast. The city is seeing an increase of large tech tenants making their home in Portland, starting with Intel, which is Portland’s largest employer. Other companies, such a Genentech, Google, Oracle, Salesforce and many others have also taken up tenancy in the Portland Metro area. Seattle-based Amazon recently leased 83,995 square feet in Portland’s newest Class A office building, Broadway Tower, while Amazon’s AWS Elemental division leased 101,000 square feet in the former Oregonian headquarters, which is adjacent to Broadway Tower. The office market continues to perform well with a vacancy rate of 7.3 percent, beating out the 10-year average of 8.65 percent.
David Tabata, Capacity Commercial
All of these new companies making their way to Portland are creating substantial job opportunities for Portland’s ever-growing population. Portland is home to several large industry-leading companies, such as Nike, Intel, Columbia Sportswear and Adidas, which attract workforce talent across the world. This has helped spur the growth of Portland’s economy, which has, in turn, created a strong talent pool as more companies look to hire.
Portland has an abundance of new speculative office construction underway that will add competition for the recently completed office projects, which are largely speculative. This will total more than 2 million square feet of new office development in the Portland Metro area. With more office development starts currently planned for 2019 and beyond, the previously mentioned demand for office space will surely be welcomed. Outside of the Nike and Intel campus expansions, most of this development is occurring in the close-in submarkets surrounding downtown Portland. Some of the largest vacancies are Field Office (273,000 square feet and completed in 2018), as well as 7 SE Stark (80,000 square feet) and 5 MLK (120,000 square feet), which are speculative office developments currently under construction.
Along with the increase in development activity, Portland has also seen a significant amount of investment demand due to low vacancy rates, strong rent growth and competitive pricing compared to other West Coast cities. Sales activity has seen a significant spike in 2019 compared to the first two quarters of 2018. Office investments have exceeded $1.25 billion in Metro Portland in the past four quarters. One of Portland’s iconic office buildings, the 656,898-square-foot Montgomery Park, sold for $225 million in April, while Moda Tower, a 756,000-square-foot office tower in downtown Portland, sold for $176.3 million in September.
Portland has not typically been known to be the prime destination for investors and national companies compared to its major West Coast counterparts. However, with the uptick in leasing and sales activity over the past few years, the future bodes well for this Portland office market.
— By David Tababa, vice president, Capacity Commercial. This article first appeared in the October 2019 issue of Western Real Estate Business magazine.