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April 22, 2024
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Portland’s Office Vacancy Rate Rises in the First Quarter of 2021


Here’s a snapshot overview of the first quarter 2021 numbers for the Portland office market. This update was provided by the Pacific Northwest region of real estate services firm Kidder Mathews

Market Drivers

• Office availability in the Portland metro area rose 45% YOY, reporting a current rate of 15.0% for all class types. In particular, sublease availability increased to 1.5% by the end of Q1 2021, up from 0.7% a year prior.

• Asking lease rates declined slightly to $28.09/SF full service, compared to $28.38/SF full service from a year ago.

• Leasing activity declined 42% YOY to 562.6k sf by the end of the first quarter 2021. Total Class A lease activity reached 221.5k sf, with sublease activity standing at 36.5k sf.

• A slowdown of office completions due to COVID-19 impacted the Portland metro area, with only 34.9k sf of office space delivering in Q1 2021. The largest project was 15710 NE 65th Street in Vancouver, WA, adding 25k sf to this submarket.

• The Portland office pipeline remains strong, with just over 2.3 msf of office space currently under construction. The largest projects include Nike’s North Expansion in Beaverton (1 msf) and 503 on Tenth in Portland (269.9k sf). Looking into the rest of 2021, The Factor Building in the SE Close-In submarket will deliver 49.4k sf by the second quarter, while Downtown Development Group’s PAE Living Building in the Portland CBD submarket is anticipated to arrive in Q3, adding 60.9k sf of office space.

Economic Review

• The Portland economy has slowly bounced back in the first quarter of 2021, as federal stimulus packages and COVID-19 vaccines have started rolling-out in this area. As local businesses begin to reopen with modifications, there is optimism that strong consumer spending will drive the Portland economy forward in 2021.

• Unemployment rates reached a high 14.3% in April 2020 due to the COVID-19 pandemic. Since then, unemployment has gradually fallen, standing at 6.2% in Q1 2021.

Near Term Outlook

• Asking rental rates will fall slightly in the Portland office market, with vacancy levels plateauing towards the end of 2021 as workers return to the workplace and the COVID-19 vaccine becomes widely distributed.

• Office supply in the Portland market will continue to grow as owners lose out on tenants occupying buildings. A soft market will develop due to growing supply and rising interest rates.

Market Highlights

• Direct vacancy rates increased to 10.2%, up 36% YOY.

• Absorption rates fell into negative territory, reporting a loss of 907.6k sf by the end of Q1 2021.

• Construction projects remain active, with over 2.3 msf of office developments in the pipeline.

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