Portland’s Downtown Office Vacancy Reported To Be Highest In The U.S.
PORTLAND, Ore. — A comparison of the 50 largest downtown office markets nationwide at the end of last year by real estate firm Colliers has revealed that Portland’s central business district (CBD) had the highest office vacancy rate nationally. The district includes downtown Portland, Old Town, and the Pearl District, but excludes the Lloyd District on the east side.
Colliers report that the office vacancy rate in Portland’s CBD reached 30.2% by the end of 2023, up from 26.6% from a year earlier. A different real estate firm, CBRE, indicated that Portland’s downtown office vacancy, at 29,7% was the sixth highest in the country.
Downtown Portland’s Increasing Vacancies
Both reports indicate a similarly high vacancy rate. Over 1.4 million square feet of office space in downtown Portland was available for sublease at the end of 2023 according to Colliers and of that over 32% was available for lease by the end of last year. Jamison Shields, a research analyst with Colliers, projects a 40% vacancy rate over the next year.
Shields indicated that there is some demand for Class-A office buildings downtown, as these are the highest quality buildings in the market, but in this sector, the vacancies remain high at 32.5%. Shields said that while other markets are seeing a turnaround, they expect vacancies to continue climbing into 2025. He said, “Portland hasn’t hit the bottom yet.”
Rent In Downtown Portland Increasingly Unaffordable With Fewer Visitors
The three big issues reported by Shields are public safety, crime, lack of cleanliness, and high taxes. These elements have made the city among the most expensive taxing districts in the nation.
The Portland Metro Chamber, formerly known as the Portland Business Alliance, tracks downtown visitor activity. In February this year, their data showed visitors were 35% less than the same month in 2020. The reduced feet through the district, with fewer people working in downtown offices, is especially felt by restaurants and retailers, whose businesses are usually dependent on visitors and pedestrian traffic.
Despite high and climbing downtown office vacancies, Shields said asking rents continue to increase. At the same time associated costs are increasing because of rising operational costs. This includes higher utility bills, payroll, insurance costs, and property taxes which are added to the base rate. The average rent for office space in a Class-A office building has increased by around 11% since last year and is now almost $40 per square foot.
Shields believes that as long as rents remain highly elevated, attracting tenants will be difficult. At the same time, buildings are getting more expensive to operate and maintain.
Rental rates could decrease if buildings default on their loans and lenders foreclose, according to Shields. This could reset the base rate to rent the space. Approximately 23 buildings, 9.8% of the downtown office inventory, have reverted to the lender since 2020.
Compared unfavourably to cities like Seattle which comes in at the 10th largest vacancy rate at 24.2%, Portland’s downtown offices are likely to only see a turnaround if rents decline. The Colliers report indicates that they expect the amount of empty office space in downtown Portland to rise as leases expire and those spaces become available for rent on the market.