Portland’s central city had the highest office vacancy rate of the 50 largest downtown office markets in the country by the end of last year, according to a report by real estate firm Colliers.
The office vacancy rate in Portland’s central business district, which includes downtown, Old Town and the Pearl District, had reached 30.2% by the end of 2023, Colliers reported. That’s up from 26.6% during the same time period a year earlier. (The figure does not include the Lloyd District, an eastside high-rise office district.)
Jamison Shields, a research analyst with Colliers, said the amount of empty office space in downtown Portland is expected to continue to rise as leases expire and those spaces hit the market.
According to Colliers, more than 1.4 million square feet of office space in downtown Portland was available for sublease at the end of 2023. The total available amount of space available for lease downtown was more than 32%. Collier expects that figure to reach 40% over the next year.
“We’re predicting vacancies to continue climbing into 2025,” Shields said. “Unlike other markets that are starting to see a turnaround, Portland hasn’t hit the bottom yet.”
Shields said there’s been some demand for downtown Class-A office buildings, which generally represent the highest quality buildings in the market, but vacancy in such buildings remains high, at 32.5%.
CBRE, another real estate firm, reported that Portland’s downtown office vacancy was the sixth highest in the country at 29.7%. Although the numbers differ due to each firm’s definition of what counts as the downtown area, the vacancy rates are similar.
The impact of fewer people working in downtown offices can be felt by restaurants and retailers, whose businesses benefit from visitors and pedestrian traffic. The Portland Metro Chamber — until recently known as the Portland Business Alliance — tracks downtown visitor activity, and its numbers for February, the most recent data available, showed it remained 35% below the same month in 2020.
Shields said the three big issues he hears from downtown businesses include public safety, crime, lack of cleanliness and high taxes, which have made the city among the most expensive taxing districts in the nation.
Even though office vacancies are high and climbing, asking rents for downtown offices continue to increase, Shields said. He said rates are increasing because of rising operational costs — including higher utility bills, payroll, insurance costs and property taxes — on top of the base rate to rent out the space. The average rent for office space in a Class-A office building, for example, is nearly $40 per square feet, which is about 11% increase from a year earlier.
“Rents continue to push upward as the buildings get more expensive to operate and maintain,” he said. “As long as rents remain highly elevated, the more difficult it’ll be to attract tenants.”
Downtown offices are likely to see a turnaround once rents start to decline.
One way rates can go down is if buildings default on their loans and lenders foreclose, Shields said, which could resent the base rate to rent the space. He said the firm has found that 9.8% of the downtown office inventory, or roughly 23 buildings, has gone back to the lender since 2020.
--Kristine de Leon covers retail and business trends. Reach her at kdeleon@oregonian.com.
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