Office vacancy in downtown Portland dips slightly, but remains high

PORTLAND, Ore. (KOIN) – Portland’s downtown office vacancy rate has declined slightly since the end of 2022, according to new information released by CBRE, a global commercial real estate services and investment company. The metro area’s overall office vacancy rate has remained essentially the same. 

In the first quarter of 2023, CBRE says downtown Portland’s vacancy rate was 26.8%, down from 27.4% in the final quarter of 2022. 

The metro’s overall vacancy rate grew from 21.4% to 21.5%. While this increase is minor, the figures show that sublease availability across the market had a larger increase at 10.1% from the previous quarter and has increased 87.3% year over year. 

Vacancy rates in the downtown area are particularly high compared to areas outside the city. 

The Lake Oswego vacancy rate was 10.6% in the first quarter of 2023, Tigard’s was 11.1%, Clackamas’ was 11.4% and Beaverton’s was 18.8%. 

Washington Square’s vacancy rate remained high among the suburb locations at 23%, as did Airport Way at 27.3%. 

In quarter one of 2023, the average lease rate across the Portland metro area was $32.45 per square foot, that’s a 3.4% increase from the same period in 2022. 

In downtown Portland, the average asking rental rate was $34.26 per square foot compared to the average $29.47 per square foot in the suburban area. 

While downtown Portland’s vacancy rate might seem concerning, especially in light of REI’s recent announcement that it will be vacating its Portland store in early 2024, CBRE shared some good news about tenants moving into the city’s core area. 

Miller Nash LLP, a national law firm, signed a lease for the full sixth and seventh floors at the 11W building in downtown Portland, CBRE said. The company also said the Bureau of Labor & Industries has signed a lease for a space in downtown Portland at Harrison Square and will relocate from its current location on the city’s east side. 

K&L Gates LLP, an international law firm, recently renewed its lease at Umpqua Bank Plaza, CBRE reported. 

Overall, CBRE’s figures show that of all the leasing activity done in the Portland metro area in the first quarter of the year, 25% of it was in the central business district, 15% was on Kruse Way in Lake Oswego and 14% was in Vancouver. 

CBRE predicts the most desireable, top-tier office space in Portland will remain stable in the long term while the middle tier will likely need to attract more cost-conscious tenants. 

“The hardest hit office buildings, the bottom tier is likely to face certain hurdles and may need to consider future alternative uses such as residential or even demolition,” CBRE wrote in its report. 

The company said office investment remains paused so far in 2023 as people are still wary over rising interest rates, tighter financial conditions and a looming recession.