The migration of office tenants from the central business district to the suburbs has slowed and downtown could be ready for a revival
Though the downtown Portland office market is expected to continue to face serious challenges, new leases and other signs point to the start of a recovery.
While the vacancy rate in the central business district is around one-third, vacancy in Portland’s western suburbs is around 12%. Employers started to abandon downtown Portland for newer, fancier and often cheaper buildings in the suburbs in 2020, due to a combination of the work-from-home shift necessitated by COVID gathering restrictions, as well as the unrest that followed George Floyd’s murder that May
Though more office vacancies and foreclosures are expected, analysts with global real estate firm Jones Lang LaSalle who spoke this month with the Portland Business Journal and Willamette Week said the local office market has started to show signs of life, with around half of prospective office tenants looking for space in Portland’s urban core. That figure represents a regression to pre-pandemic norms, with good deals to be had on downtown office space.
With newer buildings, lower taxes and shorter commutes, the suburbs are still a strong draw to office tenants. The vacancy rate for buildings built since 2010 is 12.7%, according to JLL data. This shows tenants still prefer newer Class A office space. Among the wave of employers relocating from the downtown core to newer suburban office space include International law firm Fisher Phillips, which relocated from the U.S. Bancorp Tower. And in September, U.S. Bank made headlines when it announced it would vacate its namesake building in 2025 when its lease expires, joining a wave of large office tenants abandoning the urban core.
But analysts say businesses still want to be near clients and competition. Among the tenants committed to the downtown core are law firms, tech companies, nonprofits, insurance companies and government and educational institutions. Among new downtown tenants are San Jose-based tech company Ubiquiti, which is moving to the Aspect building, and local print management company PaperCut Software, which is relocating to the Umpqua Bank Plaza.
WW reports that since the summer of 2023, 10 tenants have signed new leases at the Fox Tower, considered a bellwether for Portland’s high-end office market. Six of those represent more than 43,000 square feet.
Around 4.5 million square feet of office leases will expire in 2025. Newer office space with plush amenities are thought to be a draw as employers continue to try to draw employers back to the office. One of those employers is mayor-elect Keith Wilson, who recently announced plans to require city employees to work from the office at least four days a week, up from two and a half.
To deal with the glut of vacant office space in inner Portland, developers are looking to office-to-residential conversions, a tactic that has worked in cities like Seattle and Denver. But this approach is not thought to be as feasible in Portland due to the high cost of conversions.
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