OEN Member NewsNot all growth has been equal in Portland’s office market (Portland Business Journal)

By Seth Platsman, Macadam Forbes

 

It’s no secret that the Portland real estate market has been on fire over the past several years. National and international investment funds have seized control of a majority of the office inventory as Portland continues to be one of the quickest-growing cities in America. However, the office market growth has not been consistent across all submarkets of Portland.

The following compares how the central business district and suburban markets’ have recovered since 2007/2008, outlines current trends in the office market and how Portland is uniquely positioning itself against other markets as an eventual downturn nears.

Central Business District
Macadam Forbes Inc. has spent the past 40 years operating in Portland. During this time, we’ve rarely seen such drastic appreciation as we’ve seen in the recent Central Business District market.

Over the past 10 years, the average gross asking rate in the CBD has grown from $23 per square foot to $32 per square foot. Average sale prices have jumped from approximately $150 per square foot in 2009 to its peak of over $400 per square foot in late 2017. Throughout the past 10 years, nearly 50 percent of all CBD office sales have been purchased by institutional buyers.

Suburban
In contrast to the CBD office submarket, suburban office properties have been slow to recover since the economic downturn. Clackamas and Washington counties didn’t begin to gain traction until early 2014, when average gross asking rates began their gradual increase from $20 per square foot to the current level of $23 per square foot.

The vacancy rate in these areas has steadily declined from its peak of 15 percent in 2013, to the current level of 6 percent. Surging construction prices, along with the demand for "big box" industrial property has all but halted the development of new suburban office inventory.

The strongest performing submarket in the suburban office market has been Kruse Way, where rates have surpassed $30 per square foot gross and vacancy has dipped from 25 percent in 2011 to 13 percent.  

Current trends
Currently, Portland has approximately 2 million square feet of office inventory in its construction pipeline. This makes up approximately 3 percent of Portland’s total office inventory.

From a macro level, Portland appears to be well within the average limits as you examine the development pipelines in other cities (5 percent in Seattle, 4.5 percent in Minneapolis, 6 percent in Houston.) In terms of rate, these new office developments expect to surpass $40 per square foot gross, which is consistent with other Class A office space in the current market.

Portland’s position
Portland feels it is uniquely positioned to absorb this vacancy, especially when looking at competing markets.

Average gross asking rates in San Francisco have exceeded $70 per square foot. In addition, the median home price in San Francisco is approximately $1.5 million.

Portland’s pitch to growing companies in the Bay Area: pay 70 percent less for comparable office space and give your employees a more realistic opportunity to purchase a home.

Source: www.bizjournals.com

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