Portland’s office market is booming. However, an easing to more tenant favorable conditions may be around the corner!

On the surface and by the fundamentals Portland’s office market continues to fire on all cylinders. Despite muted first quarter net absorption, overall vacancy dropped to 8.3 percent, with Portland maintaining its position as one of the tightest office markets in the country.  Leasing activity was strong, totaling more than 620,000 square feet, with 92 percent of square feet leased by companies either growing or remaining stable in their tenant footprint. Overall rent growth remains significant with market wide asking rents up 8.7 percent in the past year. Solid market fundamentals continue to make Portland a target for investors and sales activity was brisk in the first quarter, totaling $177 million, with assets trading in both the CBD and suburban areas. Portland’s economy continues to outperform most major metro areas with unemployment dropping to 4.3 percent. Earnings pressure on venture and broader tech sector may impact sublease and overall vacancy as we look toward 2017 which could create an opportunity for tenants.  Stay tuned...

·        The area’s economy is standing tall - In February, Bloomberg released a report declaring Oregon the best-performing economy in the US. With the current metro area unemployment sitting at 4.3 percent, its lowest level since early 2000, and job growth for 2015 among the strongest of all major metro areas in the country, it is no wonder that Portland’s population has been growing seven times faster than the US average. All factors driving the area’s office market performance.

·        Net absorption muted in first quarter, with surge expected in second quarter First quarter net absorption came in 178,000 square feet, however, pent up net absorption is set to hit the market in the second and third quarter when new projects are delivered. Vacancy dropped in the first quarter to 8.3 percent, the lowest level the market has seen since before 2000 and among the lowest five markets in the US.

·        Construction pipeline for new and renovated buildings tops 1.6 million square feet - Strong demand has continued to swell the construction pipeline, with more than 1.6 million square feet currently under construction.  Virtually all of this development is speculative and more than 57 percent has already been spoken for by tenants in the market.

·        Overall asking rents up 8.7 percent - Asking rents continue their ascent, with overall average asking rents hitting $25.12, driven strongly by rents for new construction as well as Class B rents.  Class A asking rents sit at $27.53, up 5.3 percent over-the-year while metro area Class B rents sit at $23.67, up 14.2 percent during the same period.  Asking rents for new construction have hit a new all-time high with rents for Class A product ranging from $37.50 to $41.50 full service.

·        Office investments sales activity in the first quarter was brisk - 8 assets over $10 million traded hands, representing a volume of $177.7 million.  The most significant sale was ASB Real Estate Investments’ acquisition of RiverEast Center for $33.5 million. This recently-renovated Class B building located in the Close In Eastside traded at a 4.5 percent cap rate and more than $335 per square foot, further demonstrating the strong demand for product in the close in urban areas.

·        Skyline buildings getting makeover - Vacancy in the Skyline set ranges from below 2 percent to greater than 22 percent and asking rents range from $28 to almost $42 full service. Building performance depends greatly on how well the properties have aged and if their amenity set has kept pace with tenant demand. Plans are underway for lobby renovations and building repositionings for several older Skyline properties as owners seek to keep their buildings relevant and competitive.