MARKET DRIVERS
Direct vacancy rates have peaked at new record highs quarter after quarter consecutively for the past 10 quarters. Q1 proves no different, surpassing 13% and reaching a new historical new high of 14.0%.
With the exception of last quarter in 4Q 2024 that posted positive net absorption, the Portland office market has experienced six consecutive quarters of negative net absorption, with 1Q 2025 posting negative 422K SF. There have only been six quarters that posted positive net absorption since 1Q 2020.
Leasing activity fell almost 37% for Q1 YOY, hitting a record low of 582K SF. The only time the market experienced a lower lease volume was shortly after the pandemic hit in 3Q 2020. Sales activity rebounded in 2024 when compared to the past four years, and the start of 2025 showed promise posting a 47% increase YOY at 403K SF.
ECONOMIC OVERVIEW
As of January 2025, the unemployment rate for the Portland-Vancouver-Hillsboro MSA was 5.0%, up from 4.4% at the same time last year. This is compared to 4.4% for the state of Oregon and 4.0% for the nation.
Although Portland’s economy was among the fastest growing in the country in the past decade, population growth has been on the decline in the past year due to high housing costs and taxes. Additionally, the market experienced job losses although the nation’s labor market grew which is a rarity for the Portland metro. Although the local market has some economic headwinds and challenges to overcome, Portland has previously overcome big challenges and local analysts are optimistic they can trend in that direction again.
NEAR-TERM OUTLOOK
Inflation and other economic uncertainties over the past year have forced tenants to carefully evaluate expansions and, in some cases, reduce space as their requirements change. Additionally, there have been several proposed policies such as tariffs, reduced corporate taxes, and deregulation. These policies have yet to be implemented, making it difficult to predict the future direction of the market. Once decisions are made about which policies will be enacted, there will be greater clarity regarding their impact on the market, enabling decision makers to respond accordingly.
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