MARKET DRIVERS
The Portland office market set a new historical high of 15.1% for direct vacancy rates, exceeding 14% for the first time. Vacancies continue climbing, setting new record highs quarter after quarter consecutively for the past 11 quarters.
Net absorption has been negative in seven of the past ten quarters with Q2 reflecting negative 836K SF, resulting in a total loss of 1.27M SF over the last 12 months.
The market experienced a quiet start to the first half of 2025, a stark contrast to 2024 when the first two quarters separately inked over 1M SF in lease deals. Leasing activity in Q2 2025 dropped almost 43% YOY to 635K SF, reaching a new record low. The Portland office market has seen deal sizes shrink over the past few years, with the average lease size under 3K SF, approximately 5% below the 10-year average.
Investment activity is rebounding slowly, posting a 22% increase in the first half of 2025 when compared to the first half of 2024. Although institutional buyers have historically made up over 30% of the trades, private buyers and owner-users have accounted for over 90% of the transaction volume in the past year.
ECONOMIC OVERVIEW
As of May 2025, the unemployment rate for the Portland-Vancouver-Hillsboro MSA was 4.4%, up from 3.6% at the same time last year. This is compared to 4.8% for the state of Oregon and 4.2% for the nation. Population growth in the Portland metro has slowed over the past year due to rising housing costs and taxes. Still, the region continues to draw residents from more expensive cities. Despite ongoing economic challenges, local leaders remain optimistic about the city’s outlook.
NEAR-TERM OUTLOOK
The Portland office market is expected to experience a gradual and prolonged recovery, possibly still in the initial stages. However, job losses later in 2025 could create additional pressure on vacancies. Additionally, Portland continues to be a favorable area for remote work, which creates more uncertainty about future office occupancy rates. While Portland is not facing an immediate risk of oversupply, its journey toward market balance will likely be a bit bumpy.
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