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Portland Office Market Report

2nd Quarter 2023

Posted In — Market Research | Market Report

MARKET DRIVERS

LEASING ACTIVITY continued to fall in Q2, posting at a near record low of 639K SF leased, down 33% YOY. This number was only beat once in Q3 2020 at the start of the pandemic, when leasing activity posted at only 548K SF.

IN CONTRAST to leasing volume at historic lows, sublease availability has been continually hitting record highs since the start of the pandemic. Q2 posted an overwhelming all-time high, reaching over 16M for the first time on record to approximately 17.6M SF.

CONSTRUCTION ACTIVITY remains minimal, reflecting only 0.2% of existing inventory which is well below the national average of 1.5%. This will help relieve upward pressure to excessive supply amid the record high availability rates across the metro.

SALES VOLUME dropped to 232K SF, a decrease of over 60% YOY and a new historical record low, averaging $234/SF.

ECONOMIC OVERVIEW

DESPITE THE ONGOING HIGH INTEREST RATES and CPI growth, local consumers appear to be better prepared for the slight downturn in the economy than compared to previous recessions, as overall consumer spending remained stable.

THE PORTLAND METRO experienced an uptick in unemployment rates at year-end 2022 into Q1 of this year, hovering around 4.4%. It has since dropped to 3.6% as of May 2023 according to the employment department of the State of Oregon.

NEAR-TERM OUTLOOK

THE PORTLAND OFFICE MARKET will continue to experience a slow market through the duration of the year. Fundamentals remain shaky, facing challenges such as changing square footage requirements and businesses that continue to break leases to give back space.

INVESTMENT ACTIVITY has been well below the 10-year average, reaching record low volumes in the past two years. The battle against inflation has tightened credit and may make it tough for office deals to ramp up to pre-pandemic levels.

 
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