MARKET DRIVERS
DIRECT VACANCY RATES broke past 12% for the first time in 20-years last quarter. This trend continued in Q1 as direct vacancy rose to 12.7%, tying a record high for the market.
NET ABSORPTION was -619.4k SF this quarter, the 3rd straight quarter it’s been negative. There was 15.2k SF of deliveries adding to this number, and another 525.0k SF being developed in the area.
FOLLOWING a sluggish year for leasing and sales, transactions stagnated further at the start of the quarter. Leasing activity dropped 36.8% compared to the previous quarter, while sales volume hit its lowest level this century.
ECONOMIC OVERVIEW
AS OF JANUARY 2024, the unemployment rate for the Portland-Vancouver-Hillsboro MSA was 4.17%, up from 4.5% at the same time last year. This is compared to 4.1% for the state of Oregon and 3.7% for the nation.
THE PORTLAND AREA has seen modest economic growth despite a slow job market, persistent issues with population decline, and a high cost of living, especially in housing affordability. Although job growth rates in 2023 fell below the national average, sectors like local government, health services, and hospitality increased.
NEAR-TERM OUTLOOK
THE PRESENT office market favors tenants, with expectations of ongoing downward pressure on rates, rising concessions and tenant improvements (TI’s), and extended periods of vacancy for leasing space anticipated throughout the year.
PORTLAND’S OFFICE MARKET faces challenges similar to other major US cities post-pandemic, including inflation, remote work, slowed job growth, and high interest rates. While interest rates may lower, other issues are expected to persist through 2024.
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