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Office Market Report | Q2 2020
As every aspect of our society transitions to a new normal to combat the spread of the coronavirus, the immediate and longer-term impacts on the office market remain unknown. It is anticipated that leasing activity will slow, and absorption will pause as tenants delay moving during the pandemic.Portland’s office investment market slowed sharply following Oregon’s statewide stay-at-home order, but was exceptionally strong through the first part of 2020. Similarly, annual sales volume reached a decade high in 2019 and has rounded to $1.25 billion or higher each of the past five years.
The overall office market saw negative (239,605) square feet in net absorption at the end of second quarter 2020, compared to 363,656 square feet in the first quarter.
Class A: Negative (79,080) SF Class B: Negative (104,855) SF Class C: Negative (55,670) SF
After remaining moderate over the past few years, Portland rent growth is now exceeding national performance, but somewhat below the metro’s historical average. The vacancy rate increased from the previous quarter to 8.2%, up from 7.5% at the end of the first quarter 2020. Class A: 9.7% Class B: 8.9% Class C: 5.5%
PORTLAND MARKET SNAPSHOT
VACANCY
OVERVIEW
ABSORPTION & DELIVERIES
Vacancy Rates by ClassYears 2015 - 2020
Absorption & Deliveries2015 - 2020
900 SW 5TH AVENUE, 17TH FLOOR | PORTLAND, OR 97204 | 503.223.3171 | WWW.NORRIS-STEVENS.COM
VACANCY RENTAL RATE
CONSTRUCTION ABSORPTION
8.2%
2,184,600 SF
$27.64
(239,605) SF
Source: CoStar Property
Source: CoStar Property
10%
9%
8%
7%
6%
5%2015 2016 2017 2018 2019 2020
Class A Class B Total Market
Vaca
ncy
Rate
Mill
ions
of S
F
Net Absorption Net Deliveries
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2015 2016 2017 2018 2019 2020
DELIVERIES AND CONSTRUCTION RENTAL RATES
After peaking at over 7% growth at the end of 2015, Portland’s year-over-year office rent gains have continued to slow. Still, annual rent growth has been positive for 33 consecutive quarters. Due to the spread of the coronavirus, rent growth is expected to become negative as leasing activity slows in 2020.At the end of the second quarter 2020, the average quoted asking rental rate for all classes was $27.64 per square foot per year. Class A: $33.73 Class B: $26.77 Class C: $22.12
While the first quarter of 2020 saw 69,880 square feet delivered, the second quarter saw no new deliveries. 2,194,600 square feet remained under construction, much of which is still scheduled for delivery in 2020. Many of the projects still under construction are build-to-suit. Some of these include the Nike north expansion at 1,003,585 square feet, now set for completion in September 2020, and the Adidas expansion at 180,000 square feet set to complete in August 2020. The Canvas at Press Blocks in SW Portland, which began in December of 2018 is also scheduled for completion in August 2020 and will add 150,000 square feet.
MarketUnder Construction Inventory Average Bldg Size
# Bldgs Total RBA Preleased SF Preleased % All Existing U/C
Sunset Corridor/Hillsboro 1 1,004,000 1,004,000 100.0% 34,120 1,003,585
Hayden Island/Swan Island 3 425,000 425,000 100% 19,957 141,667
CBD 2 230,000 45,000 19.4% 73,155 115,024
SW Close-In 1 150,000 8,000 5.7% 10,378 150,000
Lloyd District 1 120,000 0 0% 24,421 120,400
Guilds Lake 1 69,000 0 0% 20,843 68,646
SE Close-In 2 65,000 5,000 7.0% 16,196 32,342
CBD/West Vancouver 1 53,000 40,000 74.9% 11,898 52,800
Clackamas/Milwaukie 3 34,000 1,000 1.7% 8,662 11,479
Orchards 1 25,000 25,000 100% 9,082 25,000
All Other 1 20,000 1,000 5.5% 12,208 20,000
Totals 17 2,195,000 1,552,000 70.7% 18,079 129,094
Construction Activity | Markets Ranked UNDER CONSTRUCTION RBA
Source: CoStar Property
For detailed information regarding this report, and to discuss how Norris & Stevens can assist with your real estate needs, please contact us at (503) 223-3171 or visit us at www.norris-stevens.com.
900 SW 5TH AVENUE, 17TH FLOOR | PORTLAND, OR 97204 | 503.223.3171 | WWW.NORRIS-STEVENS.COM
Historical Construction Starts & DemolitionsSquare Footage Per Quarter
Market Rent Growth
Mill
ions
of S
F
Deliveries Demolished Net Deliveries
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2015 2016 2017 2018 2019 2020
10%
8%
6%
4%
2%
0%
-2%2015 2016 2017 2018 2019 2020
Class A Class B Overall
Source: CoStar Property
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