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Doug Jones on office

So much can change in a city over the course of three decades – especially in Portland, which seems to reinvent itself overnight. Yet the effect on Portland’s office market during the past 30 years of economic booms and busts has been relatively moderate as evidenced by its consistent downtown Class A office rental rates.

Unlike other consumer goods, the cost of Class A office space has remained surprisingly stagnant over the past 30 years. For example, unleaded gasoline sold for $1.21 per gallon in 1984 versus $3.46 today. In contrast, office space on the top floor of the newest high-rise building downtown rented for approximately $30 per square foot in 1984, and the same space would rent for close to that amount today.

Why? In short, like many other cities, Portland has a downtown office market that has experienced increased competition from the emerging suburban office market. In 1984, the unadulterated farmlands of Kruse Way and the Sunset Corridor were only beginning to transition for an impending flight to the suburbs. Low-cost suburban office and flex space became the hot new trend.

Fast-forward to today, with our economy in recovery mode and the urban growth boundary reigning in suburban expansion, and suburban office rates are starting to increase. The current trend in office space has shifted back from the suburbs to the central city markets, including the downtown Central Business District, the Pearl District and the close-in eastside.

High demand for creative and green office spaces are a symptom of Portland’s revitalized urbanization, largely driven by young Millennial professional and creative types. And the surge of interest for more close-in urban options, despite consistent rental rates, has only fueled and bolstered Portland’s competitive office market.

Michael Hale on industrial

The Central Eastside is losing its foothold as a safe haven for manufacturers, as it evolves into Portland’s next trendy hub of culture and community. The growing pains speak to an undercurrent of change much deeper than a simple market shift, but rather to the area’s identity crisis as a new intersection of gritty and mainstream. Of course, the area’s manufacturing and distribution roots are part of its alluring charm, but its marketability is proven by rising property values and spikes in rent.

Traditional industrial space is being repositioned to fit the growing demand, and major developments are slated for the next 18 months. As the area gains more retailers, office users and residents, existing industrial tenants face tough competition. Even walking down the street has become a challenge in identifying whether a business is manufacturing or creative, when in recent past it had been without question.

The gentrification process is not new to Portland, as exampled by the Pearl District. Yet, the big push for revival of the Central Eastside is helmed by Portland Mayor Charlie Hales, who is working to make it a formidable employment district for years to come. These major efforts include an overhaul to transportation with the addition of bike lanes and accessibility to light rail beginning in 2015 with a new transit bridge.

The efforts by the city aren’t without merit, because the region’s population growth in the past five years has been driven by young professional Millennials hungering for close-in urban living. Demand in this new submarket is for accessibility to transportation, work, culture and community all within a five-mile radius. Seizing this opportunity, the Central Eastside is now primed to accommodate.

Pam Lindloff on retail

Today, landlords of retail properties are seeing a strong level of interest in space from a new category of tenant – the medical community. All types of medical service providers are considering retail locations for expansions or relocations of their businesses. These include general physicians, physician specialists, urgent care clinics, physical therapy groups, plastic surgery and cosmetic surgery centers, general and specialty dental clinics, chiropractors, and both vision and vision surgery services.

Why would these medical service providers choose a retail shopping center over an office building or a medical clinic facility? Specifically, providers want the very qualities and features that make a shopping center what it is. A retail shopping center’s most attractive amenities typically include ease of access, strong location, convenient parking often at tenants’ doors, excellent signage opportunities and a strong presence in the center with its own storefront signage. Oftentimes a pad location, like a bank or a fast-food restaurant, is perfectly suited for a new urgent care clinic.

The above qualities aside, retail centers drive significant customer traffic gaining the medical tenant exposure beyond its patient base. Neighborhood centers anchored by grocery stores have consistent foot traffic, which in turn translates to repeatable customers and thus potential new patients for a medical tenant.

Additionally, medical tenants are a good fit for retail centers. With many typical retailers adapting to the impact of online shopping and developing smaller store formats, landlords are seeking new tenant types to fill available spaces. Service businesses, including all variety of medical services, are a more stable tenant not subject to Internet dilution. In fact, the medical tenant tends to strengthen the tenant mix at many shopping centers. Medical tenants have a heavy build-out requirement, but they are also able and willing to pay competitive lease rates in order to achieve their goals and take advantage of a retail center’s benefits.

Doug Jones specializes in the leasing and sales of office properties at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact him at 503-273-0332 or [email protected].

Michael Hale specializes in the leasing and sales of industrial properties at NAI Norris, Beggs & Simpson. Contact him at 503-223-7181 or [email protected].

Pam Lindloff specializes in the leasing and sales of retail properties at NAI Norris, Beggs & Simpson. Contact her at 360-852-9622 or [email protected].