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Portland’s office market is sending mixed signals as it recovers from the worst of the pandemic while a new reality sets in with fewer workers going into offices.

The vacancy rate continued to climb early this year, reaching 19.3 percent in the metro area, according to JLL‘s first quarter report. Asking rents fell to $33.75 per square foot.

The urban core showed signs of life, however. Among large-scale leases of 10,000 square feet or more, 78 percent of first-quarter deals occurred in Portland’s central business district.

First-quarter data comes as tenants struggle to discern their future needs for office space.

鈥淲ith a lot of companies coming back to the office, they’re reassessing their space needs,鈥� said Tim Harrison, JLL’s Pacific Northwest research director. 鈥淎 lot of companies are moving to a hybrid model, and they’re reconsidering how much space they need.鈥�

Insurance company Moda Health recently renewed its lease of more than 100,000 square feet at Moda Tower in downtown Portland, casting a vote of confidence in the area’s future. The lease length and other terms were not disclosed. Moda Tower is now 83 percent occupied, according to building owner Unico Properties.

The tower was completed in 1999, when Moda Health was known as ODS Health.

鈥淭he signal then was the same as this signal we send today,鈥� Dave Evans, Moda Health’s chief financial officer, stated in a news release. 鈥淲e are committed to downtown, to this city and to this community.鈥� (Unico Properties and American Realty Advisors acquired Moda Tower in 2018 and leased back space to Moda Health. A $6 million remodel followed in 2021).

Office brokers and analysts are watching for moves by major office users. Legacy Health is evaluating its office space needs and crafting a strategic plan for remote work. The health care network owns its headquarters, an 86,450-square-foot building in Northwest Portland.

Legacy Health had no moves to announce, spokeswoman Elizabeth Baker said.

鈥淥bviously, like all companies, we’re evaluating the situation and our options,鈥� she said.

Some companies that downsized earlier in the pandemic may be looking for more space soon, Harrison said.

鈥淚 think a lot more people are going to come back to the office on a regular schedule, and I think a lot more companies are going to realize they need more space than they have, or what they’ve rightsized down to,鈥� he said.

Employment trends are positive; the Portland area’s labor force grew by 56,000 employees compared to a year ago.

鈥淲hat we’ve also seen is a lot of companies doing a lot of hiring,鈥� Harrison said. 鈥淐ompanies are quickly seeing they need more space than they have for their employees.鈥�

JLL’s report identified 鈥済rowth on the horizon鈥� for the central business district, with several large leases contributing to much-needed office space absorption. Still, downtown has a ways to go, Harrison said.

鈥淚t was really hard-hit,鈥� he said. 鈥淒o I think that the market recovers overnight? No, I don’t. It will take multiple years 鈥� when I say multiple years, I think it takes five years, maybe more, before the market recovers to the place it was pre-pandemic. But we’ll get there.鈥�

It will help when city and county employees return to downtown Portland, he said.

Kidder Mathews, in its own first-quarter report, likewise saw positive trends.

鈥淲e can expect movement across the metro to gradually improve in 2022 as companies hire at rapid pace and tenants begin to finalize back-to-office procedure,鈥� the brokerage stated.

In the metro area, 419,762 square feet of office space was under construction during the first quarter, according to JLL.

Subleasing activity has jumped. Navex Global returned 45,000 square feet in the Kruse Way submarket during the first quarter. The asking rent is 11 percent below the average for the area, according to JLL, providing some needed affordable office space in the increasingly expensive Lake Oswego office market.