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Portland鈥檚 office market saw its vacancy rate hit a record of 13.5 percent during the last three months of 2024, Kidder Mathews stated in its fourth quarter report.

Direct vacancies have risen for eight consecutive quarters. There was little silver lining for brokers looking to make deals 鈥� leasing activity fell almost 50 percent for the fourth quarter compared to the previous year, to a new record low of 524,000 square feet.

Sales activity also declined in the fourth quarter but jumped nearly 40 percent on an annual basis to 3.4 million square feet, Kidder Mathews reported, citing CoStar data. Rents slid to $28.44 per square foot on average.

The office market has yet to hit bottom, said Mark Fraser, a senior vice president for Kidder Mathews in Portland.

鈥淯nfortunately, I don鈥檛 think the vacancy is done going up,鈥� he said.

Long-term investors, including local real estate firms such as Downtown Development Group, Melvin Mark, Menashe Properties and Sturgeon Development Partners, are best positioned to weather the office market downturn, Fraser said.

鈥淕oing forward, owners, local owners, spending their own money like it鈥檚 their money, will be the ones who succeed,鈥� he said. 鈥淎lthough it鈥檚 hard for everybody, those are the ones in my opinion who would be the winners.鈥�

The family firms have since the pandemic purchased office properties at 鈥渕iles and miles below replacement cost,鈥� Fraser said.

While Portland office vacancies have risen dramatically, the market is in better shape than in San Francisco and Seattle, where tech tenants have downsized or fled.

鈥淎 lot of our peer markets are facing these really dramatic changes in office vacancy rates,鈥� said Bret Marchant, director of data and research for Greater Portland Inc. The organization on Thursday hosted a video meeting during which the office market was discussed.

The suburbs remain healthier than downtown, Fraser said. That perception was underscored by recent news of Hoffman Construction鈥檚 move from downtown Portland to Lake Oswego. Hoffman is Oregon鈥檚 largest homegrown general contractor.

鈥淧eople are moving out of Multnomah County because it saves them money on a personal and a company basis,鈥� said Peter Andrews, chief operating officer of Melvin Mark Brokerage Co.

Concessions have gone up considerably, including months of free rent and generous tenant improvements, Andrews said. Still, every landlord has a price floor that it can鈥檛 break through, he said.

鈥淭here鈥檚 a price where a landlord just can鈥檛 do a deal,鈥� Andrews said. 鈥淭hey鈥檙e constrained by their debt, by their taxes.鈥�

Some tenants remain active in the market, particularly footwear and apparel companies, law firms, architecture businesses and other professional service providers.

鈥淭ech is gone everywhere,鈥� Andrews said.

Work-from-home rates have stabilized, Marchant said. In 2023, 21.2 percent of Portlanders were working from home, slightly below the number in 2022. He expects remote work to remain a significant factor.

鈥淭his is a new reality,鈥� he said.

Net absorption in the Portland market was negative 964,000 square feet, according to Kidder Mathews.

鈥淒espite a record low construction pipeline that will help mitigate any more upward pressure in vacancies, many companies have announced they will be trimming footprints even if they don鈥檛 intend to move spaces,鈥� the brokerage stated in a news release. 鈥淎s such, vacancy and availability rates are projected to climb and rent growth will be minimal.鈥�

Class-A office space will be the first segment of the market to attract future development, Andrews said.

鈥淭hat will be the next type of product that gets built,鈥� he said.

Portland also could benefit from a downtown tax-increment finance district, he said. The City Council approved a batch of new TIF districts in October to fund future development.

鈥淭here鈥檚 a real consensus that we鈥檙e not using the waterfront,鈥� Andrews said. 鈥淲hat could we do with that waterfront that makes people want to stay for a long time?鈥�

Meanwhile, foot traffic downtown has partially recovered from the COVID-19 pandemic, and investor perception damaged by the city鈥檚 homelessness and public safety crises has begun to improve, office analysts said.

鈥淭hese are wicked problems that are going to take a long time鈥� to resolve, Andrews said. 鈥淚鈥檓 optimistic that the very things that are hurting us, we can fix.鈥�