Robust leasing activity at new office properties has continued in Portland, with buildings in the Central Business District showing particular strength.

Tech firms and other tenants have provided ample demand for Class A office space. Amazon‘s lease of 83,995 square feet at Broadway Tower, NW Natural‘s lease of 183,500 square feet at 250 Taylor and McAfee‘s lease of 98,820 square feet in Hillsboro were among the major commitments in recent months.

Demand is being driven by so-called “TAMI” tenants – those in the technology, advertising, media and information industries, said Kevin Kaufman, vice president at CBRE.

“Tenants are still looking to their space as a tool to recruit and retain top talent, and so building owners continue to add amenities and provide third spaces,” or nontraditional work spaces, he said.

Deliveries of new space are expected to continue apace this year, but preleasing activity is buoying new projects.

“At least 75 percent of office (space) under construction to be delivered in 2018 is preleased,” Kaufman said. “While you’re seeing lots of new construction, it does not necessarily translate to downward pressure on rents.”

Net absorption totaled 233,789 square feet during the fourth quarter.

Co-working space also continues to provide significant demand, with companies such as WeWork and CENTRL, which took space in the Menashe Properties building in the West End, looking to expand.

Average lease rates during the fourth quarter of 2017 rose 7.5 percent from a year earlier, to $27.66 per square foot, according to a CBRE report. That was also up 1.2 percent compared to the previous quarter.

Office space continues to be attractive to prospective buyers, as well. The 884,941-square-foot Wells Fargo Center, in downtown, sold for $212 per square foot.

Meanwhile, developers have pointed to a lack of available land that has driven up prices for existing industrial space. Supply began to catch up to demand, with some industrial spaces remaining empty upon delivery in the fourth quarter, according to a JLL report. Still, vacancy was tight at 3.8 percent. Nearly 3.6 million square feet of industrial space was under construction.

The U.S. Postal Service is building a new distribution center near Portland International Airport, and e-commerce continues to drive demand for distribution facilities.

The Rivergate Industrial District near the airport was the scene of significant activity, with rents up 9 percent in the Port of Portland-owned submarket, according to JLL.

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A Portland-based real estate and development firm announced Friday that it has purchased a portion of a Class A high-rise in the Central Business District.

ScanlanKemperBard bought 19 stories of office space in the 34-story KOIN Center in downtown Portland for $88 million ($250 per square foot), according to a news release. The building has 15 other stories – including high-end condominiums and the local CBS television affiliate – owned separately.

SKB plans to invest $4.3 million to renovate the main lobby, bike locker area, elevator lobbies and restrooms. The company also plans to create “white-shell spec suites” with open floor plans.

“We’re going to gut the space and either let the tenants build it out or do it for them,” SKB President and principal Todd Gooding said. “We’ll be doing build-to-suit work for prospective tenants.”

Gooding said that SKB is in the process of finalizing architect selection for improvements to common areas and hopes to be under construction by the end of 2015. Some improvements will need to go before the city for design review because SKB plans to alter the building entrance, Gooding said.

“The upgrades will improve the property’s overall appeal and position the KOIN Center to improve its tenant base,” said Kurt Nelson, SKB’s senior vice president of acquisitions, who headed the purchase team.

The office tower has 253,023 square feet of office and retail space with 20,000 square feet per floor. At the time of the sale the property was 84 percent leased.

Friday’s announcement accompanied news that SKB on Jan. 21 spent $91.5 million to buy the Greenwood Corporate Plaza in Greenwood Village, Colo. The plaza is a six-building, Class B office campus with 619,788 square feet.

The KOIN Center purchase is the second major downtown Portland acquisition by SKB. In November, the firm purchased the 12-story U.S. Bank Block building at 309 S.W. Sixth Ave. for $40 million.

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Continued in-migration, a strong lending forecast and decreasing vacancy rates in the Portland area mean new office and industrial construction could ramp up in 2015, while multifamily construction could begin to cool off.

Several real estate industry professionals earlier this month participated in a group discussion about 2015 during a breakfast event held by the Oregon-Columbia chapter of the Institute of Real Estate Management at the Oregon Convention Center.

“In the overall market cycle, I feel like we’re in about the sixth inning,” said Chris Nelson, co-founder of Capstone Partners. “Will we get extra innings? I’m not sure. In multifamily, it might be nearly time to sell, but I feel we still have growth potential.”

The metro area is on track to have 7,000 permits issued for new multifamily projects by the end of 2014, and Clay Newton, a vice president at Kidder Mathews, is predicting that 7,500 permits will be issued in 2015, with construction increasing in the suburban markets.

“I’m seeing urban, mixed-use developments under way in the suburbs,” he said. “I think that’s a trend that’s going to continue to grow.”

Newton said mixed-use developments help create a “sense of place” for tenants.

George Macoubray, a partner at Commercial Realty Advisors Northwest, said Portland’s increasing population of well-educated young people want to live in “20-minute neighborhoods.”

“They don’t want to buy a car, but they’re willing to spend money on craft beer and coffee,” he said. “They want the focus on local – both retail and restaurant – and they want all these things within a 20-minute walk from their house.”

At its lowest, Portland’s vacancy rate was at 3.7 percent. Newton predicts that will increase to 4.3 percent by the end of 2015, but said developers have “the green light to build” until vacancy rates exceed 5 percent.

“Jobs drive pretty much everything,” Nelson said. “And with continued job growth … in-migration will help increase the demand.”

Eric Haskins, managing director at Jones Lang LaSalle, said Portland’s booming high-tech industry will continue to create demand for office space, pushing the vacancy rate in the city’s Central Business District to below 7 percent by the end of next year. The suburbs, too, are seeing record-low vacancy rates, Haskins said.

“Next year we will have our sixth straight year of positive net absorption in the city,” Haskins said. “Low vacancy rates will push more development and more adaptive reuse and redevelopment.”

Haskins predicts space constraints in the CBD will increase asking rents for office space to $30 per square foot and spur development in the suburbs.

“I think we’ll see a significant increase in sales volume in 2015 and the price per square foot will be above its pre-recession peak,” Haskins said. “Five years from now I think we’re going to look back and realize we were part of a fundamental shift in Portland from a second- to a top-tier city.”

Haskins and several other panel members said they expect 2015 will be an active and “exciting” year.

In September, Jones Lang LaSalle ranked Portland as the nation’s No. 8 high-tech hub.

“Investors are being told to invest here,” Nelson said.

Investors want in on Portland’s market, so financing is available for speculative development of office and industrial space.

“On spec development there’s financing happening; there’s plenty of capital out there,” said Ken Griggs, president of Norris, Beggs & Simpson Financial. “Banks are expecting an expanded supply of capital for the next few years.”

Recent college graduates want to live in Portland, Newton said, and continued job growth in the area will continue to fuel construction of industrial and office space.

Dave Ellis, a principal at Capacity Commercial Group, predicts industrial vacancy rates will dip to below 5 percent by the end of 2015.

“Not only are we building new product, but it’s being leased,” Ellis said. “I predict 1.5 to 2.5 million square feet of net absorption by the end of 2015.”

Ellis said if fuel prices stay low, he expects to see construction of distribution centers for online retailers like Amazon. E-trade distribution centers can have footprints of up to 1.2 million square feet.

Macoubray said e-commerce is creating construction opportunities for retail as well. He cited Cabela’s, which started as a catalog-only retailer, but now has stores often built close to a highway or freeway.

“Any online company that doesn’t have a brick-and-mortar store I predict will be out of business in 10 years,” Macoubray said. “People want to buy online and be able to go to the store if they want to pick it up or need to return it.”

The post Portland building boom may continue appeared first on Daily Journal of Commerce.

A corner office was once the mark of success in the professional world, but employees today are less interested in such a perk than amenities like fitness centers, bike repair areas and rooftop decks.

It’s this shift in employee preferences that’s driving up rents and driving down vacancy rates in Class B buildings in Portland’s Central Business District, according to Patricia Raicht, vice president of research for Jones Lang LaSalle.

“In the Class B and Class C buildings where owners have done something to upgrade the space in terms of infrastructure – (removed) dropped ceilings, exposed brick walls, done lobby renovations – the vacancy rates there are 200 points lower than in non-improved buildings,” she said. “We’ve seen a 20 percent increase in rent in buildings with creative spaces.”

Data compiled by JLL indicates that, in Class B and C properties, creative space has outperformed total space – and the gap is widening.

Between the second quarter of 2012 and the third quarter of 2014, vacancy for creative space fell 280 basis points to 6.1 percent, while vacancy for total space fell 230 basis points to 8.4 percent. Average rents for creative space increased 29.7 percent to $28.10 per square foot during the same time period, while average rents in total increased 13.3 percent and are now at $23.40 per square foot, according to the data.

When researching, JLL defined creative spaces as those that are usually older, and with open floor plans, high ceilings, exposed brick walls and good natural light. These types of spaces make up slightly more than 30 percent of the 10.9 million square feet of Class B and C inventory in the Central Business District.

Todd Gooding, ScanlanKemperBard‘s president, said his firm first noticed tenants’ desire for creative office space in 2012 after purchasing The Round in Beaverton. After renovations, SKB was able to charge $2 more per square foot for space in The Round than in other, similar spaces, he said.

Gooding said his firm recently completed a lobby remodel of the building that houses the Portland office of engineering firm CH2M HILL, at 2020 S.W. Fourth Ave. He believes it’s a good example of the type of space that tenants want.

“We’re moving toward creating collaborative buildings where tenants from each space have a common area to collaborate in,” he said. “While the number of square feet per person in an office space is shrinking, if you look at the space as a whole, more area is being dedicated to common areas for workers versus individual space.”

He compared the shift in the way employees occupy office space to the increase in the market for micro-housing, saying that as millennials move to Portland to take jobs in the growing high-tech industry, they’re requesting a new work environment.

“People want a bike storage and repair area; they want a couch and a keg, a TV room or a building that’s dog-friendly,” he said. “In Portland, everybody is ripping out ceilings, creating roof decks and remodeling lobbies.”

Brad Christiansen, a Colliers International vice president, said three buildings being developed in Portland – Pearl West, one at 1241 N.W. Johnson St. and one at Southeast Third Avenue and Clay Street – are designed to “look like a converted warehouse.”

“There is a shift in the workplace because the millennials want to go to work in these types of spaces,” he said. “In a macro sense, there is a great demand for the type of finished work environment that speaks to a collaborative work space.”

Christiansen said he believes it’s in a developer’s or business owner’s best interest to put the money into a remodel to attract tenants, pointing out that the amount a remodel costs is easily offset by the increase in rent the new space will command.

“The last lease in the Yeon Building – considered historic, creative, Class B space – was above $26 per rentable square foot,” he said. “At present, there are ‘traditional’ Class A buildings that are having a difficult time securing $26 per rentable square foot. Currently, there is more demand for creative/redeveloped historic buildings.”

With the shift in preferred work environments, Christiansen said traditional perceptions of office buildings are becoming less relevant.

“Is it Class A, Class B, C, creative, historic? It almost doesn’t matter,” he said. The classification of buildings is becoming archaic.”

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Portland has become a hotbed of small startups and technology firms, causing office vacancy rates in the Central Business District to fall to about 10 percent, according to data recently released by Jones Lang LaSalle.

That trend led commercial real estate broker Alex Hughes and his business partner Jeff Arthur to think of creative ways to provide office space to burgeoning companies.

“We were thinking about doing something more traditional,” Hughes said. “We started looking for long-term tenants, but everyone was requesting short-term leases.”

Hughes and Arthur approached the owner of the former General Electric building, at 1355 N.W. Everett St., and told him about their vision of creating a collective office space with a mix of small and medium-size private offices and common areas for tenants to share.

“He told us to put our money where our mouth is,” Hughes said.

The building is being renovated to include about 22,000 square feet of flexible office space with 60 private offices and 50 desks in the common areas. The space, called , is scheduled to open in mid-November, Hughes said.

Tenants pay a monthly membership fee to gain access to the building. Member businesses are provided fully furnished offices, lounge areas, a conference room, a private rental space and an on-site “community manager” to make reservations, take calls and act as a receptionist.

“It will be us taking care of all the logistics and mechanics so members can focus on doing their work,” Hughes said.

CENTRL Office’s location in the Pearl District should draw a mix of tenants that work well together, Hughes said. Tenants could range from attorneys and accountants to design firms and tech companies.

“We’re trying to curate a mix of tenants who can work well together,” he said. “We’re not going to focus on having tenants from just one industry.”

As of early October, CENTRL Office had signed agreements with eight companies – a total of 30 to 40 people, Hughes said.

Brad Malsin of Beam Development said his company saw the need to offer short-term leases to startups. That allows them room to grow and drops the amount of square footage needed by over half, he said.

“In a traditional office setting one worker needs between 200 and 250 square feet of space,” he said. “With this type of office space one worker only needs about 80 square feet.”

Malsin said startups find the flexibility in leasing options attractive because they can grow and contract based on the amount of their production.

“We tell people if they sign a lease we’ll let them out of it to allow for growth,” he said. “If they need more space we’ll move them to a different setting, and pay for (the move).”

, another Portland cooperative office space, was started in 2011 by Alex Linsker. He previously opened two similar spaces in New York City and felt a similar space would work well in Portland.

“The people who work here love being around other people,” he said. “About half of our members are self-employed, and this is a way to be out of the house and working.”

When Mozilla opened its Portland office last year, it first rented space from Collective Agency, Linsker said. Of its tenants, about half work remotely for companies while the other half are based in Portland.

A little over half of the 5,000-square-foot office space is common space, with conference rooms of varying size available to tenants.

He calls the atmosphere at Collective Agency “energizing yet grounding” and says tenants often work together.

“People like the variety,” he said. “Having others around helps creativity. I’ve saved myself several days’ worth of work just by asking someone else here a question I would have had to find the answer to on my own.”

The post Where buildings become communities appeared first on Daily Journal of Commerce.

Technology companies are continuing to expand in Portland, taking up limited office space and driving up rents, according to a third-quarter market report released last week by Jones Lang LaSalle.

“Office vacancy in Portland is at 10 percent – the lowest it’s been since 2000,” said Patricia Raicht, JLL‘s vice president of research. “Tech demand continues to dominate our office leasing activity with tech occupiers making up more than 30 percent of all office demand, up from just 14 percent in 2011.”

According to data from Greater Portland Inc., Portland has 86,000 high-tech workers. That’s 30 percent more than the national average.

Raicht said limited supply is driving up rents in the Central Business District. Overall, office space rents are up 3.7 percent year over year, and specific submarkets have experienced increases significantly greater.

“Developers and occupiers (are) finding unique and creative ways to meet their space needs,” JLL Senior Vice President Eric Haskins said. “Owners are repositioning their buildings with amenities and features desired by tech tenants – they want a rich amenity set.”

Some of those amenities, Haskins said, are updated lobbies, athletic facilities and showers, bike parking, outdoor spaces and a strong component of sustainability.

Owners are not only remodeling office spaces, but also increasing new construction in the Portland area, Raicht said.

“There is now 780,000 square feet under construction, and we expect 400,000 square feet to deliver to the market in 2014,” she said.

Brad Christiansen, a Colliers International vice president, said he believes that a combination of affordability, an educated workforce and Portland’s culture are drawing companies to open offices in the area.

“On a macro level all the things our leadership program began promoting years ago – smart urban growth, good quality of life, emphasis on education – are all in alignment with what millennials value,” he said. “It’s a unique dynamic that we have an alignment between the culture here combined with a lower cost of living and an educated workforce that we didn’t have 15 years ago.”

Christiansen said larger tech companies are looking to Portland rather than Seattle or San Francisco in part because though rents are on the rise, they’re still far less than in either of those cities. Not only is office space more affordable, but apartments are too, comparatively.

“I’m hearing from companies that when they’re opening an office here they’re internally having a portion of their employee base ask for a transfer (here),” Christiansen said. “I see the trend of tech companies coming to Portland continuing as the cost of doing business continues to go up.”

When companies look to open an office in Portland they’re able to hire well-educated, high-quality people at a fraction of the salary they’d have to pay in a larger market, Christiansen said.

“They come here and they see the proximity to schools like Portland State (University), which has one of the top graphic design programs in the country, or Pacific University,” he said. “There’s Oregon State (University), where they have great mechanical and structural engineering programs. Those skills are transferable to the tech industry.”

Paige Morgan, a senior vice president at JLL, said her firm is seeing institutional and even foreign interest in Portland’s real estate market increase.

“Interest in Portland as an investment market has increased dramatically in the past several years with buyer pools deepening,” she said. “Two things are driving this increased interest; the first is the flood of capital that is being priced out of primary markets, and the second is our solid and improving market fundamentals.”

The post Portland attracting tech companies appeared first on Daily Journal of Commerce.

It doesn’t matter whom I talk to, everyone has the same outlook on where downtown Portland’s office market is as well as where it needs to go.

In a nut shell, the office market is really tight in downtown, and it needs a new building. But for some reason or another, that building isn’t being built.

Portland has one of the lowest central business district vacancy rates for office space of any city in the entire country, sitting between 10 and 13 percent depending on whom you ask. That number shoots down to about eight percent when just taking Class A space into account. But the tight vacancy rate has nothing to do with the state of Portland’s economy, which is actually trailing national averages.

The reason Portland has such a tight downtown has everything to do with the real estate term “flight-to-quality.” As businesses downsized or went under, vacancy rates went up and rents down. This led everyone on Kruse Way and the Sunset Corridor to move downtown. Considering how accessible downtown is, it wasn’t as big of a task as it is in other cities.

This brought down the vacancy rate significantly even though businesses weren’t moving to the area and jobs weren’t being added. Now thinking about the future, when jobs will hopefully be added, the city needs to add some office space in downtown.

Call it a space race. Is it going to be One Waterfront Place, the building being pitched by Bob Naito and Jim Winkler in Northwest Portland? Or is it going to be TMT Development‘s Park Avenue West in the heart of Southwest Portland’s business district?

At the beginning of the year it seemed as if it was Park Avenue West that would be the first to completion. Not only did the project have a leg up, as the building is literally poking out of the ground, but firms that were working on the project were saying the project was only days away from resuming construction.

That never happened, and those rumblings have stopped completely.

Now it seems One Waterfront Place, a proposed 12-story building with 245,000 square feet of leasable space, might be in a better position. In a recent conversation with Naito, he mentioned that his team is in negotiations with several large tenants about potential leases. If the team could lock in one of those tenants, it would most likely gain the financing needed to go forward, he said.

“Speculative financing is relatively nonexistent, but if you can get the project preleased at about 60 percent, you can get the money,” he said. “If we lock in one tenant at around 100,000 square feet, we will look into knocking off a story and moving forward with the project.”

Nothing is finalized yet, obviously, but one of these projects will get going this year. It will be interesting to see which one.

The post Which will be first: One Waterfront Place or Park Avenue West? appeared first on Daily Journal of Commerce.

It doesn’t matter whom I talk to, everyone has the same outlook on where downtown Portland’s office market is as well as where it needs to go.

In a nut shell, the office market is really tight in downtown, and it needs a new building. But for some reason or another, that building isn’t being built.

Portland has one of the lowest central business district vacancy rates for office space of any city in the entire country, sitting between 10 and 13 percent depending on whom you ask. That number shoots down to about eight percent when just taking Class A space into account. But the tight vacancy rate has nothing to do with the state of Portland’s economy, which is actually trailing national averages.

The reason Portland has such a tight downtown has everything to do with the real estate term “flight-to-quality.” As businesses downsized or went under, vacancy rates went up and rents down. This led everyone on Kruse Way and the Sunset Corridor to move downtown. Considering how accessible downtown is, it wasn’t as big of a task as it is in other cities.

This brought down the vacancy rate significantly even though businesses weren’t moving to the area and jobs weren’t being added. Now thinking about the future, when jobs will hopefully be added, the city needs to add some office space in downtown.

Call it a space race. Is it going to be One Waterfront Place, the building being pitched by Bob Naito and Jim Winkler in Northwest Portland? Or is it going to be TMT Development‘s Park Avenue West in the heart of Southwest Portland’s business district?

At the beginning of the year it seemed as if it was Park Avenue West that would be the first to completion. Not only did the project have a leg up, as the building is literally poking out of the ground, but firms that were working on the project were saying the project was only days away from resuming construction.

That never happened, and those rumblings have stopped completely.

Now it seems One Waterfront Place, a proposed 12-story building with 245,000 square feet of leasable space, might be in a better position. In a recent conversation with Naito, he mentioned that his team is in negotiations with several large tenants about potential leases. If the team could lock in one of those tenants, it would most likely gain the financing needed to go forward, he said.

“Speculative financing is relatively nonexistent, but if you can get the project preleased at about 60 percent, you can get the money,” he said. “If we lock in one tenant at around 100,000 square feet, we will look into knocking off a story and moving forward with the project.”

Nothing is finalized yet, obviously, but one of these projects will get going this year. It will be interesting to see which one.

The post Which will be first: One Waterfront Place or Park Avenue West? appeared first on Daily Journal of Commerce.