Asking rents for Class A office space in the Portland-metro area fell in the second quarter as vacancy rates rose, led by 23 percent vacancy in the central business district, according to a new report.

Vacancy overall rose to 19.5 percent, up from 18.1 percent in the prior quarter, Colliers stated in its second quarter report.

The average direct asking rent fell to $36.83 per square foot in the central business district, down from a high-water mark of $38.57, which was set a year ago.

Demand was strong in suburban markets, particularly Hillsboro and the Sunset Corridor. Asking rents increased 6.5 percent to $31.68 per square foot for Class A space compared to a year ago, Colliers reported.

“As a market, Portland has some positive stories here and there,” said Jacob Pavlik, research manager for Colliers in Portland. High-quality, Class A office space continues to lease well, he said.

Submarkets vary widely. Within Portland, Slabtown and the Pearl District have seen strong leasing activity.

One of the most popular spaces has been Tanner Point, a Pearl District office building that was completed in 2018. Ampere Computing recently expanded, taking the top two floors. On Footwear also recently agreed to lease a floor at Tanner Point, and Brainium Studios moved in last year.

Among the top leases during the second quarter were Ampere’s deal for 53,000 square feet, Apple Inc.‘s lease for 50,000 square feet in the Sunset Corridor and SERA Architects‘ 43,000-square-foot commitment to the newly renovated Galleria building in downtown.

“Everybody wants something a little different,” Pavlik said.

Pavlik noted more amenities such as restaurants and food carts have reopened, lending some liveliness to downtown.

“There’s just a lot more energy,” he said.

Approximately 1.4 million square feet of office space is under construction in the Portland-metro area. Among the major projects in the pipeline:

• The Galleria, 156,000 square feet, delivering third quarter;
• PAE Living Building, 60,860 square feet, delivering third quarter;
• Eleven West, 102,000 square feet, delivering third quarter 2022; and
• Block 216, 155,000 square feet, delivering second quarter 2023.

After that, the pipeline is parched for additional supply, suggesting the current environment of high vacancy could be short-lived.

“The supply that we have now – with a few notable exceptions – is the supply we’re going to have for the next couple of years,” Pavlik said.

Office projects also must deal with the seesaw of changing worker and executive expectations. Some companies, including Apple, have postponed returns to the office in light of surging COVID-19 cases.

“I still think people are just trying to figure out, does telecommuting work?” said David Kotansky, managing director at Colliers. “Does home office work? And if it does, what does it look like?”

Kotansky said he favors returning to the office.

“I’m a big believer in people being in the office and working together,” he said. “That environment is good for the office.”

The post Portland office vacancies climb, rents fall appeared first on Daily Journal of Commerce.