Q1 Activity Mixed, Employment Stable
- The Portland region’s office market performed somewhat differently in the first quarter compared to last year, with negative net absorption standing out in contrast. Deliveries were negligible.
- Certain Colliers office landlord representatives experienced tenants exercising termination options in Q4 2016, some due to concerns over the national political climate. This activity combined with some tenants downsizing to contribute to Q1’s negative absorption. For comparison, market-wide net absorption totaled -117k SF in Q1 2009 following that cycle’s presidential election. Four more quarters of negative absorption followed due to the recession, which does not apply today. The most recent quarter with negative absorption was Q1 2015.
- In the CBD and close-in submarkets, once larger tenants take occupancy of recently executed leases, space absorption may return to a net positive. This includes the City of Portland’s combined 170k SF of Q1 leasing activity in preparation for the Portland Building renovation. (The City also leased around 14k SF at CH2M Center in Q4 2016 to expand Bureau of Development Services office space.)
- Suburban markets that saw negative net absorption in Q1 may return to declining vacancy rates over the remainder of 2017 as quoted rental rates will likely continue increasing, encouraging some businesses to seek relative affordability outside the core.
- Quoted rates in numerous submarkets declined in lockstep with absorption compared to Q4 2016, however most of these rates are still higher than they were a year ago.
- Speculative development projects currently under construction total about 1.4M SF after the start of Williams & Dame’s 9North, and 10.5% of this pipeline is pre-leased.
- In recent reports, the Oregon Employment Department and Office of Economic Analysis forecast slowing but still positive non-farm employment growth over the next two to three years. The rate of employment growth has actually stabilized compared to the unsustainably high number of jobs added over the last two years. The slowing, stabilizing growth rate is now on par with population growth.
Quick Fact: $320 Million
- Regional investment sales totaled $294M and averaged $213.25/SF
- CBD investment sales subtotaled $228M and averaged $286.47/SF
- Regional owner/user sales totaled $26M and averaged $250.55/SF
- One CBD owner/user sale subtotaled $14M at $348.05/SF