Private market in downtown Portland struggles with triple threat
How is the private market for commercial real estate in downtown Portland?
Brokers, landlords and white collar tenants are struggling to balance the triple threat of the Work From Home wave, the recession — both caused by COVID-19 — and the perceived danger of livestreamed riots, graffiti and boarded up storefronts.
"It's sad. It's really put downtown Portland back a lot," said Timothy Mitchell, president of Norris & Stevens Inc. "But it will ultimately rebound. As in any downturn there will be true candidates and true investors who make it an opportunity to make good deals."
In the short term, there is plenty of office space in Portland and suddenly no great demand. According to a report by commercial real estate firm CBRE, Portland office vacancy ended the first half of 2020 at 12.3%. Now total office availability is 15.5%. The suburban market recorded a 10.4% vacancy while the Downtown area's vacancy rate was 14.1%.
Mitchell still goes to his office at SW Salmon Street and Fifth Avenue every day, passing by the Lownsdale Square that protesters used as a staging ground for nightly demonstrations for months. He admits that only about 15 of the Portland staff come in, out of 75, on alternate days.
And the rebound could be slow. In a recent survey of 126 companies, CBRE found that 70% of respondents indicated that some portion of their workforce will be allowed to work remotely full-time, and 61% said at least part-time.
Mitchell said that, while it's true some employers are enjoying saving money and even boosting productivity by having staff work from home, "There are others who are looking for ways to get their people together again, but with enough room," Mitchell said.
As well as being a broker, Norris & Stevens also manages some downtown buildings. Mitchell said the price per square foot of Class A office space has not gone down from $30 per square foot, but "It's pretty dead in the water. My downtown office leasing guys have a lot of activity out of the suburbs — Beaverton, Kruse Way in Lake Oswego, the Tigard Triangle — but not so much downtown, and we've heard that from other firms as well."
They're not seeing the velocity of deals there usually is in a growing market like Portland, which has surfed an in-migration wave.
Price is not really the issue right now, Mitchell said. "It's just people wanting to do something and they can't make a commitment until they know what the future looks like."
"When you've got riots and vandalism and fires, and strong retail intersections that have every major retailer boarded up with plywood, you know that doesn't send the right message," Mitchell said. "People are frankly scared even come anywhere near downtown right now. It's just so sad because Portland was really coming of its own."
"With the $600 week stimulus (ending) we are going see if this thing gets deeper or whether we see the light at the end of the tunnel."
Mitchell said he's confident that, if the virus disappeared, there would be a big return to the office. "People just need to collaborate and be together in person, you can't necessarily get that from a Zoom or a Microsoft Teams screen. When this is all over I think people will start popping their head out of the sand and slowly come back in."
Kevin Joshi, a broker in the Kidder Mathews Portland office, focuses almost entirely on downtown commercial office. Joshi told the Portland Tribune that while he does not represent Airbnb, it is well known that they have left downtown.
He said that while the market was stagnant following the initial Covid break out, Kidder Mathews is finally seeing signs of renewed activity and interest in office leasing again. "Particularly by several tech companies who are looking to expand their office foot prints for social distancing, as opposed to reducing them for more work-at-home employees. I would credit this to the news stories we're hearing about a vaccine in the coming year, as well as a subsiding of the protests and rioting we saw over the last couple months."
Prospective tenants, including big tech firms in California which he cannot name, have been kicking the tires but no one is signing new leases right now.
"A great number of our larger downtown tenants are inquiring about actually increasing footprint sizes, for the social distancing needs," said Joshi. "Some people might find it perplexing that certain companies are entertaining growing their spaces in the current market, but that I feel this actually demonstrates continued confidence that our market is going to strongly rebound as this year passes."
"Clearly we're starting to feel a cold breeze come into what was a hot market before, but I have not seen any fall off in rents. My feeling on this market is that people are waiting it out for a vaccine coming after the New Year, which we're reading about. They're expecting that there'll be butts back in seats in early next year and that the economy will really come flying back."
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