The Portland Metro area office market concluded the wild year of 2020 with an average vacancy rate of just over 10%, which is a sharp increase from the start of 2020 at a 7.68% vacancy rate. With the state-at-home orders coming in March of 2020, many businesses turned to subleasing their space. By the end of 2020 there was over 1.2 million square feet of office space on the market for sublease. The bulk of the new sublease space coming on the market is from companies located in the downtown and close-in Westside areas. The vacancy rate for the CBD and close-in Westside area started 2020 with a vacancy rate of 12.5%, which grew to a little over 16% by the end of the year.
In the suburbs of the Portland Metro area, the vacancy rate has changed minimally compared to the core area, starting at just over 6.5% and ended the year at 7.6% vacant. The coveted Kruse Way area experienced vacancy rates climb from 16% at the start of 2020 to 20% by the end of the year. It is worth noting that the top end of the office lease rates on Kruse Way are now $39.00/SF full led by at 5500 Meadows Road. When this building was built in 2009, the asking lease rate was $35.00/SF full service. This is an example where Class A suburban office market has experienced minimal rent appreciation since the Great Recession. It is worth noting a majority of office deals in the suburban metro area have been for spaces 5,000 SF and less. Lastly, many tenants have been looking for “COVID discounts” throughout the past 12 months, but landlords have held firm to their lease rates while offering up additional months of free rent or enhanced tenant improvement packages.
The expectations for 2021 are for increased leasing activity with business owners feeling more confident in their return to work strategies.