Portland Q3 2024 Office Market Review

The Portland office market in Q3 2024 has experienced significant challenges, particularly in downtown areas. Vacancy rates surged to a record high of 24%, with Class B properties in the Central Business District (CBD) facing the brunt of this. The CBD’s vacancy rate edged up slightly to 33.8%, with over 423,000 SF of vacant space returning to the market.

In response, landlords and property managers are seeking creative solutions to attract tenants.  This includes repurposing traditional office spaces to meet new demands for flexibility, such as adding amenities geared toward hybrid work, reconfiguring layouts for collaborative zones, and even exploring conversions to residential or mixed-use properties.

Key Market Trends

Vacancy Rates and Demand

The overall office vacancy rate in Portland rose to 13.6%, fueled by negative absorption and weakened demand. According to Kidder Mathews, Q3 alone saw a negative net absorption of 610,000 SF. This trend highlights the need for businesses to rethink their office space strategies, particularly as hybrid work and remote working patterns reshape demand for physical office spaces.

Hybrid Work and Office Configuration

One of the primary contributors to these trends is the uncertainty surrounding hybrid work. Many companies are still navigating how to configure their office spaces effectively. JLL found firms like Miller Nash and Davis Wright Tremaine recently expanded their office spaces after initially downsizing, illustrating the ongoing adjustments required for businesses to remain flexible and competitive in today’s market.

Opportunities in Suburban Markets

While downtown Portland continues to grapple with high vacancy rates, suburban areas, such as Clark County, have emerged as more resilient markets. Clark County reported a notably lower vacancy rate of just 8.6%, providing an appealing alternative for businesses looking to reduce costs and improve commute times for some employees.

Conversion Opportunities: Office to Residential

A growing trend in Portland is the conversion of office space to residential use, with approximately 18.8% of office buildings considered suitable for such conversions. This trend could address both the oversupply of office space and the housing shortage in urban areas.

However, several obstacles must be addressed to make these conversions viable. Zoning restrictions limit where residential conversions are permitted, requiring updates or exceptions in certain districts. Additionally, the economic feasibility of transforming office layouts—often with deep floor plates and limited natural light—into desirable residential units poses a financial challenge. The cost of renovations, compliance with residential building codes, and the need for infrastructure improvements all add to the complexity of such projects.

Strategic Recommendations for Businesses

For businesses navigating the Portland office market, focusing on flexibility is essential. Right-sizing office space and integrating hybrid work solutions can create more agile and adaptable environments suited to the changing workforce. Well-capitalized landlords are expected to benefit as tenants seek stability and quality property improvements.