Portland Office Market: RENOVATION to Stay Relevant

 

You can’t complete a property tour in the Central Business District (CBD) or the close-in submarkets of Portland, without viewing a building that has caught the renovation bug, whether recently completed, in a current state of construction, or in the planning stages waiting on permits to get started.

With the highest first quarter rents in the Portland Metro, the CBD has seen 1.3 percent market rent growth. Currently the average rent is at $32.27 per square foot full service with a vacancy rate of 11.2 percent.  The 1.3 percent growth is stacked on the previous 24 months that saw some of the highest rent velocity the city has ever experienced.  However, if we look closer at the Class A renovated and new product on the market, NNN rents are closer to mid $30.00’s per square foot NNN, with +/- $12.00 per square foot in NNN expense, equated to mid to high $40.00’s per square foot full service.

Portland CBD map

Buildings are changing hands and immediately kicking off plans for renovations.  It feels like nearly every Class A building in downtown has changed hands in the past 24 months, with increased interest and ownership from outside/institutional owners, such as KBS, Starwood, LaSalle, CBRE Global Investors, MetLife, and Zeller to name a few.  Other more regional ownerships, Urban Renaissance, Lincoln Property, and Unico continue to push the envelope as well.  We’re seeing buildings add amenities like rooftop decks, outdoor areas, bike hubs, spa-like lockers/showers, fitness centers, high-end community lounges, wine/liquor storage, fitness classes or trainer offerings, building-wide events, conference rooms with updated media packages, upgraded elevator systems, and popular coffee shops on the ground floor.  Many of these are a product of the co-working community influence and occupiers continue to drive the amenities arms-race, making these a requirement.

It has become essential to have unique and user-friendly amenities to attract occupiers.  Tech occupiers have always pushed the edge, but we are now seeing traditional office users challenge their workplace strategy, whether it be law firms, financial services, insurance and/or banks.  From an occupancy expense, cost and retention/recruitment tool perspective, due to the increased market rent pressure, it’s critical for occupiers to begin strategizing creatively and effectively on how they utilize their space.  There are countless reports on this very subject that will help guide the way. 

In the past year, we saw CapitalOne open their Café adjacent to Pioneer Square.  With many service companies competing for talent, workplace and environment are big drivers.  To see the latest in workplace research and trends take a look at HOK’s 2018 report. Furthermore, this is showcased in many of the new buildings under construction that will be added to the market in the next year, such as 5 MLK, Canvas at Press Blocks and 7 SE Stark. As 5 MLK is a mixed-use building with office and multifamily combined, it has amenities that many of the newer apartments have, think dog wash/dog run, outdoor terraces, BBQ’s and fire pits. 7 SE Stark will have floor to ceiling glass window lines, outdoor terraces, a first-rate fitness center and 2:1000 on-site parking available, a ratio that is effectively non-existent in the Central Eastside. Canvas at Press Blocks will have a viewing deck into Providence Park, where the Timbers and Thorns take the pitch weekly, and an indoor event space and conference room with panoramic views of the West Hills. 

These new building features have really inspired many of the already established buildings to complete makeovers and evolve to the caliber that the market is seeking. The CBD has seen completed renovations at Sixth + Main, Meier & Frank, 6Y and countless others. Under renovation right now you can watch Aspect on Sixth and Wells Fargo Center, among others, while the Exchange Block is undergoing a massive renovation and expansion of nearly 50,000 rentable square feet (adding two floors of glass window line to an old bank bunker building). We’ve heard rumors of others with plans like Moda Tower, the Galleria, Bank of America Financial Center and Selling Building, to name a few. 

Some would say that all of the above is enough for a full market, let alone a submarket or two.  Not mentioned above is all the new product and renovations in the Pearl and NW/Slabtown, each with their own handful of new and renovated projects, including Tanner Point, Field Office, Redfox Commons and Slabtown Office, not to mention the fortuitous leasing of the Heartline to Vacasa, by Security Properties, who just recently sold the fully leased portion of their development for a high water mark price of $672/SF.  Each of these buildings will continue to push for occupier-focused amenities, including pursuing substantial public transit options that may not currently be as robust as the CBD proper.

Lastly, and lightly touching on some other interesting notables, is the continued and incredible footprint expansions in Washington County, with Nike’s batman-inspired campus expansion with cranes galore, and the recent announcement by Intel of their very ambitious third-phase expansion of their D1X manufacturing complex, which could add another 1.1 M square feet.

As much as we love to learn about the new office building renovations taking place, one of our favorite parts about Portland’s growth is all the new restaurants. Go experience the food, environment and atmosphere of the Woodlark Hotel’s new restaurant, Bullard.  Former Top Chef contender, Doug Adams, is a food boss!

 

This blog was co-written by Kelsey Schneider and Blake St. Onge 

 

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