After a small improvement in the first quarter--marked by the first positive absorption in 12 months--the region's office market slipped backwards during the second quarter, with demand remaining sluggish, vacancy rising, and sublet space continuing to put downward pressure on rates. Portland's YTD net absorption is currently a negative 304, 284 sf, while the suburban submarkets have total a negative absorption of 102,108 sf.

Noting that the area's real estate market reflects the local economy, Terry Shanley, managing director of C&W's Portland office, predicts that demand will remain slow, possibly through the middle of next year.

Vacancy in the CBD inched upward over the last few months, with the overall vacancy up from 14.6% to 15.7%. The vacancy rate in suburban markets rose from 19.9% to 20.3%, bringing the region's overall vacancy rate to nearly 18%. The Sunset Corridor submarket continues to have the highest vacancy rate in the region at 40.3%, but that rate reflects a decrease from 41.3% in the previous quarter.

And with owners competing for a smaller pool of tenants and a substantial amount of sublet still in the marketplace since the dot-com meltdown, rental rates have continued to fall, notes the report. Rents throughout the region decreased slightly from the previous quarter, but Shanley notes that tenants are both reluctant to make a move and aggressively negotiating deals at renewal.

Rental rates in the CBD decreased on average from $25.74 to $25.61. The average rent in suburban markets stands at $22.82.

The report also notes that Portland-area market is continuing to see investors in search of investment opportunities due to availability of cheap money. He suggests that this activity will continue until at least the fourth quarter when the feds may close the cheap money window.