Office Absorption Continues on Upward Trajectory
Inventory continues to rise significantly this year with more than 550,000 square feet of construction delivered in the second quarter, to be followed by another half a million square feet for the balance of 2018.
PORTLAND, OR—Demand for office space remains strong. However, inventory continues to rise significantly this year with more than 550,000 square feet of construction delivered in the second quarter alone, to be followed by another half a million square feet for the balance of 2018, according to a recent report by Cushman & Wakefield. As this new product comes on line, competition for major tenants will heat up, swinging the pendulum back to the lessees’ favor.
Despite increased vacancy, the CBD reported significant occupancy growth of 248,000 square feet in the second quarter. WeWork, which claimed the largest lease (70,190 square feet) of the first quarter, took occupancy in the newly remodeled Power + Light building. With new and recently renovated space coming on line at strong pre-lease figures, absorption should continue on an upward trajectory.
Another example of that absorption is Portland-based Roundhouse Agency’s relocation and expansion of its corporate headquarters to Custom Blocks, a freshly repurposed creative campus located in the Central Eastside industrial district. Roundhouse Agency signed a lease for 16,200 square feet within the campus’ North Block building located at 975 SE Main. Roundhouse, which plans to move into the new headquarters later this year, was attracted to the overall design and atmosphere offered by Custom Blocks.
“When we acquired the property in early 2017, we envisioned a new life for this former metal stamping plant that would create a unique workplace opportunity for modern creative services and technology occupiers in the heart of the Central Eastside industrial district,” said Chris Nelson, principal of Capstone Partners.
Custom Blocks recently completed its metamorphosis from a manufacturing campus originally built during the 1940s and 1950s to a new fully renovated 72,000-square-foot class-A creative and technology-oriented office project. Last year, Custom Blocks became part of the newly expanded East Portland Enterprise Zone, a program begun in 1986 to encourage development on Portland’s East Side, which includes tax incentives for qualified companies.
The property is owned and was developed by Capstone Partners and its joint venture partner Premium Property USA. The creative company was represented by Brad Carnese of Cushman & Wakefield. Brad and Mark Carnese, along with Doug Deurwaarder also of Cushman & Wakefield represented the owner.
“Setting a new standard for workspace in the Central Eastside, in addition to creative office uses, Custom Blocks is also ideal for light assembly or high-tech production and currently offers available spaces of 7,000 square feet up to 23,000 square feet,” said Brad Carnese. “In curating the balance of the building we are also currently working with a handful of other new tenants which we are excited to hopefully announce soon.”
The new space will accommodate Roundhouse’s entire team and provide room for expansion.
“The tall ceilings will also allow for vertical expansion within the space. In addition, there are plenty of opportunities to display and create local artists’ work,” said Roundhouse co-founder Dana Bainbridge. “This great location also puts our employees amidst an array of great restaurants, old and new brewpubs and bars, plus other amenities to step out and enjoy while further ingraining into this vibrant and emerging community. Furthermore, its central location also invites the beneficial convenience of public transit or biking to work.”
Custom Blocks is bordered by SE Madison and Salmon streets, and SE 9th and 10th avenues, and shares the northwest corner of the property with New Deal Distillery. Neighbors include The Redd, the Goat Blocks, the Cartopia food cart pod, Coava Coffee Roasters, Heart Coffee Roasters and many other artisanal makers of beer, spirits, confections, food and design.
“With limited supply, it is more challenging to find quality office space in this area today and so what we have found is that Custom Blocks has provided a unique and rare opportunity for companies wanting a presence here while also working out of a more modernized, employee-friendly workspace,” Deurwaarder tells GlobeSt.com. “Looking ahead, as more new or repurposed office product looks to be delivered and comes online in the Central Eastside, we expect the ongoing demand will absorb such space at a healthy rate, as has been indicative of the tenants we’ve attracted and continue to attract at Custom Blocks, or have observed at other locations in the area.”
According to Cushman & Wakefield’s latest report, overall office vacancy in Portland closed mid-year 2018 at 10.5%, unchanged from the first quarter. It was a tale of two markets in the second quarter as vacancy increased in the CBD by 30 basis points, and conversely decreased in the suburbs by 50 bps. The slight increase within the CBD can be explained by three new buildings, all in excess of 150,000 square feet, coming on line in second quarter.
Continuing on that trend, Portland’s office market hits record high rental rates for the sixth consecutive quarter. The citywide second quarter figure closed out at $28.34 per square foot on an annual full- service basis.
“We continue to see a lot interest from companies, whether regional or in- or out-of-state, wanting to be in Central Eastside due to its vibrant culture, and both established and new dining and drinking establishments. But, also mainly because of that real and authentic Portland feel and experience it offers,” Deurwaarder tells GlobeSt.com.