Overall Office Vacancy Drops for First Time in Three Years

More than 80% of the absorption occurred in the class A office market, and three-quarters of that occurred in the Central Business District, the region's largest class A office market with 9.3 million sf. "The Portland Office Market has officially rounded the bend and is now on the long road to recovery," says Grubb & Ellis Research Director Patricia Raicht. "The CBD is leading the way and will be the first submarket to return to equilibrium."

Class A office vacancy in the CBD fell from 13.2% to 11.6% during the quarter thanks to 151,000 sf of net absorption, according to the report. The only class A office market to experience a rise in vacancy was the tech-heavy Sunset Corridor, the region's third largest class A office market with 2.6 million sf. Vacancy there rose from 37.9% to 38.9% as the market gave back 23,549 sf.

In the Washington Square/Kruse Way submarket, the region's second largest class A office market with 4.3 million sf, vacancy fell from 12.3% to 11.3% on 43,988 sf of net absorption. In Portland's Lloyd District, which has 1.4 million sf of class A space, class A vacancy fell from 17.9% to to 15.3%. Were it not for 1201 Lloyd--a 224,000-sf office building completed in spring 2002 and still 89% vacant--the district would be 99% occupied.

Class A rental rates, meantime, continued their decline, with the average class A rent dropping 1% from $22.54 to $22.31. "The rate of decline is slowing slightly but the downward pressure on rents will remain throughout the year and into 2004," says Raicht.