PORTLAND — Businesses want out of downtown Portland, as soon as possible.
The amount of space available for sublease in downtown jumped by 36% in the spring as tenants sought to vacate offices and storefronts in the early months of the coronavirus pandemic, according to data provided by real estate firm CBRE. Other firms have also reported an increase in the number of downtown businesses looking to leave.
“From all the uncertainty that COVID-19 has created, the downtown market has suffered the most,” said Craig Sweitzer, a landlord and the founder of commercial real estate firm, Urban Works Real Estate.
“It’s not just from the virus,” Sweitzer said. “It’s all the uncertainty of what’s happening in our marketplace.”
Downtown business owners have been expressing alarm about the city’s core for months.
The pandemic has led to empty office buildings and a lack of tourism, depriving downtown businesses of their regular clientele. Business owners have expressed concerns about continued downtown protests, which have given Portland a reputation for upheaval and, at times, led to vandalism and looting.
Many prominent businesses have been closed for months, with windows boarded up and saturated with graffiti. Sweitzer said some retailers are trying to get out of their leases or are planning not to renew leases while Urban Works’ brokers have been struggling to get clients to consider downtown spaces.
PANDEMIC CREATES CHALLENGES FOR DOWNTOWNS
It’s not just Portland, though. CBRE says space available for sublease increased 35% in Denver and 22% in Seattle during the second quarter, numbers comparable to Portland’s increase.
“A lot of the issues Portland is facing are playing out in downtowns across the country, particularly around the COVID-19-induced decline in market activity, health-related concerns about dense urban environments and public mass transit as well as the security concerns – both real and perceived – associated with social unrest,” said Trevor Kafoury, executive vice president with CBRE in Portland, in an email.
Few companies have been willing to commit to long-term office leases in downtown during the pandemic, according to Jacob Pavlik, research manager for real estate company Colliers International. That led to a sharp increase in the amount of unoccupied office space in Portland in the third quarter as new buildings came on the market.
The office vacancy rate in Portland’s central business district, which includes downtown, Old Town and the Pearl District, increased by about a percentage point to 16.6 percent in the third quarter, according to Colliers. The office vacancy rate in the Portland metro area as a whole was 12.1%. The data doesn’t take into consideration the large percentage of companies that have so far retained their office spaces, but continue to ask employees to work from home.
“Right now, since most people are working from home and downtown is a less than pleasant place to be, it’s not an advantageous environment to be pursuing office space downtown,” Pavlik said. “I think that will change. When people start coming back to the office and once all the restaurants open back up and retail is (thriving) again, I think people will want to be back in the downtown office towers.”
However, Pavlik said Portland might not see pre-pandemic leasing levels until 2022 if there’s a lag in companies making real estate decisions once the pandemic is under control. It also remains uncertain what share of employees will continue to work from home after the pandemic, which could impact office vacancy and traffic downtown in the long-term.
Industry experts aren’t seeing the same problems outside downtown and in the suburbs.
Pavlik said some companies that were already considering moving their offices to the suburbs have been quicker to pull the trigger because of questions about the downtown market. Kafoury said he has seen numerous downtown tenants touring suburban spaces and considering a move out of downtown as well. Other tenants have stayed in downtown spaces after working with their landlords to restructure their leases.
While Kafoury said the trends in Portland mirror the trends in downtowns across the country, he also said that intense national media coverage of downtown protests has created a perception of Portland that could be difficult to overcome. Recently, Downtown Portland Clean & Safe, a nonprofit and affiliate partner of the Portland Business Alliance, put together a list of businesses operating in downtown in an attempt to remind consumers that downtown is still open for business.
“I don’t think there are ‘unique’ issues,” Kafoury said. “Many downtowns face issues related to social unrest. However, Portland has received an inordinate amount of national media attention and a challenge we face is overcoming the perception that has been created for downtown.”
However, it isn’t an issue of perception for some downtown businesses.
Kassab Jewelers was looted after a riot broke out on May 30 following a peaceful protest in the wake of George Floyd’s death at the hands of Minneapolis police officers. Kassab Jewelers’ downtown location has yet to reopen and its owners are now suing the City of Portland for failing to protect downtown merchants.
Bob Speltz, a spokesman for Portland-based insurance company The Standard, said in August that the company had relocated downtown employees to the suburbs after its office building sustained repeated damage and several employees and security contractors were assaulted near the downtown office. He said The Standard was deeply supportive of a renewed focus on racial justice, but concerned about continued “criminal activity from opportunists not associated with the legitimate protests.”
A PLAN TO REVIVE DOWNTOWN
Under pressure from downtown business owners, Portland Mayor Ted Wheeler met with the Portland Business Alliance and 70 other businesses at the end of August and pledged to take quick action to revive downtown. The city has continued to meet with the business organization and Wheeler has set in motion a five-point plan focused on promoting public safety, addressing issues around homelessness and graffiti, cleaning up trash and developing a downtown retail strategy to remind consumers that downtown remains open.
The city has since invested $60,000 to remove graffiti along the path of nightly protests and plans to commit a total of $100,000 to the graffiti removal, said Jim Middaugh, a spokesman for the Mayor. At the end of the month, the City Council will also consider amendments to the city code that would give the city more flexibility in funding trash and debris removal.
Middaugh said the city has added 175 shelter beds at the Charles Jordan and Mt. Scott Community Centers and plans to further increase beds to accommodate homeless residents. Portland has also placed 100 portable toilets near homeless encampments.
“COVID-19 dramatically hurt the business community – particularly downtown, which is suffering from increased teleworking, decreased tourism and ongoing protests,” Middaugh said. “The Mayor is working with partners to support downtown businesses.”
However, it’s already too late for some downtown businesses.
Earlier this week, nightclub CC Slaughters, long an institution within the Portland gay community, announced it was permanently closing its doors. At least 21 restaurants and bars in downtown, Old Town and the Pearl District have announced permanent or temporary closures since the start of the pandemic, according to a list compiled by Urban Works Real Estate.
“If you are a small restaurant downtown and you don’t have people there in the evening, you don’t get your lunch business and you don’t get the tourists, what do you do?” Sweitzer said.
Kafoury said that only 5% to 10% of downtown office spaces are currently occupied during the week. According to Travel Oregon, hotel occupancy remained down 42% in downtown Portland in mid-September, the largest decline of anywhere in the state.
The lack of daytime population in downtown coupled with a decline in people coming into downtown in the evening is taking its toll on retailers, Kafoury said. But he said there are reasons to believe that downtown Portland can recover.
“While we know it may get harder before it gets better, Portland has always been able to weather recessions in the past, and we will emerge resilient again,” Kafoury said.