Urban concessions dovetailing with supply and demand
During 2014-2015, Portland’s urban core was in the midst of an office supply shortage
July 24, 2019
- During 2014-2015, Portland’s urban core was in the midst of an office supply shortage, sending the CBD vacancy rate down to the 2nd lowest in the country at 6.7 percent.
- Options for tenants were limited, especially for larger tenants where just 1 option for 30,000 square feet of creative space in a Class A building existed. In this landlord favorable market, concession packages for tenants fell considerably, averaging 2.8 months of free rent and $40.67 per square foot of tenant improvement allowances (TIA’s) on a new 5 year deal.
- Since then, supply constraints have eased with an influx of new creative developments and repositionings. Vacancy in the urban core has risen to 13.0 percent and faced with plenty of options, tenants are being offered increasing concessions to move. Average free rent on a new 5 year deal is now 3.8 months and average TIA’s are $65.47 per square foot.
- TIA’s have increased particularly fast due to the rise in construction costs. Costs have increased between 7 to 10 percent per year over the last 5 years.
- Looking ahead, the office construction pipeline remains elevated with 1.1 million square feet set to deliver in the urban core over the next two years. TIA’s are expected to continue their steep upward climb, with a new highwater mark set at $140 per square foot.
Source: JLL Research, Howard S. Wright Construction