Office space | Vacancy rates rise in greater Portland, but select sectors show growth
Last year around this time, I wrote with trepid confidence that things seemed to be improving in the greater Portland office market. Both 2008 and 2009 were very difficult, but there were quantifiable signs of improvement and reason to believe that 2010 would begin our slow climb out of the commercial real estate downturn. However, according to the latest data, it seems I was about 12 months early in my positive prognosis. We, in fact, saw continued increases in overall office vacancies in 2010.
Last month, CBRE/The Boulos Co. released its annual Office Market Survey. It is a comprehensive survey of all class A and B office space in greater Portland. Each building’s vacancy rate and asking lease rates are carefully calculated and charted. It serves as an excellent barometer of commercial real estate trends and the overall health of our market. The 2011 Office Market Survey in its entirety can be viewed or downloaded for free at www.BoulosOfficeMarketSurvey.com.
This year’s results showed a significant increase in vacancies after what was perceived as a plateau last year. From 2008 to 2009, the overall rate in greater Portland rose a nominal amount, from 9.11% to 9.15%. However, the 2010 overall vacancy rate rose to 11.16%, an alarming increase of more than 22%. It should always be noted, however, that in a market this small, it takes only one or two major transactions to account for significant fluctuations in the data. This was certainly the case in downtown Portland as we saw TD Bank, MaineToday Media and MaineHealth make major real estate transitions that affected our numbers.
Upon closer examination of the data, it becomes clear that some sectors are stronger than others. It seems, for example, that companies are trending toward more inexpensive, suburban space as opposed to class A downtown office space. The data bears this out, as suburban class B space saw its vacancy rate make a rebound from 8.64% in 2009 to a healthy 6.73% in 2010. On the other hand, class A office space in downtown Portland increased its vacancy rate for the fourth consecutive year to 10.72%. TD Bank’s relocating from One Portland Square to a more affordable office building near the Maine Mall in South Portland is an excellent example of this trend.
One location of particular concern to me is the downtown Portland area near Monument Square and Congress Street. Some of Portland’s most well-known addresses are in this region, including the Time and Temperature Building, Post Office Square and One City Center. One well-documented deal that will negatively impact this region is Pierce Atwood vacating more than 75,000 square feet at One Monument Square in fall 2011. Today, data show that vacancy rates in a number of office towers along Congress Street are well over 15%. However, given the area’s proximity to downtown amenities, ample parking and motivated landlords, I am hopeful that we will see improvement over the next 12 months.
Health care remains one of southern Maine’s strongest economic drivers. As such, it’s encouraging to see the overall medical office vacancy rate decrease to 4.27% in 2010. The medical commercial real estate sector was hit hard in 2007 by the expansions of the Mercy Fore River campus and the new 103,000-plus-square-foot Intermed building, both in Portland. However, for the third consecutive year the medical office market saw positive absorption. Of the 1.1 million square feet of medical office space in greater Portland, only 48,000 square feet is available today. This trend has surely helped trigger two major recent developments. MaineHealth is converting the former Orion Center (a retail mall) in Scarborough to a 100,000-square-foot office and lab campus. Also, Martin’s Point is nearing completion of its new 43,000-square-foot medical building and parking garage at its Portland campus.
As is historically the case, greater Portland remains healthier and more stable than comparable regional markets. Boston, Hartford, Providence, New Haven and others face overall vacancy rates of 13%-20%. Interestingly, other markets seem to be offering similar incentives to tenants in an attempt to ebb the increasing vacancies. Incentives like free rent, tenant improvement allowances, higher brokerage fees and parking subsidies are becoming more and more common throughout New England.
For a more detailed analysis of the southern Maine commercial real estate market, please visit www.BoulosOfficeMarketSurvey.com. There are a number of articles outlining new market developments, significant transactions, current lending conditions and more. You can also find an itemized list of each building we cataloged as well as current asking lease rates of all vacancies.
Justin Lamontagne, associate broker at CBRE/The Boulos Co. in Portland, can be reached at jlamontagne@boulos.com. Read more of Justin’s columns here.
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