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Over the past year, the office market in downtown Portland has seen a steady amount of absorption, leading to a 1.0% drop in the vacancy rate. The overall average rental rate fell compared to last year with the sublease asking rate dropping by 3.3% ($1 per square foot), but the direct asking rate increasing by 3.1% (69 cents per square foot).
The Class A sector tightened slightly over the last year, finishing the quarter at 9.9%. Even with the vacancy rate falling by 0.8% year-over-year, the amount of direct available space increased by 1.7%.
Some of this jump can be attributed to sublease space moving to a direct availability, but there is a notable amount of available space that hit the market but is occupied until later this year. The Class A average rent climbed by 2.9% (80 cents per square foot) year-over-year, ending the first quarter at $26.46 modified gross. Most of this increase was caused by space that was listed at below the average asking rate being leased.
The Class B sector had the largest drop in its vacancy rate, falling by 1.7% year-over-year and ending the quarter at 6.9%. Rental rates in the sector fell compared to last year, with a 1.4% (30 cents per square foot) drop. While the direct rate decreased, the sublease rate increased dramatically — climbing by 14.8% ($3.11 per square foot) — and finished the first quarter at $24.06 modified gross.
Interestingly, the sublease rental rate in downtown Portland is significantly higher than the direct rate.
In the Class A sector, the difference between the two is $6.10 per square foot and the difference in the Class B sector is $2.73 per square foot.
A major contributor to this is 12 Mountfort Street, a newly constructed Class A office building. Covetrus announced in 2018 plans to build a new headquarters to support its 1,500 employees. The new facility opened in December 2022, but now the company only needs space for roughly 300 employees in Portland, creating a large sublease availability. It is typical to see new construction projects at higher than average rents, but new construction is not typically available for sublease.
Some first quarter transactions worth noting include:
Kristie Russell is Colliers’ research manager for Maine and New Hampshire.
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