What to do with Portland's empty office space

While the demand for office space in the Rose City remains weak even after thousands of square feet recently came on the market, a plan to convert the unused commercial real estate into housing isn't as simple as it seems.

Why it matters: Affordable housing advocates say that converting unused office space into residential units could boost the city's low inventory and curb rising rents.

• "However, the cost of conversion is just astronomical," Laura Golino de Lovato, executive director of Northwest Pilot Project, which provides assistance to low-income seniors, tells Axios. "It creates a barrier to making it a truly viable idea."

Driving the news: The office vacancy rate in the Portland metro area saw a slight increase to 22.2% in the second quarter of this year, according to data from real estate brokerage firm CBRE, as companies remain hesitant to commit to long-term spaces due to remote and hybrid work trends.

Meanwhile, the number of new office leases and new construction activity have reached record lows, per a market trend report from Kidder Mathews, a West Coast real estate firm.

• The report found new leases in Portland dropped 33% year over year, and current construction only accounts for 0.2% of existing inventory — both well below the national average.
• And the leases that are being signed are for smaller spaces than in the past.

State of play: Both reports suggest Portland's office market will remain slow and shaky throughout the rest of the year, despite developments like the Ritz-Carlton's Block 216, downtown's 11W and Terminal 1 in Vancouver now up for grabs.

The estimated cost of converting offices to housing ranges from $100 to $500 per square foot — much more than many developers are willing to pay out of pocket without substantial government subsidies.

Zoom in: State and city leaders are still trying to figure out how best to incentivize office-to-residential conversions in a bid to revive downtown. It's an effort that'll likely take years to unfold.

• In March, the city council lifted the costly seismic design requirements for bringing buildings up to code in order to convert office spaces into residential units.

The intrigue: Before Portland takes the plunge, housing advocates like Golino de Lovato are pushing lawmakers to conduct a thorough analysis of the true cost and long-term impact of converting office space into residential space.

• "What happens when the economy recovers and we want that office space back?" she said.