What to do with Portland's empty office space
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Illustration: Eniola Odetunde/Axios
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.