Office space at a premium
Competition for limited square footage downtown is reviving delayed projects
Thursday, November 09, 2006
DYLAN RIVERA
The Oregonian
When Internet software firm WebTrends Inc. gathered its 300 or so employees for quarterly company meetings last year, it had to rent a nearby downtown hotel ballroom. The company had grown so fast that its workers were split between a few floors in the Fox Tower and the Pacific First Center, across the street. It didn't have enough space in either location for the meetings.
So when it came time last spring to find a single office building with room enough for everyone, company executives discovered that their timing was off. Most buildings were so full that WebTrends couldn't find room for the entire company on contiguous floors of a downtown Portland office building.
"The challenge was finding enough space in a single location that would allow us to stay downtown and have a contiguous space," said Jason Palmer, vice president of marketing. "It was important to us to have that synergy."
WebTrends decided to consolidate in Pacific First, though only three of its five floors will be contiguous.
Like WebTrends, dozens of growing downtown companies and newcomers are looking for office space. But many find themselves caught in a squeeze for premium Class A space that shows signs of getting even tighter. Vacancies are lower than they have been in years, and rents have started to shoot up.
The downtown office market's recovery from a recession that started in 2001 has many people believing that construction of a new office tower isn't far off. A period of office expansion would mark a big departure from the past five years, when most downtown construction consisted of residential condominium towers. What little premium office space was built came in suburban pockets.
While suburban office vacancies overall remain higher, some suburban markets have emerged from the office market recession earlier than downtown. The Kruse Way area of Lake Oswego led the region's office market with the first new building after the recession, the 100,000 square-foot Kruse Oaks II, now near completion.
But evidence is mounting that demand for downtown work space is catching up with the robust demand for downtown living.
"Everybody's going to be very surprised if another building doesn't get financed or if we don't have any new supply in a couple of years," said Mike Williams, associate director of research for the Cushman & Wakefield brokerage.
Consider:
The vacancy rate for Class A office buildings downtown fell to 6.4 percent in the third quarter, down from 8.5 percent a year ago and a high of 14.2 percent in the same quarter of 2002, according to Cushman &Wakefield.
Vacancy is so low that tenants requiring a full floor of Class A space now have only about a half-dozen choices.
Rents increased to $23.88 per square foot a year, including building expenses, up from $21.92 a year ago.
Suburban office tenants have accounted for most of the new leased office space in the metro area in recent years, said Jerry Johnson, a real estate economist with the Johnson Gardner firm in Portland.
But at a time when the city and Multnomah County business taxes still draw ire, downtown remains appealing to some.
Many law firms value close proximity to other large businesses or courthouses where they conduct business. Others say a downtown location gives a business relative proximity to all parts of the metro area, where their employees live and clients work.
"There are certain firms that just want to be downtown," Johnson said. "A Kruse Way location doesn't help if you also serve Gresham."
The emerging downtown space crunch has prompted several office developers to dust off old projects and hire brokers, architects and marketers to make sure they're ready for the current wave of demand.
Planned projects
"We're definitely beginning to see the right balance between supply and demand," said Jim Winkler, developer of One Waterfront Place in the Pearl District.
One Waterfront Place, 100 Columbia and a site now known as First and Main are three major projects that were planned to start in the last boom. Some are being transformed in their planning stages to court tenants in the current boom.
When it was designed in 2001, One Waterfront Place was regarded as a pioneer for designing to meet the gold rating in the U.S. Green Building Council's Leadership in Energy and Environmental Design certification program. It still hasn't been built, but now three competitors are trying to capture the green-conscious cachet for themselves.
Louis Dreyfus Property Group is redesigning its 100 Columbia project to meet the design certification program's standards, said Ron Beltz, regional vice president.
Studies are mounting that show productivity gains for companies in environmentally sensitive buildings, and Portland employers value that, Beltz said.
"Tenants will pay for innovative and healthy design in a sustainable building," Beltz said, adding that lower energy costs are part of the appeal.
Equity Office Properties Trust, the largest office landlord in the Portland region and the nation, bought a site in 2005 for a new office tower that would also qualify for the environmental and energy certification. But since its plans became public, Multnomah County officials have talked about condemning the site for a courthouse, and negotiations over that issue have created a cloud.
Equity Office plans to self-finance its building, which makes it likely to be the first developer out of the starting gate. The national firm sold $2.7 billion in office space last year and could choose to start construction without an anchor, even though it has said it would require substantial pre-leasing before construction.
"I think that (Equity Office) has more money than I do," Winkler quipped. "We think we represent a viable opportunity. We've just got to see if there are other people who agree."
Dylan Rivera: 503-221-8532;
dylanrivera@news.oregonian.com
http://www.oregonlive.com/business/o...900.xml&coll=7
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I read in the Trib that there is an agency that actively recruits companies to HQ in Portland. I believe it's made up of local CEOs, businesses, and somewhat affiliated with the PBA. I think it also gains funds from grants and donations. I like to hear more about it though. Anyone else have some info?
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