Portland, Ore. – The vacancy rate for commercial buildings in downtown Portland continues to increase. Despite things returning to normal as we come out of the pandemic, the vacancy rate in those large skyscrapers you see downtown went up by another 2% in the last year, with 17.5% of the space still empty. The losses since the start of COVID-19 is equivalent to the US Bancorp Tower fully vacating nearly four times over. And on the note of Portland’s largest commercial building, US Bancorp Tower has 10 floors that are completely empty.

Many are quick to point to crime or homelessness as to why the downtown core remains a shadow of its past, but what is the future of what once was the most vibrant part of the city? And what is the future of these giant commercial buildings as we transition to a remote work economy that is likely here to stay? The good news according to commercial real estate expert and land use economist, Jerry Johnson, because Portland is such a desired place to be, those spaces will get filled.

“The downtown will likely comeback at some level. It’s lost a lot of momentum right now, but I don’t think it’s a lost cause,” Johnson said, largely because it was built to be the epicenter and that is naturally going to draw people and business in. “Our transportation system is set up so the downtown area is the central location. We have fixed rail assets coming downtown. Our transit model is based off a spoken hub type system where we’re counting on downtown being a strong player. And I think it will continue to be that way because we have a lot of investment in it. And the space is already here. Even if they’ve got to cut rates to fill the space, eventually you’ll fill that space.”

Andrew Hoan, President and CEO with the Portland Business Alliance agrees with Johnson. Despite unquestioned economic headwinds, political violence, and even natural disasters like wildfires and ice storms, the downtown sector will be full of people and business activity again.

“We are still an incredible city, vibrant and growing economy, and a place that people want to be,” Hoan said, mentioning that TIME Magazine called Portland one of the world’s 50 greatest cities. “This city is incredibly vibrant. Our jobs and economic growth are continuing to recover at a pace that we enjoyed pre-pandemic.”

A lot of the recovery is still up in the air as businesses navigate how they will handle this new remote work economy. But one trend that is getting organizations to come back downtown is already taking shape.

“You’re noticing trends now that are really quite fascinating. Rents have indeed come down a bit from their pre-pandemic levels. And we have started to notice that firms are making decisions to relocate downtown because they can attain better price per square foot at this point. That’s a good thing,” Hoan said. “So I think you’re seeing the natural recalibration of the market happening.”

Johnson added that “you’re going to have a price response first of all. If you change the pricing you can basically change the allocation of demand. So I think people can make it marginally more attractive to be downtown. Firms may just have more space per employee because they’re getting space at a lower cost.”

Even as commercial buildings struggle to find new tenants, data from the Business Alliance does show people are making their return downtown. Restaurant reservations are at their highest point since June 2020, increasing by nearly 60% points since then. Visitors to the city have increased by nearly 5o% since April 2020. And since the start of the year, the number of people working downtown continues to steadily increase and currently is up by about 8% points in 2022.

But not only is downtown Portland built to make a comeback, but in a sense it has to. And efforts will be made to make sure it does.

“This is the economic hub. It drive financial activity, it drives the tax base. If you have a major employer who operates here, so many of our governments are dependent on the resources that having active companies in our downtown provide benefit for. If they go to other cities, that’s enormously consequential. We need public services to be maintained and improved,” said Hoan. “That’s not good for Portland. And that’s not good for the greater region. If you see our downtown decline than that has bad mark on the rest of our region. As downtown goes, so goes the state. The reality is we all need to pay a lot more attention to the conditions in downtown.”

Plus, too much effort has gone into downtown to just let it become an after thought or secondary part of town.

“Most city policy in the last 30 years has tried to encourage downtown,” Johnson said. “We’ve spent a long time making downtown a very attractive place to be. That’s where our hotels are, that’s where people used to want to be.”

Even as things trickle in the right direction, the perception that plagues downtown persists, stunting a bigger comeback. And some feel not enough is being done about it.

“We certainly have significant issues that challenge our employer community. Some of them are related to public safety, some of them are related to cleanliness and graffiti and livability concerns, and some of them are in fact related to the unsheltered crisis we see on our streets,” Hoan said.

“I think what the city needs is a commitment that there’s going to be enforcement of laws, basically. We should recognize that property crime has real cost on businesses. We still have a lot of boarded up businesses down here, were consistently getting broken windows. We have a lot of tenants that aren’t interested in opening up downtown,” Johnson said. “Everything’s locked up still, my parking garage is locked, there’s security guards at garages. It’s a different environment down here. And a lot of people feeling intimidated by it.”

Both Johnson and Hoan believe, if you start to take more action on some of these issues, it will create a positive ripple effect.

“The thing that matters the most to people, and this is not a business issue, it’s not one issue, it’s an everybody issue; it’s that public safety and cleanliness and the resolution of our unsheltered crisis on the street need to come to a swift conclusion, or at least drastically improve over the next two years,” Hoan said. “What you’re seeing through the leadership of multiple bodies of government making is investments in accountable public safety, in cleanliness, in livability, in creating shelter. So the resources being poured into these real priority issues are the things that will improve the overall conditions of our city and especially impact our center city.”

“A lot of things need to go on, and they all have to happen at the same time. You’ve got to create an environment that’s attractive for people. And what you’re trying to get is this beneficial cycle where you get more people downtown, which then creates stronger ground floor amenities, which makes it more attractive to more people and more investment,” Johnson said.

Johnson adds, by not taking care of these issues now, you’re also taking a risk of stunting future investment.

“It’s hard to get people to invest in new businesses when there’s not a lot of security that the city is going to protect their property,” Johnson said. “I feel like the city has sort of betrayed them (those that have already invested in downtown). There’s this sort of trust that the city is going to take care of things: keep things clean, enforce laws, doing things to create confidence to invest in downtown. Those people that have invested in downtown and put a lot of money into it have been getting punished. And I feel that it sends a message to other people that would consider investing that the city of Portland hasn’t been reliable partners.”

Some homeless advocates agrees, there needs to be more rapid action from the city to slow crime and homelessness in downtown.

“We work with really good people in the city and county who want to do right by the community we serve, but sometimes the action doesn’t move fast enough or far enough,” said Scott Kerman the executive director of Blanchet House in Old Town Portland, which provides social services to those experiencing houselessness. “One of the things that have frustrated a lot of us doing this work, is that things sometimes move so slowly. And maybe that was ok in a pre-pandemic environment. But now, we wish that we could find ways to move these processes along with a little more urgency because the suffering is pretty significant.”

Kerman reminds us, the homeless population wants to see changes too, like better access to sanitation. Plus, homeless people are more likely to be the victim of a crime than be the perpetrator.

“We really want to work against a conflation of all of the things that are troubling our society with homeless people. Sometimes when I hear people complain about homelessness, they’re also bringing in their concern over crime, graffiti, trash and the economy. It’s unfair to aim all of that at people who are houseless. There’s more nuance to it,” Kerman said.

Kerman adds, we need to remember that every large city is going through this, and those living in the Portland Metro area should be trying to combat these narratives that its unlivable instead of bashing the city.

“We can’t just say it’s the homelessness, or its this or that, it’s far more complex. People are changing what work means to them, and what that looks like,” says Kerman, referencing the transformation to a remote work economy. “We urge people to maintain a high level of compassion, which we know people in Portland are known for. It’s been put to the test by the experiences of the last couple of years, but we know that, that capacity for compassion, and to want to help people still remains.”

Because there are more jobs than people looking for work, were in a very tight labor market, making it harder to get workers back to the office. Making it the largest driver behind the building vacancies we’re seeing.

“People found remote working technology was better than they thought it was, and much easier. Once people started working remotely, they found it as a situation they appreciated and enjoyed. So there’s some reluctance to comeback downtown because they’ve changed the way work patterns are,” Johnson said.

We’re still in a transition period as the world adjusts to the new way people work and it could take a few years to sort out.

“Employers in our downtown are making the same decisions businesses all over the world have made, which is to shift to a hybrid model. That is the new reality,” said Hoan “That sort of sets the office space requirements at a different level and that is to be expected. We track ourselves compared to cities like Seattle and others on the West Coast, and we’re really smack in the median in terms of return to office work. We’re not outside the normal experience of big cities.”

An added wrench to the issue is the continued emergence of the suburban office space. Especially as the price of crude oil remains near record highs.

“The suburban market has some advantages, you’ve got lower commute costs. Gas prices aren’t helping with that. Downtown is a little less attractive relative to the suburban locations. Plus, with where most people live, it’s much easier to get to these locations,” Johnson said, also mentioning that there was a migration from the inner city to the suburbs during COVID, as some people wanted a place with more space so they could have an at-home office, which isn’t always an option with an apartment or home in the city.

While Johnson says turning some of these large commercial spaces into housing is just not a financially viable option, Hoan is still optimistic the city will adapt.

“Remote work allows you to have a better and healthier work-life-balance. So it’s not to be worried about, but to be embraced. We’ll have to help the commercial real estate community make the investments to help adapt in the this transitionary moment. The reality is that we might have to find different and better uses for our spaces here in the commercial center of our state,” Hoan said.

So, expect a lot of changes in the near future. But with that, are the city’s priorities in the right place? Focusing on business giants instead of getting a grasp on the socio-economic issues referenced above. Kerman addresses that.

“I wouldn’t say that. You have to address everything at once. We have to be able to hold multiple thoughts in our head at the same time and not simply react to what seem to be very attractive, but also very simplistic solutions. There’s a desire to want to identify ‘oh this is the cause, we have figured it out. If we just fix this one thing than everything will fall into place.’ But life doesn’t work like that.”

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