Jessica Estes, CBRE | The Boulos Company

The story for 2015 in Greater Portland’s office market was one of continued improvement. As of December 1, 2015, vacancy was 6.52% direct, and 0.73% sublease, for a total of 7.23% across the nearly 12 million s/f of office inventory in seven towns and cities (Portland, Westbrook, South Portland, Scarborough, Falmouth, Cumberland and Yarmouth). We ended 2014 with 911,712 s/f vacant, and ended 2015 with 772,546 s/f vacant, for positive absorption over 12 months of nearly 140,000 s/f.

Downtown

Portland’s CBD showed strong improvement as expected. Downtown Class A vacancy had a sharp decline to 4.52% from last year’s 8.8%. Much of this trend can be accounted for in the leasing of 161 Marginal Way to Portland Gastroenterology Center and Maine Eye Center, which has prompted us to reclassify the building to the Medical class A category in the survey. That 50,400 s/f increase in occupancy notwithstanding, the submarket had positive absorption of over 48,000 s/f. One and Two Monument Square accounted for the majority of the absorption, the latter of which is now fully leased.

More modest improvement was seen in the downtown Class B market. 66 Pearl St., 178 Middle St., One Post Office Sq. and 50 Portland Pier were the beneficiaries of several new tenants.

Suburban

For the suburban market, the results were mixed, but overall, a positive trend emerged. In its entirety, the segment had positive absorption of about 30,000 s/f, and a vacancy rate that decreased from 6.82% to 6.38%. A couple of significant tenant moves are responsible for the majority of the change. 123 Darling Ave. in South Portland was purchased by an investor and leased in its entirety. 6 Ashley Dr., which had a 38,390 s/f vacancy, was also filled by a single user. The biggest drag on the market was One Riverfront Plaza in Westbrook, which lost its single tenant to 300 Southborough Dr. in South Portland. This 134,000 s/f vacancy accounts for over 1/3 of the entire vacancy across all submarkets. At the time of this writing, there is a user with serious interest in the building and, if filled, the effective change in vacancy rate for the class A suburban segment will be 4%.

Medical

As we’ve noted in the past, class A medical space has had an extremely low vacancy rate, hovering around 1%. Our 2015 Market Outlook posited that office space may need to be constructed to meet new demand. This year two medical users signed leases at 161 Marginal Way, filling the 50,400 s/f class A downtown building, converting the space to medical office. The class A medical submarket continues to be remarkably strong, with only one vacancy. Any medical user looking to expand or move into the market will either have to convert existing office space to medical or construct new space. class B medical space has a vacancy rate of 8.96%, with the largest space being a stubborn vacancy at 117 Auburn St. in Portland. 440 Western Ave., which was purchased by an investor last year, remains untenanted and those two buildings account for over 60% of the available space in the segment. These numbers are not overly concerning because the class B medical segment is a small portion of our overall market with 310,000 s/f of inventory.

Greater Portland’s office market continues its healthy trend into 2016. In each of the three major segments, we see increased demand, decreasing supply, and anticipate new development; some of which is already in the planning stages. The current environment can be described as a landlord’s market, and occupiers are advised to plan moves and expansions well in advance of their anticipated need for space. Absent a major shift in the economy, new product will need to be built over the coming 12-24 months to accommodate growing users needs.

Jessica Estes is a partner with CBRE | The Boulos Company, Portland, ME.