Why some businesses are leaving downtown Portland and why others choose to stay

As businesses grapple with hybrid work, perceptions of downtown Portland and employee retention, some businesses are moving their downtown presence elsewhere. But even as some businesses leave, others are staying put, betting on a rebound for the district. We hear more from Jonathan Bach, a staff reporter for the Portland Business Journal, on the outlook for downtown.

Note: The following transcript was created by a computer and edited by a volunteer.

Dave Miller: This is Think Out Loud on OPB, I’m Dave Miller. Portland’s downtown is dying. No, it’s coming back. Businesses are fleeing. No, they are renewing leases or building big new headquarters. Portlanders are afraid of walking around. Nope, pedestrian traffic is trending upward.

Portland is in fact a kind of Rorschach test. Different people can look at the same pictures and see very different things. Jonathan Bach has been trying to make sense of one piece of that picture: downtown office space. He’s written a number of articles over the last few months and the last few weeks about this for the Portland Business Journal, and he joins us now with the latest. Jonathan, welcome back.

Jonathan Bach: Hey there.

Miller: Let’s start with the exodus from downtown. How big has it been?

Bach: I think to get a lay of the land, it’s really easy to just look at the numbers. Downtown vacancy pre-pandemic, the second quarter of 2019, was about 13% office vacancy. The most recent count, in the second quarter of 2022, it had essentially doubled to about 26%. This is according to data from a real estate firm called CBRE.

Miller: What are the reasons you’ve heard from company leaders that have picked up stakes?

Bach: There’s a number of reasons being given. When companies exit, some have talked about the shifting workplace. There was one company, Unitus Community Credit Union, that had talked about wanting to create a distributed model and bringing locations closer to where employees live. Their CEO Stephen Stapp told me about that mindset.

But I think underlying some of this is the unstated assumption that the central city is unsafe and in trouble. Whether that’s perception or reality, it is affecting people’s mind and their decisions.

Miller: What does the data show? And there are all different kinds of data, there’s all different kinds of crime, but what do you see as some of the more important numbers to look at when it comes to crime and safety in downtown Portland?

Bach: So I was really curious about this question when I did a story in August. I did look at year to year numbers for person crimes. Assaults make up a lot of those tallies. And for the year ending in June this year, person crimes in downtown proper rose to 903. That was a roughly 14% increase from the prior year. But to get a sense of where things stood pre-pandemic, again, trying to compare how things were before COVID, the period from June 2018 to June 2019 saw 870 person crimes downtown. That’s about a difference of 4% from this year. Which is, in my mind, relatively flat. It’s up, but it’s a 4% change.

Miller: There’s also the question of how many people are around there. Even if it’s only a 4% change, it may be that effectively it’s a higher percentage increase in terms of the likelihood of attacks, or the per capita attacks.

You mentioned that one of the issues that you heard from company leaders is being closer to where their employees are. That’s separate from the question about not having employees go to work every day, or perhaps ever. What role does hybrid work play in this?

Bach: I don’t think any business leader with any sense has employees coming in every day of the week, or is forcing employees coming into the office every day of the week. I think that hybrid is here to stay, at least for the foreseeable business cycle, the next several years, because the fact that companies have shown, and I’m not the first person to say this, that they can be productive while they’re hybrid.

That said, I don’t know what the OPB schedule is, at the PBJ we’re in two days a week. We try to be in two days a week altogether, but also you’re free to go into the office whenever you like. So some people go in more, some people go in less frequently outside of those two days. We’re still in this liminal space of trying to figure out, even though it feels like the pandemic has been going on forever, it feels like the “return to work” has been going on forever, or figuring out what work the workplace of the future looks like it’s been going on forever. Hybrid work is likely one of those trends that’s going to be sticky.

Miller: But for the companies that aren’t just closing up offices but are moving away from downtown Portland and opening up somewhere else, where are they opening?

Bach: Going back to the Unitus example, they are the anchor tenant at Unitus Plaza downtown, and they’re trading their headquarters downtown for Tigard in 2024 as part of what they’re casting as that distributed work strategy. They’re gonna be along Southwest Durham Road. It’s a move that they say will cut costs, and also give the credit union more power over its space. They’re going to become a building owner, presently they’re tenants. They’ve paid 27 million for property out on Southwest Durham Road.

There are others. KinderCare, which was the education company that was based in Portland for decades out in the Lloyd District, completed its move to Lake Oswego this year. And it began welcoming employees to its new headquarters in May according to a spokesperson. Last July, when it was explaining that move from the Lloyd District, a spokesperson essentially explained that the company had adopted hybrid work for corporate employees and that translated to it needing less office space. There are other examples,

Miller: But you’ve also written a recent article or series of articles about companies making the opposite decisions. One of them is a company called Thesis, which focuses a lot on email marketing campaigns, and they’ve grown a lot in the last few years, and they are in the process of moving to a new headquarters in Slabtown, in Northwest, not that far from downtown. Why are they doubling down in Portland?

Bach: There’s a great quote from thesis founder and chairman Ryan Buchanan. He said “We’d lose employees if we set up shop in the suburbs. Our employee brand is about that connection to close-in Portland.” They are one of those companies that is doubling down on Portland proper. Maybe not as he said, maybe not in the downtown core proper, but within the city.

Others that we’ve written about are Allbirds, which is the San Francisco-based shoe brand, people will widely know them, to Street Roots, which is our pretty well beloved newspaper nonprofit that lets folks sell the newspapers and keep the profits from those, which has bought a building on Burnside. There is an exodus of some companies, but there is an inflow or a doubling down of other companies.

And it really gets to this idea that you have to look at sort of net migration of companies. And that’s something that I’m really trying to get my head around as a reporter, really digging down into the data for net migration. Vacancy is one way to track that. One real estate rep told me that there’s an estimated two million square feet worth of office space that’s expected to hit the market within the next 12 to 18 months. So that’s another warning sign that if companies don’t swoop in and take up that space, that could push vacancy to higher. So it’s this push and pull between companies leaving, companies either doubling down or moving in.

Miller: I couldn’t really see a pattern in these companies. There’s a marketing company, Thesis, which is putting a new headquarters in Slabtown. Street Roots is doubling down in Old Town. This nationally recognized shoe brand, Allbirds, is coming to Portland clearly because there’s a lot of athletic wear and shoe designers and talent in Portland, there’s no city in the country like it, so it’s a very specific business reason. Then you have a credit union leaving, or law firms coming or going. Are there patterns that you see?

Bach: Honestly, I think that’s a great question. I think that’s something that deserves more scrutiny. But I also think it speaks to the chaos of the office market right now. Everybody’s trying to figure out where they stand in sort of post-pandemic Portland. I don’t know if we can say we’re in post-pandemic Portland per se at this moment, but in this new reality, where do we stand? And a lot of companies, regardless of your industry, are trying to do that math.

Miller: So let’s go back to something you mentioned which is worth returning to, that two million square feet of office space are expected to hit the Portland market over the next year and a half, meaning it’s under construction now and it’ll soon be on the market. As you noted, there’s already a vacancy rate of 26% for downtown office space. When many more new offices come on the market, does that mean that the price is just going to drop incredibly?

Bach: It could be. To clarify, that also may be space that folks vacate, that two million. New construction might be a different question. And that’s a whole other separate thing about if you’re building an office tower right now, and if you’re not getting any bites on any tenants, that really makes you look at your book and start to worry.

But in terms of pricing, yeah, that has an effect on pricing. Going back to the stats from CBRE, that real estate firm that I mentioned before, the suburban asking rental rate was about $28 per square foot, and Downtown’s was about $35 per square foot. Both grew from the prior year, this is those Q2 figures I mentioned.

Miller: But still, 20% cheaper or so to rent office space in the suburbs than in Downtown Portland.

Bach: Exactly. And that’s a little bit counterintuitive with how popular the burbs have been. But you can still probably get some really good deals Downtown, for being Downtown right now.

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