What’s next for businesses in downtown Portland?

For some downtown Portland business leaders, the new year is a time for optimism. Some say government attention on the area, like an emphasis on the region through the Central City Task Force convened by Oregon Gov. Tina Kotek, could mean positive changes for downtown. Jonathan Bach is a real estate and finance reporter for the Portland Business Journal. He recently wrote about the outlook for downtown business leaders and joins us to share what he’s been hearing from them.

Note: This transcript was computer generated and edited by a volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. For some downtown Portland business owners the new year is a time for optimism. They say government attention in the area, including the recent recommendations by the Central City Task Force, could mean positive changes for downtown. Jonathan Bach is a real estate and finance reporter for the Portland Business Journal. He talked to four downtown business leaders about their hopes and their fears. He joined us recently to talk about it. I started by asking him what stood out from his conversation with Vanessa Sturgeon who works in commercial real estate.

Jonathan Bach: I think the key quote from Vanessa Sturgeon, the president of TMT Development, [is] that her hope is that 2023 was rock bottom for Portland. And that doesn’t come as a huge surprise. She’s very civically involved. She’s also very involved in business circles. She was on the governor’s Central City Task Force, and she’s got a bird’s eye view from Park Avenue West, where her company is located, on the state of downtown Portland. She, like I think a lot of folks in real estate, is hoping for Portland to lift out of its doldrums.

Miller: If you were kind of a glass is half full view right now, is there data that somebody could point to say it actually is likely that 2023 was the bottom?

Bach: I don’t know if there’s data to show that 2023 was the bottom per se. I think the data shows that in 2023, things certainly got worse. CBRE published its fourth quarter 2023 office report for Portland, and it showed downtown’s overall vacancy rate for offices at 29.7%. So that’s nearly a 30% vacancy rate. That’s I believe the highest I’ve seen it from CBRE’s tally.

Miller: Meaning, higher than the last couple of years, which were already quite bad.

Bach: Yeah It’s basically inched up. It’s just continued to go up. Maybe it’s gone down one time in a quarter, but I can’t really recall off the top of my head it going down over a sustained period in the past four years at all.

Miller: Tied to that, the price of office space is, I shouldn’t say low, but it has not recovered from its pandemic drop. It’s lower than it was at the end of 2019. Does that mean that there are deals to be had if people want to actually invest in this real estate?

Bach: This is a story we’re interested in investigating further in 2024 because we’ve heard mixed reports about whether you can really get a deal on office real estate. Even though the intuitive thing is vacancy rates are super high and so therefore you would get a deal. And there are certainly people like Katie Mangle [from] Alta Planning, which recently moved into One Main Place on Southwest Main Street in downtown Portland. And they got, as she told me, a lot of value for what they need. They got a pretty good deal. And there have certainly been a lot of deals to be had.

But we’ve also heard sort of mixed reports of some landlords - and this is unconfirmed and why I want to look into it further this year - sort of holding on to higher than you would expect asking rates. But that begs further investigation.

Miller: Meaning, they’re saying “no, at some point someone’s going to take up my offer and lease out this space, so I’m not going to lower the price”?

Bach: I think it has to do with, and again I’m going a little over my skis here, the long term play of the building, how you can write it off. Again, we kind of have to look at it a little bit further. But I think there are still folks out there who are charging higher than you would expect office rates. And there are folks who are getting deals.

Miller: You and I have talked a lot in the past about the challenges that employers have faced in getting people to go back to offices, to stop working from home. Has it been long enough now that it’s time to start talking about permanent changes in office work culture?

Bach: I think employers are 100% having those conversations. I think four years is a fairly good data set by which to judge “is this going to become an entrenched culture in my office?” A lot of Portland employers are figuring out their hybrid schedules, whether it’s three days in the office, two days out, has been a nice mesh for a lot of folks. That’s the PBJ schedule.

And yet, there are also calls for more employers to come into downtown specifically, if we’re talking about it. Portland Mayor Ted Wheeler has continually hit the drum, “we need to get more folks downtown, we need to get more employers downtown.” Because again, economic development 101, the more feet you have on the street, the more restaurants are frequented, the more retailers are frequented, the more you have that sort of ripple effect.

Miller: There’s always been this chicken and egg thing, the more people would want to be there. But when the mayor has said that, or others, and this is one of the lines from the Central City Task Force recommendations, it always made me wonder where is the teeth in this? The mayor can’t force the head of a bank to force their employees to come in. It just seems like there’s a disconnect here between local leaders’ desires, or maybe even CEO’s desires, and their employees’ desires.

Bach: I don’t know about teeth. I think they’ve definitely tried carrots, right? There was a business incentive tax credit, I’m probably butchering the name, that the city installed last year for employers. I don’t remember the specifics so forgive me, but thematically it’s important because the city is trying to incentivize if you sign a lease for X amount of time and it’s downtown and you have your employees here for X number of days, then we will give you a break on your business tax. So they’re trying the incentive approach. I don’t know that there’s any teeth because as you rightfully point out, government can’t step in and force the CEO of a bank to push their employees through the door.

Miller: I suppose then where we’re left is it would be up for the employers to do some version of incentives for their employees. We’ll buy you free lunch if you come in at least four times a week or something.

A related issue to this that we’ve talked about on our show in the past is the push, in the age of less office space being used as office space, to retrofit some of that into residential space. And the city and the state, they’ve talked about making that easier in some ways, waiving some charges because it can be very expensive. But is this actually happening?

Bach: Not to the degree that proponents of the idea would want to see in Portland, no.

Miller: You mentioned Katie Mangle, a principal at Alta Planning and Design, as one of the companies that has moved to downtown. They had been based in the Central Eastside, and just a couple of months ago they moved their headquarters to downtown Portland. So why did they make that move?

Bach: Alta Planning, it’s a sustainable transportation company. They’re founded in 1996. And they are actually quite large. They now have offices in the US and Canada. Katie had told me that the company didn’t consider moving its headquarters out of Portland where it has about 60 employees. But they did move from the Central Eastside - they were on Southeast Grand Avenue - over to One Main Place on 101 Southwest Main. And that’s a really vibrant quarter right now, I would say. I work downtown, our office is right by Nordstrom. But when I’m in the office, I walk probably a mile just around downtown just because A) it’s great for a real estate reporter to drum up ideas for stories; B) I just get really antsy in the office, and so I like to walk around.

Miller: Work from foot.

Bach: Work from foot, exactly. I’m gonna tell my boss that.

I go on to 2nd quite a lot, and it’s a really cool corner right now, you could say, relative to other pockets around downtown. You’ve got things like 40 LBS Coffee, you’ve got Elephants right there, you’ve got a stretch of restaurants, you’ve got Luc Lac. And you’ve got all these employers that are concentrated there. And you do see quite a lot of folks like on the street, it’s the classic Jane Jacobs “Eyes on the Street.” And I think that was one of the things that Katie and Alta really were drawn to about that specific corner. In fact, she talked about TriMet’s large presence. They have a presence in the building, they took 95,000 square feet inside One Main Place for their administrative offices. And they got what they described as “a heck of a deal.”

Miller: You know, it’s interesting, one thing that stands out to me, in the quotes from her in your article, but also what you’re saying from your own experience, is that we can talk about the central city broadly, which is actually a very large geographic area. It spans both sides of the river. We could talk about downtown, which I think for a lot of Portlanders it’s a more concentrated area, but it’s still parts of Northwest and Southwest Portland. But the experience of so many people, it’s down to your block, your immediate neighbors, maybe a one or two block area. It’s much smaller, what people I think are basing their decisions on and their experience of a place.

Bach: 100%. It’s very curious, and I think a lot of people have probably had a similar experience, you’ve probably had the same experience. I think downtown changes one block to the next sometimes, where you’ve just got a lot of empty storefronts, and then it seems like there’s a lot of activity, a lot of folks out on the street or whatever you want to say. It is down to that almost like block-by-block level.

Miller: Let’s turn to the retail questions. You talked to two different retailers for this recent article. One of them is a man named Marcus Harvey, the founder of a company called Portland Gear, a Portland branded clothing and apparel, hat and backpack store. They recently opened a new flagship store downtown. Why?

Bach: So Marcus was another person who did not want to move out of Portland. He was very adamant. “Our brand is in the name. It’s not Lake Oswego Gear, it’s Portland Gear.” So he was really excited about this new spot over on Southwest 10th. And it’s a really nice spot, it’s the former Cleaners building, a lot of folks are familiar with it. It’s sort of the same building as the Ace Hotel. And as he told me, he still believes Portland is this vibrant, fun, energetic city.

Again, speaking thematically, whether you’re talking about Marcus Harvey, or you’re talking about Stephen Lean, who’s the owner of underU4men on Southwest Washington near the Block 216 building - which houses the new Ritz Carlton - a lot of these folks in real estate, even Vanessa Sturgeon, the real estate developer whom we were talking about earlier, real estate is a long-term game. A lot of these folks are making years-long decisions when they either sign a lease as a tenant, or sign a lease with a tenant. And so they’re betting on Portland coming back. They understand that Portland is in a trough right now. I think that’s widely acknowledged. But they also believe that Portland is going to rise out of that. And it’s going to look like a different city, I think. But I think they have a lot of faith that the city will bounce out of that trough.

Miller: What [have] the various folks that you’ve talked to recently said about the current leadership of the city or the state? It’s a particularly vital question now, given the recent recommendations by the Central City Task Force and the possibility that those recommendations will be implemented or not.

Bach: So when you talk about city or state leadership, or government leadership, and you’re talking to small business owners, business owners, it really runs the gamut. Some are very excited, for instance, about the recommendations from Governor Tina Kotek’s Central City Task Force. Those run from, for example, putting a pause on new taxes for three years, to banning the use of hard drugs in public, to expanding homeless shelter capacity. Banning the use of hard drugs in public will probably become a very contentious topic in 2024, as it’s probably hashed out in the legislature.

We did a story where we talked to a bunch of small business owners and how they were affected by these ice storms. And one guy that I talked to is the co-owner of a jewelry business. And he was just so frustrated with what he felt like was the shortage of support from local leadership when it comes to small business assistance. There was this certain numbness in his voice that you could tell wasn’t completely from the cold. He was really, really wanting more help from the local government, and he felt like it wasn’t always there. And this isn’t just the ice storms. I think it was more cumulative than that from the past four years. But his businesses had to close. He’s pretty sure that the storm is gonna wipe out his profits from December. It’s not a monolithic response when you talk to these business owners about government response.

Miller: Jonathan, thanks very much.

Bach: Thanks so much.

Miller: Jonathan Bach is a real estate and finance reporter for the Portland Business Journal.

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