Commercial real estate vacancies last year in Greater Portland saw the largest annual rise in the past 23 years, according to a report released Wednesday by the Boulos Co., a Portland-based real estate firm.
Employers in Greater Portland are reevaluating when and even whether to bring employees back to the office during the coronavirus pandemic. Many are decreasing or subleasing space. The higher vacancy rate is in stark contrast to pandemic-fueled record-high home purchases, with out-of-staters seeking a safe location and areas like South Portland in such high demand that it’s almost impossible to buy a home.
The total office vacancy rate in Greater Portland increased to 8.77 percent in 2020 from 6.66 percent in 2019. That includes subleased space, which increased more than five-fold to 212,276 square feet in 2020. Greater Portland includes Portland, Westbrook, South Portland, the Maine Mall area, Scarborough and the Falmouth-Cumberland-Yarmouth area.
Downtown Portland saw the largest office vacancy rate increase, more than doubling to 11.77 percent over the last 12 months. The pandemic also dampened new construction, and a couple new construction projects that were in lease negotiations were stalled in 2020, Nate Stevens, a Boulos broker and partner, said. Most of the suburban areas saw fewer vacancies.
“It could be 12-24 months before any new leases are signed to spur significant ground-up development, depending on how the market rebounds from the sharp increase in vacancy rates,” Stevens said.
Many tenants are notifying landlords that they would give up their lease if a new tenant wants it. These “gray spaces” are not formally listed for sublease, John Finegan, an associate at Boulos, said, but they are expected to become a significant factor in leasing this year. That space is counted in the 212,276 square feet of space listed for sublease in Greater Portland.
Despite the vacancies, another Boulos survey indicated 61 percent of potential buyers want a discount but only 9 percent of sellers are willing to lower the price on properties. So far, the number of distressed sales has been limited, according to Boulos. One bright spot is medical office space, which saw strong demand and low vacancies.
Another trend Boulos spotted in its report is an increase in drive-thru and curbside service among retailers, which have been hit hard by pandemic closures and other restrictions alongside hotels and restaurants. Those low-contact options for shoppers are likely to continue and to expand, according to Joseph Italiaander, a Boulos associate.
There are about 20 potential restaurant locations for sale or lease in Portland, the highest amount at one time on record, Italiaander said. At the same time, drive-thru quick-serve restaurants including Dunkin’, KFC, Taco Bell, Chipotle Mexican Grill, McDonald’s and Burger King were quick to close most or all indoor dining and have seen a sharp uptick in sales, with visits up 26 percent on average nationally. Other types of retailers also have stepped up curbside service.
“What started as a change out of necessity I predict will become a long-term staple of retail based on convenience,” Italiaander said.