Back to Business: The Office Market is Reclaiming its Space

By Nate Stevens | Managing Partner, Designated Broker

One thing I love about walking through downtown Portland on any given day is that I regularly run into people I know from various parts of my life. Sometimes it’s just a wave, sometimes they ask how the family is doing. But more times than not, we talk real estate. Over the last few years, these encounters have included concerned looks before asking, “How’s commercial real estate doing?”

The complexity of this question requires a more detailed response than a couple of sentences while passing through Monument Square, however the one point I make sure to stress is:

It’s better than you might think here in Maine.

Or at least better than what the national news might tell you.

This especially holds true with our quaint city of Portland, and really Southern Maine as a whole. Of course there are challenges with interest rate uncertainties (although this seems to be trending in the right direction), and construction costs continue to be higher than developers and landlords would like (also trending downward). Yes, large scale capital market transactions—$15mm+ investment sales—have come to an almost complete stop over the last 12 months, but this is only one aspect of commercial real estate.

The market for retail, industrial, multifamily, and office buildings remains strong on both the sales and leasing fronts.

Yes, even office space.

The office market in Portland, Maine is alive and healthy, despite the element of surprise I hear during my discussions with casual encounters around the city.

One may think any national trend is prevalent in Maine because they read in the news that the national office vacancy rate hit 19.4% last month, with large commercial hubs such as Austin, San Francisco, and Atlanta pushing into the mid 20% range. Another recent news story claimed that an office building in San Francisco, previously valued at $200mm, is now worthless. And while these national trends do impact our small community to some degree, the Greater Portland area has always been somewhat insulated against market swings in larger metropolitan areas.

Maine does not experience the highest of the highs, or the lowest of the lows, especially in the office market. Developers in Maine do not overbuild in the good times, so we don’t have to deal with an oversupply in the bad times. They deliver the necessary supply to meet demand. This does not mean we are invincible against market fluctuations that are affecting the entire country; we’re just not hit with the extreme peaks and valleys that many larger metropolitan areas experience. The office vacancy rate in Greater Portland is higher than it was pre-COVID, especially in certain submarkets around the Maine Mall which is where the largest vacancies reside. This is mainly due to large national and international companies pulling back around the globe.

Some companies that have downsized or eliminated their office space in our market over the past few years include:

• CIEE
• RGA/Salt
• Anthem
• Reliance Life
• Emburse
• TD Bank
• UNUM
• Hartford Insurance
• Prudential
• WEX
• FullscopeRMS
• Covetrus

For the most part, the companies listed above very much have a Portland presence. However, they have been able to right size their office footprint to accommodate employees who work from home, or they’ve gone to a work from home model entirely and eliminated their office space. In other words, jobs aren’t being lost. Just changed.

More promising is the demand level for office space, which is the highest I (and many of my colleagues) have experienced since 2018. Demand from companies looking to purchase and occupy their office buildings has remained strong, despite the interest rate turmoil over the past year coupled with sale prices increasing over the last couple years. With rates dropping, this rise in demand is likely to continue for the foreseeable future.

On the leasing side, demand fell off a cliff in 2020 and was slow to make a comeback. But over the last 12 months, the sheer number of transactions has increased along with the number of tenants in the market for new space. This may not mean a quick drop in vacancy rates but certainly bodes well for the future of the office market here in Greater Portland.

Here are some office leases signed in 2024 over 5,000 SF in our market, separated by downtown Portland and the suburbs.

Portland

Suburbs of Greater Portland

At The Boulos Company, we’ll begin work towards the end of the year on our annual Market Outlook with a deep dive into the office market, where we can present the data and trends shaping the market for 2025. For now, we feel we can confidently say things are moving in the right direction.