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Downtown Portland鈥檚 office market continues to see a large stock of vacancies, while the area鈥檚 suburban market has become one of the busiest in the U.S.

The pandemic hangover is still affecting downtown, where hundreds of thousands of square feet have arrived since remote work became commonplace.

Still, analysts are seeing 鈥済reen shoots鈥� in the urban market, according to JLL. Activity is being driven by the expiration of short-term leases signed during the pandemic.

鈥淚 think we鈥檙e going to bounce here for probably two quarters, and then we鈥檙e going to start having improvement,鈥� said Patricia Raicht, head of research for the U.S. West at JLL. 鈥淭he tenants in the market that we鈥檙e tracking 鈥� two million-plus square feet of tenants in the market 鈥� there is basically a bubble of leases rolling because during the pandemic a bunch of people did short-term leases.鈥�

U.S. office space averaged a 21.9 percent vacancy rate across major markets. Portland fared better than most, at 19.9 percent vacancy. Denver muddled through with a 24.1 percent total vacancy rate. Minneapolis-St. Paul was slightly worse than average with 22.3 percent vacancy.

Denver saw a steep rise in vacancy, with net absorption for the quarter at a 662,370-square-foot loss.

鈥淲ith large occupiers, including Arrow Electronics, Starz and Wells Fargo, all shedding large blocks of space, absorption measured deeply negative 鈥� particularly in the Southeast suburban submarket and across the east side of the (central business district),鈥� JLL stated.

In Portland, JLL鈥檚 data shows the urban office market had yet to hit bottom during the first quarter. Absorption fell by 460,000 square feet, and rents for class-A office slid by 6.4 percent to $37.49 per square foot.

Much of the weakness lies in less-desirable class-B and class-C office space that is typically in older buildings. Those categories accounted for 80 percent of office space returning to the market, JLL stated.

Kidder Mathews, in its quarterly report, stated current market conditions are likely to continue.

鈥淭he present office market favors tenants, with expectations of ongoing downward pressure on rates, rising concessions and tenant improvements, and extended periods of vacancy for leasing space anticipated throughout the year,鈥� the brokerage鈥檚 research group said.

Lease signings are likely to pick up, Raicht said.

鈥淭here鈥檚 going to be a bunch of lease expiration activity,鈥� she said. 鈥淣ow that we鈥檙e somewhat settled into whatever this new normal is, folks are willing and able to make decisions about the future.鈥�

Some of Portland鈥檚 largest buildings, such as the U.S. Bancorp Tower and the Wells Fargo Center are 鈥渟truggling to maintain occupancy,鈥� Raicht said. There have been positive signs, however, including Portland firm LegitScript signing a lease in the Unico Properties-owned U.S. Bancorp Tower, known as 鈥淏ig Pink.鈥�

New, class-A buildings including Block 216 and 11 West in downtown Portland still have vacancies. But there have been some move-ins. At 11 West, JGP Wealth Management moved in on Monday, occupying 6,200 square feet. Law firm Miller Nash LLP took 32,000 square feet at 11W earlier this spring.

鈥淭hings in the Portland office market, I think they鈥檙e getting better, not worse,鈥� said Matthew Goodman, vice president of Downtown Development Group. 鈥淚n our portfolio, we鈥檙e definitely seeing more activity than we saw a couple of years ago.鈥�

It鈥檚 not just new buildings. Downtown Development Group鈥檚 downtown Kress Building has found new tenants including Carleton Hart Architecture and Cascade Energy Inc.

Some tenants are taking advantage of plentiful vacancies and reduced rents.

鈥淚t鈥檚 an opportunity for them to lock in a degree of value and upgrade their space, and we鈥檙e seeing that across our portfolio,鈥� Goodman said.

Goodman attributed the uptick in downtown activity to a safer streetscape after the area鈥檚 issues with public homelessness and drug use grew to a crisis, and an improved retail environment.

鈥淭he office market depends on what鈥檚 happening at the ground level, from a streetscape and safety perspective, but also a dynamic and retail perspective, and I think that鈥檚 getting better on all fronts,鈥� he said.

In another positive sign, some office users have been pulling advertised sublease space off the market. Daimler Truck North America recently withdrew 100,000 square feet of sublease space with the intention of reoccupying it, Raicht said.

Other companies have downsized and then reversed course. Deloitte, the consulting giant, vacated 20,000 square feet at Big Pink to take up 11,000 square feet at M Financial Plaza. The company later added another 13,000 square feet in the Brewery Blocks.

JLL鈥檚 data showed a stark divide between the Portland-metro area鈥檚 urban and suburban markets. Suburban office space in the area had only a 13 percent vacancy rate, second-best in the U.S., behind only San Diego.

Raicht attributed the divide in part to construction trends, as well as urban-to-suburban relocations.

鈥淎ll of the construction that we had was in the urban core,鈥� she said. 鈥淭here鈥檚 basically been almost no construction in the suburbs. So, when market demand slowed, we had a lot of inventory (in the city).鈥�