Oregon ranks A 18th in the list of Top States for Business, getting its best grades for workforce, technology, inclusion, and quality of life. The state is also renowned for its quality infrastructure, fiscal stability, innovation potential, and business growth rates.
A recent survey examined various Pacific North West locations and assessed their potential for successful business activities, identifying Wilsonville, Hood River, Tualatin, and Newport as the top places in Oregon for entrepreneurs.
The economic base in the Beaver state has transitioned from reliance on natural resources to the service sector, developing strengths in high technology and related industries, mostly in Portland and surrounding counties.
The state is competitive in industry sectors like:
- Advanced manufacturing
- Natural resources
- Clean technology
- Software and semiconductor development
As a result, Portland, the state's most populous city, has been considered as the next big startup scene, which has prompted a revival of interest in the local commercial real estate market. In turn, this has resulted in the diversification of the market, which is now home to everything from coworking spaces to incubators, makers space, trophy offices, and campus-style office premises.
Office Market in Oregon
Office Space in Portland
Total market size is approximately 60 million square feet, with half of the office inventory being in the city's CBD. Class A offices account for nearly a quarter of all space in the metro area. There are major clusters of office buildings in Portland Central Core, Close-in Northwest, and in suburban locations like Lake Oswego and Sunset Corridor.
Looking at the most recent trends, the following highlights emerge:
- Increasing amounts of Class C space being converted to medical offices, as this move allows landlords to increase rents. There are some Class C to retail conversions too.
- Caution among investors following the announcement of government officials regarding their intention to convert downtown office buildings into residential space.
- An ongoing exodus from central Portland to suburban office locations.
- Downsizing, especially in centrally located offices.
- Low physical occupancy rates.
Overall, this market has been recently characterized by sluggish performance, even for Class A offices, which in 2022 reached average vacancy rates that exceeded 26%, compared to below 12% in the suburbs. Within the CBD, the best performing sub-markets are Lloyd District and Central Eastside. Vacancies have been increasing sharply from 2021 onward, doubling average rates from 2018.
Asking rates have experienced modest increases, and averages are close to $32 / psf. There is a wide gap in prices between urban and suburban areas, as in the latter asking rates still remain in the high $10s.
Silicon Forest, an area popular with tech startups, continues to welcome businesses relocating from other parts of the West Coast, as well as new ventures. Companies based here attracted record high levels of investment in 2018, and continue to do so at a slower pace.
Retail and Industrial Space Markets in Oregon
Retail Space in Portland
The retail market in Portland's metro area shows evidence of marked differences in performance. In suburban areas, vacancy rates can be half the central Portland average, and all projects in the development pipeline are outside the downtown area.
Average asking rates exceeded $20 / psf for the first time ever in 2022, and are expected to continue making moderate quarterly gains.
Industrial Space in Portland
Since the mid 2010s, the most notable trend that has characterized the industrial market in Portland is the dramatic tightening of the flex space sub-market. Market analysts attribute this trend to the increasing demand coming from the high-tech and advanced manufacturing sectors, clustered around the so-called Silicon Forest area.
Although this is still the case, more recently, expansion extended to other areas, such as Vancouver and Clark County, where developers targeted large amounts of vacant land and earmarked it for industrial conversion. Key occupiers here are data centers and advanced manufacturing firms, who typically look for units of 50,000+ square feet.
Dropping below 3%, average vacancy rates are lower than in 2018, and this five-year period has also brought important rent hikes from $0.70 in 2018 to nearly $1 / psf in 2022. Average rents exceed that average in Wilsonville, Northeast Portland, Sunset Corridor and Beaverton.
Tax Breaks, Business Incentives and Support
State authorities have made available a number of incentives to stimulate business growth and consolidate the local economy. Some noteworthy initiatives include:
- Oregon's Business Expansion Program, delivered in the form of cash incentives offered to non-retail companies that meet hiring and wage requirements.
- Oregon Investment Advantage, which provides 10-year taxable income exemptions to companies in qualifying counties, which meet job creation and wage criteria.
- Abatement of property taxes for businesses located in the state's 76 Enterprise Zones.
- The Rural Opportunity Initiative, which offers financial support to owners of small businesses that play a role in rural economic development.
- The Strategic Investment Program, which provides property tax relief for 15 years to companies whose activities fall under the “traded sector” definition. Projects can target rural or urban areas, and must meet investment cost criteria.
A comprehensive list of tax incentive programs can be found at the Business Oregon website.