Shifts in Portland’s Retail Leasing Landscape Take Form As Year Winds Down

Proportion of Service Sector Deals Dwindles, While Retail Trade Deals Increase

Retail trade sector leasing is on the rise in Portland, according to CoStar lease data.
Retail trade sector leasing is on the rise in Portland, according to CoStar lease data.

Retail trade leasing in Portland, Oregon, has regained an outsized market share once again, with the sector now accounting for approximately 85% of leasing volume thus far in 2023.

The largest prospective retail tenants are now primarily mid- and large-box retailers and are less concentrated in gyms, restaurants and others in the service sector. In 2022, following shifts in consumer spending that were driving purchases away from physical goods, service sector deals had risen dramatically to account for around 25% of leasing deal volume. This trend, however, has reversed course again.

CoStar tracks and allocates the percentage of retail leasing volume on a square-foot basis that is attributable to different sectors. This year, service sector signings have accounted for just 8% of total retail volume, down 17% from a year ago. Meanwhile, retail trade sector signings increased by about 32% and wholesale trade signings have declined to account for about four-tenths of 1% of volume.

Geographically, suburban leasing is outpacing urban and downtown counterparts, accounting for around 60% of the metropolitan area volume as of the fourth quarter. Mid- and large-sized box deals have driven this trend, and despite some recent lost deals in these categories, space backfills have been relatively strong. Bed Bath & Beyond left behind around 40,000 square feet at Walker Center in North Beaverton, but the anchor space was quickly leased by REI in the third quarter, which it will reportedly occupy by early 2024.

With these factors in mind, Portland’s retail market health will likely hinge on tenant longevity and the ability of established businesses to weather any upcoming potential economic storms.

In terms of speculative incoming supply, current construction activity amounts to just under 400,000 square feet underway, for a relatively small 0.3% share of inventory. Just over 30% of this space is leased, so downside oversupply risk in the region remains minimal.

Meanwhile, move-outs, while having averaged around 770,000 square feet per quarter in 2023 thus far, are still trending well below the pandemic-era quarterly peak of over 1.1 million square feet and are in line with the 2010 to 2019 quarterly average. This has kept vacancies well below the 5% mark.