Two words – “For Lease” – jump out at almost every turn in Portland.
Whether it’s a single storefront or an entire floor in a high-profile office building, it seems impossible to look anywhere in the city and not see signs of a shrinking workforce.
But while ominous signs are still there – like 40,000 square feet being vacated by the accounting firm BerryDunn after several decades on Middle Street – people in the real estate industry think Portland is primed for a comparatively stronger rebound from pandemic-related struggles than other cities.
Nate Stevens, a partner at The Boulos Co., said although the industrial sector has “never been busier,” and “the demand level is through the roof,” commercial properties like restaurants and office spaces have struggled and hit “historically low” levels.
“It’s clear the market activity is down,” he said.
Boulos just completed an annual office market survey. Topher Stephenson, the company’s vice president of operations and marketing, said an overwhelming majority of survey respondents – 70 percent – said their companies have no plans to reduce or change their office footprints because of the pandemic.
While that suggests there won’t be a mass exodus from offices, he also said most respondents to the survey reported at least some of their staff would work from home permanently. He said about 38 percent of respondents said they planned to have their workforce fully back by the third quarter of the year, but more than half expressed uncertainty.
“A key takeaway here is that workplace reentry is nuanced and the steps businesses will need to take to get back to the workplace will vary across companies and industries,” Stephenson said.
While the number of properties for lease has increased, Stevens said it doesn’t appear most property owners are in a panic to fill those spaces. Throughout the pandemic, he said, landlords haven’t been slashing rents dramatically.
“The general feeling is there is optimism with the vaccine rolling out, and with retail and restaurants getting back to near capacity,” Stevens said.
He said restaurants especially will likely begin filling up as they try to catch the 2021 summer after effectively missing the 2020 season.
Office space will be more difficult to fill in the immediate future, Stevens estimated, as remote working continues and the workforce that does return needs to maintain social distance.
“There’s still a lot of uncertainty of what’s going to happen,” he said.
In the industrial sector, however, he said many companies have been working throughout the pandemic. Some even experienced growth and had to find more space.
Drew Sigfridson, managing director at Boulos, said overall there isn’t a huge inventory of available office space in Portland, but what is available must be adaptable to meet any needs. Walking around a former TD Bank office at 1 Portland Square, Sigfridson said the 21,000 square feet of space could be partitioned to accommodate more than one business.
Sigfridson and Stephenson said the need for office space will likely increase after the pandemic has ended because workers find they are less productive outside of an office setting. While every person’s ability to be productive at home is different, Sigfridson said their survey revealed about 80 percent of respondents didn’t feel more productive working from home. He said while there are also distractions in an office setting, a sense of teamwork and collaboration provided by an office can lead to greater productivity.
“A sentiment we’ve picked up on from business decision-makers is that they are looking forward to getting back to normal, but determining when and how they’ll get there is a complex process with many variables to consider,” Stephenson said. “Not just the state of the pandemic, but the layout of their space, the preferences of their employees, their plans for growth, and more.”
Sam LeGeyt, an associate broker at NAI The Dunham Group, said one of the bigger takeaways when looking at the market for office space is that more people are being cautious. The previous business lease term was usually around five to seven years, but he said now it’s getting closer to three, with property owners willing to take on shorter terms to attract tenants during the pandemic.
“The leasing demand has been drastically changed,” he said.
Although LeGeyt specializes in industrial real estate, he said Dunham has seen the trends change in commercial and retail properties. He said it’s obvious some businesses just couldn’t survive, which has accounted for more vacancies than usual.
However, he said once things start to get back to normal, the market should regain equilibrium.
“I think things will certainly normalize,” he said. “I’m optimistic about the region in general.”
He said a good sign is that the residential real estate market has been incredibly hot during the pandemic, with homes selling quickly and often to buyers from out of state.
“Those people will want to go out to eat and find places to shop downtown when we get to some sort of normalcy,” LeGeyt said.
He said there would be more valuable data on real estate trends in the coming weeks, with the Maine Real Estate and Development Association scheduled to hold its annual forecast conference on Jan. 21. But he said it’s still too early to know whether the pandemic will have a permanent impact on businesses scaling back their office space needs in favor of having the workforce work remotely.
“At least in our market here it’s too early to tell what that’s going to look like, people haven’t made those decisions yet,” LeGeyt said.
He said there’s also a portion of the workforce that hasn’t benefited from having employees work remotely, and is just getting by, with people excited about returning to an office setting.
At The Boulos Co., meanwhile, Stevens said in general Maine wasn’t hit as hard as other states by the pandemic, and Portland is in better shape than larger metropolitan areas.
For example, he said he has a New York City-based client that doesn’t anticipate sending its workforce back to their offices for at least the first half of 2021. But that same company has a field office, and 80 percent of that workforce has already returned.
Overall, he said, companies still seem to be split fairly evenly between those whose employees go to an office and those who work from home. Plus, he said there’s a third category of people who divide their time between working in an office and at home.
Portland also benefits from its size, Stevens said.
In larger cities, he said it hasn’t been uncommon for large companies to buy out their lease leases during the pandemic. But in a survey Dunham did of local office occupiers, he said, there is an overall commitment by management to get their workers back into a physical office setting with no intention of reducing their square footage this year.
He also said Portland doesn’t have some of the hurdles a larger city would have, such as its workforce depending on public transit to get to work.
“It’s about camaraderie, it’s about teamwork, and it’s about loyalty,” Stevens said. “There’s definitely a commitment for everyone this year to get people back into the office.”