As our long summer days begin to give way to the fall, it’s natural to exhale and reflect on where we are mid-2024 and what to look forward to as the year closes. From the ongoing challenges on the streets of Portland and in municipalities across the country to the prospect of the coming election, we take stock of where we’ve been and what lies ahead for 2025.
Room for optimism on the city’s challenges
In January of 2024, we reflected on the Central City Task Force’s recommendations for addressing Portland’s most critical issues. Fast-forward eight months. While the importance of these topics remains as high, there is noticeable progress that gives us hope for relief to the humanitarian crisis on our streets and the resulting impact on commercial property owners. In January, we lamented the seeming self-inflicted misses on graffiti removal and short- and long-term city and state tax policy. We are heartened by the coordinated efforts to remove graffiti on the gateway to the city and the rising tide of voices aiming to manage Portland’s relatively high cumulative tax rate. Most importantly of all, the “tax” we described on commercial property owners may have reached its peak, and we have reason for optimism and confidence that improved governmental coordination and action will result in a decline in the extra expenses of security, vandalism remediation, and more in our coming 2025 property budgets. Anecdotally, this also feels like the first real summer in Portland since 2019, with the anxiety of the pandemic and our associated challenges mainly in the rearview mirror and a tangible sense that the city's citizens and guests are once again enjoying the most glorious time of the year.
Local focus, national reach
On a personal level, I had the privilege of serving as the Chair of the NAI Global Leadership Board for 2024, representing our 300+ affiliate offices throughout our organization. I’m also humbled to have been asked to join the NAI Global Property Management Council of the 60 largest firms and to serve as the Vice Chair. Together, these experiences add valuable context to our local efforts to serve clients in Portland and the region. In other words, we’re not alone in these challenges. From our discussions at the national property management meeting in May in San Diego to our monthly council calls with representatives from over a dozen cities nationwide, it's clear that commercial real estate markets across the country are grappling with similar challenges. Whether in primary, secondary, or tertiary markets, communities and property owners alike are facing additional costs while striving for stability. The broad sentiment of this group of property management leaders is that the reactionary posture that had persisted post-pandemic is giving way to a more proactive and pragmatic approach to commercial real estate management. This renewed approach focuses on the fundamentals of tenant relations, preventative planning, and other key aspects essential for achieving property stabilization. Moreover, the group is bullish on the activity of multi-market property owners who are expanding their holdings and looking for property management partners who can provide both a local touch along with best-in-class tools and services.
Deals that revitalize
While looking at the big picture and identifying broad themes can give us powerful insights into how to navigate our immediate future, the tangible results in the marketplace add important specificity. As we highlighted in the spring, our team has finalized notable transactions in both suburban and urban markets and in both retail and office product types. While our brokerage teams are down 10%-20% year over year, dependent on product type, the transactions we highlighted are not anomalies and many more like them are poised to follow. For example, some recent transactions we plan to feature in the future include continued growth of both national and local quick service restaurants co-located in suburban multi-tenant retail settings, significant activity in direct-to-consumer medical services with multiple new deals and renewals in urban and suburban markets, and a notable uptick in not-for-profit office renewals and expansions primarily in the city center. Taken together, our spring theme of lease deals that are revitalizing sub-markets across the city appears to be an ongoing bright spot in contrast to the eviscerated CBD office and investment sales sectors.
Something will happen in November
Taken as a whole, as we leave the summer of 2024 and look forward to the fall, we feel a widespread sense we are on the precipice of a new normal. Regardless of your politics, we know that a presidential election will occur in November and will provide a resolution to the uncertainty of the next administration and congress. We also expect that, rather remarkably, the Federal Reserve is on track for an unlikely “soft landing” from our pandemic-induced inflation woes and it appears we have hit the peak of interest rates for the current cycle. Together with the building momentum on system-wide efforts to address our local humanitarian crisis, both locally and nationally, and appreciating the presence of lease transactions that maintain or enhance sub-markets across the city, we approach late 2024 cautiously optimistic that 2025 property budgets will predict reduced ownership costs and an increase in the ease and volume of transactions. Similarly, we hope that the enhanced energy in the city that we are feeling through the summer carries on into 2025 and beyond.
