$66M sale of Portland commercial buildings underlines high demand for office space
Photo / Courtesy of CBRE|The Boulos Co.
Two Portland Square.
Photo / Courtesy of CBRE | The Boulos Co.
One Portland Square.
Demand for high-quality office space is high in Portland, and that couldn’t be more clear with the recently announced $66 million sale of One and Two Portland Square — a transaction that is being called one of the largest investment sales in the city’s history.
CBRE|The Boulos Co. announced on Thursday that the two downtown office and retail buildings, along with an adjacent 5-acre parking lot, were sold for a total of $66 million to New York City-based real estate development firm North River Company. The deal, which closed on April 3, was brokered by Drew Sigfridson, managing director and partner of CBRE|The Boulos Co., and a team of brokers at Boston-based Cushman & Wakefield.
The building was sold by RREEF America, a real estate investment trust company owned by Deutsche Bank. The company had owned the two buildings for nearly a decade, and it began marketing the property last fall, attracting many bids over time until the deal was closed.
The two buildings at Portland Square are 97% leased, and potential tenants are in discussions to lease the two remaining spaces — a 2,477-square-foot office suite and a 1,400-square-foot retail space — according to Sigfridson, who represented the buyer.
Existing tenants like TD Bank, Wells Fargo and Walter’s restaurant shouldn’t notice any changes under the new owner, Sigfridson told Mainebiz in a Monday phone interview. However, he said, North River is looking at the adjacent parking lot not just as a current income-generator, but as a site for future development opportunities.
Demand for office space grows
The sale of the two buildings, which amount to about 260,000 square feet in office and retail space, comes at a time when the vacancy rate for Class A office space in downtown Portland is trending below 5%, Sigfridson said. His colleague, Nate Stevens, said in a southern Maine office market forecast for the Maine Real Estate & Development Association earlier this year that the overall vacancy rate in 2014 was 7.64%, dropping for a fourth consecutive year. Stevens said he expects that vacancy rate to continue its slow decline, noting that Class A office space is making a better recovery than Class B space.
If that trend continues, Sigfridson said, it could prompt new office development in Portland.
“As there continues to be an increase in tenant demand and a lack of supply you may see a future need for class A office buildings to be built,” he said, qualifying that statement by adding that it likely won’t happen until an anchor tenant steps forward.
Sigfridson indicates that there is continuing interest.
“I get calls fairly regularly from company owners and CEOs who are adding people and increasing their head count and looking at needing future space over the next year or two,” he said. “It’s a really strong time of increasing demand.”
Tim Soley, co-owner of development firm East Brown Cow, was one of the bidders who dropped out of seeking to purchase One and Two Portland Square. East Brown Cow owns multiple downtown Portland properties, including the buildings at Canal Plaza, the recently opened Hyatt Place hotel in the Old Port and the Fore Street Garage.
Soley said in an interview with Mainebiz that he has seen the strongest demand in residential, hotel and retail space as of late. He acknowledged that there is a high demand for office space in Portland, but noted that it hasn’t prompted any significant developments recently. However, he added, it wouldn’t take much for that to change.
“Office has not seen demand for new buildings, but with occupancy being so high, it wouldn’t take much to tip that scale of development as well,” he said.
Developers eye empty lots
North River’s plans for the parking lot at One and Two Portland Square are currently not known, but the company’s stated interest in developing the lot falls in line with activity that is happening across the city, according to Justin LaMontagne, a commercial real estate broker specializing in industrial and office properties at NAI The Dunham Group.
“Part of the reason there was such interest in that opportunity is because developable property is extremely limited on [Portland’s] peninsula,” he said in an interview with Mainebiz. “Property owners and developers are being forced to be creative when there’s a lack of inventory and they do that by reusing existing properties or trying to rezone properties.”
As an example, LaMontagne pointed to a proposal by the owners of Widgery Wharf on Commercial Street to convert a small portion of its parking lot into a three-story building that would house a retail tenant on the first floor and office tenants on the second and third.
Peter Harrington, a broker at Malone Commercial Brokers representing that development, told Mainebiz in an interview that the property’s owners are seeking to make better use of that lot, and that further development on could follow. But, he added, it’s important that developers consider the parking situation when taking away spaces for development.
“It’s becoming critical that if you do put up a building, you put in some parking for the tenants,” he said, noting that parking on Commercial Street is especially tight.
Harrington said a good example of an empty lot that was turned into a successful development is Hyatt Place, which is owned by Soley’s East Brown Cow.
“It’s good use of a vacant lot and not too many parking spots were lost in the process," he said.
Like Soley and others, Sigfridson said demand is growing not just for office space, but residential and retail properties as well. When that demand reaches a certain point, he said, it will cause developers to look at developing on new land or reusing old land.
“As you see those lower vacancy rates and a stabilization and increase in rent, you’re going to get closer to the tipping point of new construction for all those uses,” he said.
This story was originally published in the Mainebiz Real Estate Insider.
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