PORTLAND — Is the need for space in the city shifting from residential to commercial?

The 2017 Greater Portland Market Outlook released by CBRE/The Boulos Co. on Jan. 18 said 2016 vacancies for residential rentals and commercial space are headed in opposite directions, although both remain historically low.

“Our Class A downtown market in Portland continues to be especially tight, with very few large office moves happening in 2016,” Managing Director Drew Sigfridson said in the report’s introduction.

According to the report, the vacancy rate for Class A office space on the city peninsula is 2.6 percent. The Class A designation is for newer buildings offering a wider array of amenities to tenants.

“Interestingly, this is not due to large leases, but smaller to medium sized transactions as availability in this market is sparse,” Associate Broker Nate Stevens summarized in the report.

The Class A vacancy rate for 2015 was 4.52 percent. Class B commercial space vacancy rates decreased slightly, from 10.28 percent to 9.95 percent. Stevens said the bulk of vacancies for Class B space can be found in the Congress Street and Monument Square area, while Old Port spaces remain mostly occupied.

Stevens also reported regional demand for medical office space remained high, with a 2.8 percent vacancy rate reported.

The demand for office space could cause a boom in construction, as Stevens noted the 55,000-square-foot office building under construction at 16 Middle St. already has commitments for half the space.

The Boulos report also looks to construction of a 50,000-square-foot office building at the Intercontinental site at India and Fore streets, and future development at Thompson’s Point to alleviate demand for premium commercial space.

Partner Tony McDonald noted the estimated costs of new construction could lead to lease rates of $41 per square foot, or $12 more than the city average, but innovations in open office design and environments could offset the added price by serving as a draw to potential employees.

“You’re located in that cool, new building with the collaborative work space, the in-house barista, the wellness area, and a direct path from the bike rack to the showers: your building just closed the deal for you,” McDonald summarized.

The report expects residential real estate investment to remain strong, but the addition of about 700 housing units downtown marks a 4 percent increase in the inventory of rental units, partner Joseph Porta said.

The residential vacancy rate throughout the city has increased from 3 percent to 4 percent, “with overall rents flattening and projected to stay at roughly the same levels over the next 12 months,” Porta said.

While vacancy rates may increase, the overall affordability of housing remains a worry, as Mayor Ethan Strimling has advocated increasing the required new housing units set aside for affordable guidelines from 10 percent to 20 percent.

Porta expects the city to remain desirable to renters.

“Urban living continues to be the preferred choice of millennials and is increasing in popularity among baby boomers,” Porta said.

David Harry can be reached at 781-3661 ext. 110 or dharry@theforecaster.net. Follow him on Twitter: @DavidHarry8.

Construction of a new office building at 16 Middle St., seen Jan. 23, marks the first time new Class A space has been built in Portland in a decade.

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