Downtown Portland, ME, Office Market Q2 2025: Vacancy Rises Amidst Strategic Repositioning

Colliers

Portland’s downtown office market recorded a vacancy rate of 12.6% in the second quarter of 2025, representing a 2.3 percentage point increase year-over-year. The market posted negative absorption of 166,800 SF through the first half of 2025, with the majority concentrated in Class B inventory. The quarter’s most significant vacancy impact came from Diversified, a marketing firm that vacated over 50,000 SF at 121 Free Street as part of a downsizing initiative. While this marks continued softening in the market, the data reveals a more complex story of tenant consolidation and asset repositioning that distinguishes Portland from broader regional trends.

The market’s performance reflects ongoing structural shifts in office demand, with leasing activity concentrated in smaller blocks and renewal transactions. Despite elevated vacancy levels, Class A properties demonstrated resilience, posting the only segment decline at 12.1% vacancy, down 0.7% from the prior year. This flight-to-quality trend suggests tenant preference for modern, amenitized space over cost considerations alone.

Leasing Activity & Market Dynamics

Second quarter leasing activity encompassed both direct leases and renewals across property classes. One notable transaction is the 24,185 SF lease at 1 Portland Square by R.M. Davis. The well-established private wealth management firm outgrew its space at 24 City Center after having a handful of new hires last year, relocating to its new Class A space.

However, the majority of activity centered on transaction of 5,000 SF or less and tenant retention, including renewals by Eaton Peabody PA , staying in 5,500 SF at 100 Middle Street,  and Wedgewood Pharmacy remaining in 4,320 SF at 2 Union Street.

New leases included ProfoInfoNet opening a second office in 4,715 SF at 2 Monument Square and Legal-Ease LLC PA’s 4,130 SF lease at 2 City Center. This transaction pattern indicates measured tenant expansion strategies focused on high-quality, centrally located inventory.

Average asking rents declined 1.0% ($0.22 PSF) year-over-year, with decreases spanning both direct and sublease categories. Landlords are responding to market conditions through enhanced concession packages, including extended free rent periods and increased tenant improvement allowances. These adjustments reflect owners’ focus on retention and competitive positioning.

Asset Repositioning & Development Pipeline

Property owners are pursuing strategic repositioning initiatives to address changing market fundamentals. East Brown Cow’s proposed transformation of Canal Plaza into Old Port Square represents the most significant planned development, incorporating retail conversion, improved pedestrian connectivity, and two proposed 30-story residential and hospitality towers.

One Canal Plaza (now known as 200 Middle Street) is undergoing renovations, converting the former office space into retail, upgrading the lobby, and keeping the upper floors as Class A office. Additional projects at 178 and 184 Middle Street will feature ground-floor retail and short-term residential components under The Docent’s Collection hospitality brand, with completion scheduled for third quarter of 2025.

The Time & Temperature Building redevelopment continues, with MaineHousing’s $2.6 million commitment supporting 41 senior housing units in the annex. The project includes potential hotel and market-rate residential components, though, the timeline remains subject to Portland’s hotel development moratorium.

Regulatory Environment & Market Factors

Portland’s regulatory environment presents mixed influences on development activity. The city’s hotel development moratorium, extended in May 2025 for an additional six months through November 2025, continues to impact mixed-use project timelines. While some projects like the 23,724 SF Class B development at 215 Commercial Street received pre-moratorium approvals and remain under construction, others including the Time & Temperature and Old Port Square developments face potential delays pending year-end policy decisions.

The proposed commercial vacancy ordinance presents additional considerations for property owners. The measure would establish a 90-day window for landlords to fill vacant storefronts before potential sanctions, though industry feedback has highlighted concerns about practical implementation timelines and liability implications for temporary use requirements.

Commercial real estate brokers have raised concerns that the ordinance may work against the city’s broader goals. “This policy feels counterintuitive to what the city is truly trying to achieve,” said Mike Cobb, Managing Director of Colliers Maine, who attended the Planning Board meeting where the ordinance was discussed. “Landlords want to fill these spaces – they’re not generating income on vacant units. If this moves forward, they’ll essentially be penalized for something they’re already motivated to resolve. Instead, the city could help reduce vacancy by revisiting zoning rules to allow more flexibility for new businesses downtown.”

Market Outlook

Portland’s office market is starting to stabilize thanks to a mix of building upgrades, demand for quality space, and the removal of outdated properties. Vacancy is still high and rents are under pressure, but Portland stands out from other New England cities by focusing on strategic redevelopment.

The second half of 2025 will be important to watch, as leasing activity and progress on redevelopment projects will show where the market is headed.

Original article published July 29, 2025, https://www.colliers.com/en/research/maine/2025-q2-downtown-portland-office-market?utm_source=Direct&utm_medium=Eblast&utm_campaign=July+Trends

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