Commercial Street saw “quite a bit of activity” on the real estate front despite the pandemic, according to Malone Commercial Brokers. Michael Kelley / The Forecaster

PORTLAND — The greater Portland commercial real estate market has taken a hit from the pandemic, with retail space and office space taking the biggest blows, according to new reports.

Retail vacancy rates in Portland, South Portland, Scarborough, Cape Elizabeth, Westbrook and Falmouth rose from 3.13% in 2019 to 4.04% in 2020 and could rise higher this year, according to a Malone Commercial Brokers analysis.

Office space vacancies went down outside of downtown Portland, but, according to The Boulos Company, more than 167,000 square feet of space is still available, including at Stroudwater Crossing on outer Congress Street. Michael Kelley / The Forecaster

Office space vacancies rose to 8.7% in 2020, up from 6.7% last year, The Boulos Company says. Downtown Portland saw the biggest increase in office vacancies, but overall, Boulos says, the market fared better than expected.

The market for industrial space, meanwhile, “proved resilient,” and is projected to remain strong, according to The Dunham Group.

For retailers, last year “was a challenge in all respects due to the COVID-19 pandemic shutdown in March and subsequent phased re-openings that began during the summer months in Maine. As expected, vacancy rates increased as some retail businesses failed and closed,” Malone partner and associate broker Peter Harrington said his Greater Portland Retail Forecast, which he recently presented at the Maine Real Estate and Development Association’s 2021 Virtual Forecast Conference.

“Retailers throughout Southern Maine appear to be in jeopardy and are attempting to stay afloat in the coming months (and) 2021 could see a larger rise in the retail vacancy rate,” Harrington’s report said. “We can expect the challenge and impact of the COVID-19 pandemic to be felt in the retail industry for months to come.”

But there were some bright spots, notably Commercial Street, where, Harrington said, there was still “quite a bit of activity,” including Sea Bags taking over the former Company C space, Chilton Furniture opening a showroom and Mexicali Blues relocating there.

Elsewhere, Bobbles & Lace and Kate Nelligan/Local Color entered the Portland market, Uncommon Paws moved to Exchange Street and several new restaurants, including Broken Arrow, Tacos y Taquila, SoPo Seafood and Cafe Louis opened in the greater Portland area.

While last year saw businesses and consumers rely more on online ordering, Harrington expects brick and mortar stores eventually will “rally.” He also cited the evolution of Rock Row in Westbrook and the recreational marijuana industry in Portland as positives on the retail space scene.

The commercial real estate scene, as expected, saw more vacancies at the end of 2020 than the beginning, especially in downtown Portland. According to the Boulos Company’s review of more than 12 million square feet of office space in greater Portland for 2020, the vacancy rate in greater Portland was 8.7%, a climb from 6.7% last year, 4.2% in 2018 and 4.6% in 2017. The hardest hit area was downtown Portland, where the commercial vacancy rate rose from 4.14% in 2019 to 9.92%, resulting in more than 250,000 square feet of vacant space.

While vacancies downtown climbed, vacancies in other parts of Portland went down by 77,000 square feet. Vacancies in the surrounding area, including Cumberland, Falmouth, Westbrook, Scarborough, South Portland and the Maine Mall area, were reduced by nearly 155,000 square feet. The largest drop in vacancy rates were seen in the Falmouth/Cumberland/Yarmouth area (7% vacancy in 2019 versus 2.5% in 2020. The Maine Mall area, buoyed by Jordan’s Furniture coming to the mall and Planet Fitness moving into Mallside Plaza, saw its vacancy rate reduced from 10.9% to 9.5%. Vacancy rates shifted roughly a percentage point down in the Scarborough/South Portland area and up in Westbrook.

“In December 2019, as we were preparing our commercial real estate forecast for the year ahead, we never could have predicted 2020,” Drew Sigfridson, Boulos managing director and partner wrote in “2021 Greater Portland Market Outlook,” a 38-page document released last week that looked at market trends, vacancy rates, areas of economic opportunity and other items related to the area’s commercial real estate scene.

“As we look back on a year in which our country was under siege by COVID-19, we also endured unparalleled political tension and bitter partisanship, social unrest due to economic and racial inequities, and major upheaval from a global recession that directly impacted our governments, small and large businesses, and many of our friends and neighbors,” Sigfridson wrote.

Overall, though, the commercial office market fared better than Boulos expected it to in a pandemic, said Christopher Stephenson, vice president of operations and marketing.

“Back in March when the pandemic hit and everyone was pressing pause on office lease decisions, you probably would assume the vacancy rate would be impacted, but when we collected the data we were expecting the vacancy rate to uptick more than it did,” Stevenson said.

Because of this, Sigfridson said the firm is “looking to 2021 with cautious optimism and a bit of trepidation.”

The 2020 market for industrial space, meanwhile, “proved resilient in spite of the great challenges we all faced,” said Justin Lamontagne, a partner and designated broker for The Dunham Group.

“In fact, the sector projects stronger than ever largely because of the challenges the pandemic has wrought,” he wrote in the firm’s 2021 Greater Portland Industrial Market Outlook. “Demand remained steady throughout the year from a variety of industrial end-users, many growing in direct response to pandemic-related conditions. This included manufacturers on-shoring jobs, distribution companies shipping direct to our quarantined doors, warehousing of personal protective equipment and supplies and, most newsworthy, life science companies working on Covid-related testing and treatment supplies.”

Westbrook and Scarborough, he noted, will remain strong industrial markets, as will Gorham, which had no vacancy among its 1.3 million square feet of industrial space in 56 buildings.

“I think it is irresponsible to simply say that the industrial market is immune from all the negative effects of COVID-19. There very well may be impacts coming that we have not even considered nor imagined,” he said. “That said, all the economic indicators we track suggest a vibrant year.”

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