Almost two years after the coronavirus pandemic disrupted white-collar workplaces, southern Maine’s market for office real estate is frozen in place.

Just a few months ago, Nate Stevens, a commercial broker for The Boulos Company in Portland, was bullish on the market’s future. COVID-19 vaccination rates were soaring, and state authorities had dropped most pandemic-related public health restrictions.

Then there was a surge of COVID-19 cases, hospitalizations and deaths, driven by the hyper-contagious delta variant. Companies, especially large employers, that had plans to lease or build new space decided again to put those plans on hold.

“Where is the office market going to go? About nine months ago, I would have said we will all be back in the office in July, and demand is going to rebound,” Stevens said.

Instead, the market, especially for large office spaces, is in wait-and-see mode. It is a significant change from the escalating prices and ultra-low vacancy rates in the high-end Greater Portland office market two years ago.

“Between 2017 and 2019, there was a 20 percent increase in lease rates across the board,” Stevens said. “That kind of momentum stopped with COVID and has stayed flat with the pandemic.”

OFFICE UNCERTAINTY

At the end of 2019, only 8,500 square feet of high-end office space was available in downtown Portland, a vacancy rate of less than half a percent, according to a Boulos Co. analysis. The market went through a steep dive early in the pandemic, with almost 145,000 square feet of fancy downtown offices available by the end of 2020 – a vacancy rate of nearly 7 percent.

It has since stabilized, bringing the downtown vacancy rate to less than 5 percent, according to a July report from Boulos. The drop in occupancy rates was largely due to the University of Maine Law School’s move into more than 61,000 square feet in a Fore Street building, the firm noted.

Lease rates are confidential and not publicly disclosed.

But the pandemic’s disruption doesn’t necessarily mean the office market has changed permanently. As office leases – typically five to seven years – expire, or employers reach the end of their one-year lease extensions and have to make strategic decisions, Stevens believes the market will recover.

“There is uncertainty with exactly how they use the space, but a year ago it was, ‘Do we need the space at all?'” Stevens said. “Now they do need it, (but) they are uncertain about how they will use it.”

Berry Dunn, an accounting firm with about 250 employees in Portland, signed a lease in 2020 for almost 88,000 square feet in the Unum campus on Congress Street with a prominent sign above Interstate 95. So far, the space is working out as intended, as a central location for its employees to use flexibly, said Berry Dunn President and CEO Sarah Belliveau.

“We meant the headquarters to be a hub where people could gather in the ways that fit their work style,” she said. “It just happened that this goal also aligns well with the new realities brought about by the pandemic.”

Before the coronavirus struck Maine, about 20 percent of the firm’s employees worked remotely, and it ran work schedules that provided flexibility to traditional 9 a.m.-5 p.m. schedules, Belliveau said. Even with a huge office footprint in southern Maine, that approach hasn’t changed. The new space was designed to meet individual needs with high-tech amenities, up to and including fitness classes streamed for employees everywhere.

Aroma Joe’s CEO Loren Goodridge in the company’s newly leased office space in South Portland. Derek Davis/Staff Photographer

“Our offices are open, with employees coming in or working from home as best suits their situation right now,” Belliveau said. “We recognize that child care, elder care and other facets of life are in some flux, so we are taking a flexible approach.”

SIZE VS. AGILITY

Smaller companies also have moved into reconfigured office space and adopted hybrid schedules to accommodate remote work, which became routine during the pandemic.

Aroma Joe’s, a Maine-based drive-thru coffee shop franchise company, recently moved into more than 8,000 square feet of office space in South Portland sublet to it by a previous occupant in August.

Getting back to the office after more than a year of remote work was important for the company’s culture and work style, said CEO Loren Goodridge. Before COVID-19 hit, the company was looking to find new space for its growing workforce, and leasing temporary space was crucial as it prepares to build a new headquarters in Portland.

But returning to the office didn’t mean returning to business as usual, Goodridge said. The company’s 19 employees can work remotely on Mondays and Fridays. The office was redesigned, ditching closed-door offices for an open floor plan, meeting rooms and shared desks.

“Basically, what we wanted to build was an office space that was more open with more collaborative workspaces (that are) more conducive to a contemporary workforce,” he said.

Just as important, if not more so, was regaining the company culture lost throughout a year of video calls and physical disconnection. Aroma Joe’s regular volunteer days were suspended while everyone was working remotely, and Goodridge was concerned new employees would never connect with co-workers without a shared physical space.

“We are a growing brand – hiring new people is where I worry the most,” he said. “Are new people having water-cooler talks and getting ingrained in that company culture?”

While many large employers are still considering next steps amid an ongoing pandemic, smaller companies can make quicker decisions, said Sam LeGeyt, a commercial real estate broker with The Dunham Group in Portland.

“It is still kind of ever-changing,”LeGeyt said. “What we see is the bigger companies are kicking the can down the road and haven’t made a decision about what the future looks like.”

The fact is, most of the office space leased in the southern Maine market is 3,000 square feet or less, and that sector is still strong, he said. Plus, right now companies and organizations looking for new space can get better lease terms than a few years ago, he added.

“It is definitely a great time (for commercial tenants),” LeGeyt said. “Landlords are trying to win deals with free rent or improvements instead of shaving off the square-foot price.”

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