Forget Pompeii. Is Portland the Next Detroit?

Are we fated to follow the trajectory of other once-great American cities?

(Brian Burk)

A couple of weeks ago, Mike Holzgang sat down for lunch with a client he was showing downtown Portland office space.

"There's no way in hell we're renting here," the client told Holzgang, a commercial real estate broker for Colliers.

As they entered the building Holzgang was showing, the client explained, somebody reached out from a tent on the sidewalk and tried to grab the client's ankle. That was a deal breaker.

The incident might have cost Holzgang a commission. But he remains pretty upbeat about the Portland market.

On one hand, he says he and his partners have helped seven or eight clients leave downtown since the pandemic began.

Holzgang, who's been a broker downtown for 40 years, says many clients think they'll need 20% less space post-pandemic because of remote workers. Others are concerned about the "lawlessness" of protests and riots downtown. Still others are fleeing the personal income taxes voters passed last year.

"All those factors make the decision-makers scratch their heads," Holzgang says.
But he notes that Portland office space ($35 a square foot) remains significantly cheaper than Seattle's ($50) or San Francisco's ($70), both of which saw a larger percentage of their office tenants skip town last year than did Portland (see chart, page 13).

"What's been driving the market downtown is tech companies, mostly from California," Holzgang says. "What they often do is give their teams the option of where they want to live. Portland has been and will continue to be a choice."

Doug Bean, who's also been brokering commercial property downtown for 40 years, says he thinks a lot of tenants downtown are weighing their options and waiting to see what the city looks like post-pandemic. Like Holzgang, he sees current tenants seeking short-term renewals or seeking lease terms shorter than normal.

Both men see the demand for space stronger in Portland's suburban areas—a trend that worries Bean. "Portland is the heart of the region," says Bean, who runs a brokerage firm that bears his name. "And to me, if we want to have a healthy region, we have to have a healthy heart."

CLOSED FOR BUSINESS: Downtown property owners are praying for the end of the pandemic. (Brian Burk)

The question of whether the pandemic, prolonged protests and wildfires could have permanently altered Portland's desirability is much on the minds not just of downtown property owners but those who agree with Bean that the center of the metro area's biggest city is of paramount importance.

Those worries were presented in their most provocative form by Lake Oswego economist Bill Conerly in a Jan. 28 essay for That op-ed, titled "Death of a City: The Portland Story?" compared Portland to Pompeii before the volcano erupted, and suggested that the Rose City could join a laundry list of once-great American metropolises that saw their downtown opera houses and banks turn into empty caverns as anyone who could afford to flee did.

The Pompeii comparison is hyperbolic, of course. But cities do reach tipping points, and some don't tip back. Detroit, famously. Buffalo once hosted a World's Fair. So did St. Louis. Many Rust Belt cities, from Cleveland to Baltimore, have declined in population and economic heft. Is Portland next?

John Tapogna, president of ECONorthwest, a Portland economic consulting firm, says that unlike many cities, Portland felt the impact of both wildfires and protracted protests, so things may well be worse here than in peer cities recovering from the COVID-19 pandemic.

"We have been through more than other places have, and so the road to recovery will have more challenges when we try to come out than others," Tapogna says.

He adds that the paucity of people downtown is also a function of Oregon having among the tightest COVID-19 restrictions in the nation and a largely compliant population. Tapogna notes, for instance that restaurants here suffered far more than in peer cities (see chart, here).

But Tapogna believes the region's natural capital—including Oregon's beauty and Portland's compact design—will continue to draw the newcomers who fuel the state's economy.

"Mount Hood is still out there and so are all the other natural amenities that have attracted in-migration. And the blocks downtown are small and the streets are narrow," he says. "Other cities don't have that."

Tim Duy, director of the Oregon Economic Forum at the University of Oregon, agrees with that assessment. He notes that Portland's economy is far more diverse than those in cities such as Detroit that have experienced long-term decline.

Those cities were often dependent on a single industry, relied on low-skilled workers, and were highly vulnerable to jobs moving to lower-wage parts of the world. They have, for many years, failed to attract the young, well-educated newcomers who have fueled Portland since the 1980s.

Duy notes that doomsayers ignore Portland's red-hot residential market.
Even last year, in-migration continued to be strong, and data gathered from online real estate services like Redfin and United Van Lines (see chart, page 16) shows that Portland and Oregon remain highly favored destinations for people from other states.

"The housing market is really strong," Duy says. "Millennials are aging into the homebuying years, and interest rates are low."

Tapogna warns there are still plenty of reasons to be worried. "There is reputational damage from national news cycles," he says, "and that's going to take authentic public policy responses to fix."

But there are just as many reasons for optimism, as Seattle showed when it rebounded after the 1999 World Trade Organization protests.

Those protests—which introduced national television audiences to riot police deploying tear gas on marchers, and irate Seattleites smashing Starbucks windows—might have marked the end of the city's status as a grungy national media darling. But they didn't discourage a tech and construction boom fueled by the rise of Amazon. Big business and radical politics coexist in Seattle, like a hippie bumper sticker on a BMW.

Tapogna sees a similar path ahead for Portland.

"We are still the most affordable major housing market on one of the most enviable coasts in the world," he says. "We should not take that for granted but we've got an awful lot of advantages over the cities that have failed in the past."

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