Streetlights still shine at dawn in Portland's Monument Square on Nov. 8, 2021. Credit: Troy R. Bennett

Office vacancies in the Portland area are expected to rise over the next two years as leases expire and businesses reassess how much space they need and how to use it.

Work changes during the pandemic are largely responsible for the change. Companies have seen that employees can work from home and productivity has not plummeted, Nate Stevens, broker at The Boulos Company in Portland, said.

Many are reassessing space requirements with hybrid work models. That is expected to create more empty offices in greater Portland when a group of current leases expire, but the exact extent is not known yet.

“We won’t know for a couple years how companies will occupy space,” he said. “Some will use space differently.”

The vacancy rate in Greater Portland, which stretches from Falmouth to Biddeford, was just over 9.4 percent in January, but that is expected to rise to as high as 11 percent over the next 24 months, Stevens said. Before the pandemic in 2020, it was 8.7 percent. After the Great Recession in 2010, it topped 12 percent.

Even as companies leave buildings, Greater Portland’s office vacancies will remain lower than much of the country, which has historically been the case, he said. Developers in Maine’s business capital tend to have tenants before they build, which doesn’t happen in some other parts of the country where new buildings may lie fallow.

The available space in the Class A most prestigious buildings in downtown Portland is tighter, with vacancies at 5.02 percent, while the overall downtown office rate is 8.6 percent. Portland has 25 Class A office buildings with a total of 2 million square feet.

The trend is happening elsewhere in the state. Early in the pandemic in 2020, TD Bank drastically cut the space it was leasing in the Bates Mill Complex in Lewiston because half of its employees were working from home. In April, the Canadian software developer OpenText closed its Lewiston office in favor of fully virtual work.

Larger cities tend to have higher office vacancy rates than smaller ones. The Houston area has the highest rate in the country at almost 19 percent in the third quarter of this year, according to the National Association of Realtors. Dallas-Fort Worth, Texas, and San Francisco also have high rates.

In Portland, another factor is feeding into the expected rise in empty offices. Leases expected to expire within a year or two are called “gray space” and are not counted as a vacancy. Stevens estimated there is 400,000 square feet of gray space in greater Portland that will become available in the next couple years, but there won’t be enough demand to fully fill it.

Hartford Insurance, which occupies about 40,000 square feet in South Portland, plans to vacate its space, but it still has two more years on its lease, he said. Other businesses planning to move or downsize include Sun Life Financial and Harvard Pilgrim.

“The gray space will have a negative impact on the vacancy rate,” Stevens said. “There might be some subletting of spaces, but the demand is not strong enough to absorb all these vacancies that are coming up in the next two years.”