Downtown Bangor’s shift toward housing crowds out needed office space

Businesses are struggling to find space to expand in Bangor, which has a near-zero vacancy rate driven in part by efforts to ease a housing shortage.

Four years into the COVID-19 pandemic and the associated transition to telework, brokers and city officials are seeing renewed demand for smaller office spaces that is far outpacing supply. In some Maine cities, emptied-out office blocks can be repurposed and divided into those kinds of spaces.

Few such vacancies exist in Bangor, which has an office vacancy rate near 0 percent that is hindering economic growth. It highlights the careful balance that the city and others like it will have to strike in the coming years between building much-needed housing and helping the commercial sector.

“There’s never been very many options for small office space outside of downtown,” Bev Uhlenhake, a Bangor-based commercial broker with Maine Commercial Realty, said. “Now there’s even less in downtown.”

Uhlenhake was referring to a major contributor to the shortage of small offices in recent years: conversions to housing. In the last few years, 75 units of office space in downtown Bangor have been converted to apartments, Anne Krieg, the city’s planning and development director, said.

“We’ve done a lot of conversions to residential, but we’re getting calls for offices again, which is good,” she said. “People want to be here, so we want to figure out how [we can] accommodate this.”

Similar things are happening in downtowns across Maine. In Portland, The Boulos Company has recently removed over 500,000 square feet of office space from the downtown market, Nate Stevens, a commercial broker for the company focused on southern and central Maine, said.

Industry watchers in both Portland and Bangor agree that while converting some of those spaces into housing has given both downtowns desperately needed units, it has left businesses unable to expand and unable to build new, given the prohibitive costs of construction and high interest rates.

“[Usually] around this time of year, I’ve been seeing a lot of supply that’s going to get added to the market in the next 12 months,” Stevens said. “Right now, I’m not seeing that supply coming on the market at the same pace.”

Contrary to Bangor, office vacancy rates in greater Portland have been pushed up to the highest they’ve been since 2012, following the recession. Businesses looking for smaller, more flexible spaces can make do with the larger vacancies in the Greater Portland market, Stevens said. Property owners are increasingly offering subdividable spaces for those kinds of tenants.

But in Bangor, making use of larger vacancies is not even an option for tenants.

Bangor city officials are meeting in the next month with commercial brokers and property owners to brainstorm solutions, Krieg said. Until they find ways to generate supply, prices will continue to rise and the small vacancy rates may even go down.

At some point, Bangor businesses will have to swallow high costs and build new, Uhlenhake said. Municipalities should find a way to subsidize new construction in response, she said.

“At some point, there’ll be enough dissonance that folks will have to build even when it’s really super expensive,” she said. “Businesses will either build or they’ll go someplace else. Hopefully they don’t go someplace else.”