By MAURA WEBBER SADOVI | SPECIAL TO THE WSJ

Oregon's bid to cash in on its green appeal has given Portland's weakening commercial-real-estate market an early holiday gift.

Denmark-based Vestas Wind Systems AS said this month that it is planning to build a new North American headquarters in the city. Negotiations still are under way and the site isn't set, but the project is likely to be more than 500,000 square feet and be valued at about $250 million.

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SolarWorld

SolarWorld recently opened a large solar-cell manufacturing facility outside Portland, Ore.

Vestas Americas, which has been in the city since 2002, has roughly 300 employees in about six leased office locations totaling about 100,000 square feet in the Portland area, says Roby Roberts, a spokesman for Vestas, one of the world's largest wind-turbine suppliers.

Vestas, despite the credit-starved times, hopes to start construction next year.

"Certainly the existing economic situation is one that's going to make you be careful, but we're reasonably confident that things are going to work out," Mr. Roberts said. The state has sweetened the deal with an offer of about $15 million in cash on top of incentives from the city that could be valued at $12.5 million, city and state officials say.

Other sustainable-development and renewable-energy businesses also have made a home in Oregon. The state has courted the industry with such initiatives as the Business Energy Tax Credits, says Jillian Schoene, spokeswoman for Oregon Gov. Ted Kulongoski.

First created in 1979 and expanded in 2007, the tax credits have helped draw solar-energy manufacturers to the state, Ms. Schoene says. Germany-based SolarWorld AG this fall opened a 480,000-square-foot solar-cell manufacturing facility in Hillsboro, outside Portland. Moreover, the North American headquarters of Spain-based Iberdrola Renovables, already located in about 57,000 square feet of leased space in Portland's Pearl District, is looking for additional room to grow, a spokeswoman says.

By the NumbersThird quarterPortland, Ore., Metro20082007Office vacancy14.5%14.7%Avg. annual rent/s.f.$20.10$19.36Retail econ. vacancy9.1%6.5%Avg. annual rent/s.f.$18.43$18.37Hotel occupancy 77%78%Avg. daily room rate$104.78$98.80Median single-family home price$278,600$299,700

Source: Property & Portfolio Research Inc., Smith Travel Research, National Association of Realtors

But the demand from green businesses comes amid signs in the Portland region of the broader economic malaise wracking the country.

Home to about 2.2 million people, the area counts Nike Inc. and Intel Corp., based in Santa Clara, Calif., among its larger employers. Median home prices that had held up longer than in many western U.S. markets have weakened over the past year, and the metro area's unemployment rate rose to 6.4% in October, just above the national rate of 6.1% and well above the 4.6% level in the year-earlier month, according to the U.S. Labor Department.

That slowdown has begun to damp demand for commercial real estate. The region's retail, office, warehouse and apartment vacancies, though still below national averages, are edging up and rents are either declining or are forecast to begin falling, according to Boston-based Property & Portfolio Research.

The region's office-leasing market, among the region's strongest commercial sectors, also is slowing. The amount of sublease space available in Portland's commercial business district jumped to 146,000 square feet in the third quarter from about 45,000 square feet in the year-earlier period, as some companies trimmed space needs, according to Crispin Argento, a research analyst for Colliers International in Portland.

The amount available for sublease was still less than 1% of the inventory, he says. And a surge of new office buildings, some speculative, also are on tap to deliver space in the next two years. Vestas also could add to that available space if it builds anew rather than leasing space in one of the projects underway.

Against this backdrop some cautiously optimistic developers are pushing ahead. Todd Sklar, senior vice president and head of development for San Francisco-based Shorenstein Properties, says construction is now up to the 10th floor on an environmentally friendly office building in Portland called First & Main.

Set to open in 2010, it is to include retail space and about 346,000 square feet of office space that isn't yet leased, as well as a place for cycling commuters to park bikes and shower, and paneling in the lobby made from old stadium seats.

Mr. Sklar notes that in some cities numerous companies are cutting space as they face takeovers or restructurings. Compared with that, having a company like Vestas put space on the market so it can expand doesn't seem so bad, he says. "In the context of other cities, we're in good shape," Mr. Sklar said.

Write to Maura Webber Sadovi at maura.sadovi@wsj.com

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