It’s July in Phoenix and it is hot — both in temperature and in the office market. The office market remains hot but office net absorption (job growth) cooled off in the 2nd quarter, posting just 245,000 SF in Q2. Mid-year net absorption stands at 1.5 million SF and will likely hit 3 million SF by the end of the year. There is 2.2 million SF of new construction in progress with most of it delivering by Q4 this year. All these numbers mean vacancy held still at 16.9% during the first half of 2019. We believe we will see a noticeable decrease in six months maybe even getting vacancy into the 15% range. By Q4, we will have experienced another year where tenant demand outpaced new supply, and vacancy continues to tighten.
For this quarter’s report, I thought it would be helpful to compare Phoenix’s stats to the rest of the country. Here is a link to a national Costar report released last month. It’s 25 pages if you have the time to read it, but if you can’t, don’t worry, I have highlights:
- National vacancy sits at approximately 9.75%, compared to Phoenix at 16.9% — This is normal as Phoenix is a growth market. We cannot grow with vacancies in the low teens much less single digits.
- Over the past 12 months New York delivered 4.9 million SF of new buildings; Phoenix delivered 2 million SF.
- Compared to the 2.2 million SF under construction Lee & Associates Arizona reported this quarter, New York has 25 million SF under construction!
- Phoenix’s net absorption over the past 12 months reached 4.4 million SF. The ONLY area that scored higher was New York at 5.5 million SF.
- Phoenix experienced a 3.6 % increase in rent growth while San Jose (Silicon Valley) grew at 7.6%. No surprise, we are seeing a ton of activity from Northern California companies in Metro Phoenix.
Below is a link to our Lee & Associates Arizona Second Quarter Office Report and as always, here are my 3 local takeaways:
- Tempe is the Tom Brady of Submarkets in Metro Phoenix. This city continues to beat its competition for job growth, all the time…… Just like it did in the first half of 2019.
- WeWork signed yet another big lease. The CoWorking giant took 90,000 SF in Downtown Phoenix with plans for additional locations. They are coming to Phoenix in a big way.
- Sublease inventory is declining. A year ago, subleases accounted for 1.9% of the available space on the market. Today they are only 1.3%
Please give me a call to discuss these trends further or how I can help you with your office needs.