1-Minute Phoenix Metro Office Market Update: Q4 2018

It’s time for us to look back at the Metro Phoenix Office Market for 2018. Readers of this narrative know that I am an office broker who works every day representing tenants and landlords as they navigate real estate nuances and opportunities. I (along with my incredible team) am based in Phoenix but work around the country and internationally as well. We are hired for all kinds of reasons including our in-depth, up-to-the-minute market knowledge.
 
Here is the latest…
 
The Metro Phoenix Office Market tightened in 2018 and is expected to follow the same script in 2019. This is not happening across the rest of the country. Phoenix is poised to continue growing longer and in a more robust fashion than the vast majority of U.S. cities. The Valley of the Sun’s value proposition continues to persuade existing companies to expand and entice new groups to experience the region. Simple as that.  Net absorption of office space (the key measure of job growth) improved dramatically from 2017’s figure of 1.8 million square feet (SF), to 2.8 million SF in 2018. Vacancy started 2018 at 19.7% and ended the year at 17.6% — the lowest vacancy since 2008.As vacancy drops, Class A lease rates have increased, albeit a small amount, to an average of $29.28/SF at year end 2018. We are set to hit an all-time high in 2019 with Class A average lease rates expected to eclipse $30/SF across the Valley. Additionally, available sublease space decreased from 2.5 million to 1.9 million SF during the year.
 
Below is a link to our Lee & Associates Arizona Fourth Quarter Office Report and as usual, I’ve included my top 3 takeaways:
 

  1. It Pays to be the Value Option — The Sky Harbor Airport submarket absorbed the most space in 2018 (869,833 SF). Asking rates in this area are $6/SF lower than the market average and clearly a price refuge for tenants. There is rate shock for tenants as leases expire. This will continue in 2019. 
  2. Co-working is Ramping Up — WeWork entered our market with a 54,000 SF lease in the Esplanade I at 24th Street and Camelback, one of the top five leases of the quarter. Right now, WeWork is negotiating at other locations around the Valley and will add to over 450,000 SF of existing co-working operations including Serendipity Labs, Industrious, Workuity, Co+Hoots, etc. (All Regus Executive Suite units are not included in this figure)
  3. Expect Lease Rates to Climb In 2019 — WHY? Tenant demand remains strong and will likely outpace new supply again this year. Additionally, high construction pricing is forcing landlords and tenants to reduce concessions or inflate rates to make deals pencil.  (Make sure you have a good broker looking out for you!)

Want to talk more about these trends or how I can help you with your office space?  Give me a call. 

Andrew

602.954.3769

acheney@leearizona.comPS- Here is a link to Lee & Associates Arizona’s Historical Office Market Statistics with some great information as well.


Click to Read the Report
Q4_OfficeReport First Page