2015 is shaping up to be a lot like 2014 for the Metro Phoenix Office market: i.e. the continuation of the long, steady, climb out of the Great Recession.
Below is a link to our 3rd Quarter Phoenix Office Market Report and here is a brief summary:
The overall market had a great quarter, absorbing nearly 850,000 SF of office space. This helped make up for the lackluster first half of the year that posted just 649,000 SF of net absorption. We are on pace to hit just over 2 million SF, which would match our 25-year average. Vacancy still stands at a stubborn 20.2%. There is now 2 million square feet of speculative office development (4.2 million SF of total development including State Farm’s campus) under construction which will keep vacancy hovering around the 20% range. However, speculative office projects have been leasing up quite well (e.g. Hayden Ferry Lakeside III, SkySong 3 and now 4 & Liberty Center). New construction may not add substantial additional vacancy as anticipated.
Here are my three takeaways depending on your place in the market:
1) If you’re a tenant – The market is gradually tightening but there are still opportunities for meaningful concessions and economical lease rates. The closer you are to ASU (i.e. Tempe and South Scottsdale) the lower the vacancy rates are and the more you’ll pay in rent to be near the action. True Class A properties are now achieving landmark rents despite the vacancy rates. Expect to pay more if you want the best.
2) If you’re a landlord – There is some wind at your back and significant tenants in the market. Well located, quality buildings with walkable amenities are attracting the most tenants. Suburban and Class B buildings still have to compete hard for tenants, BUT there are more to fight over if we can continue to grow.
3) If you’re an investor – Class A asset pricing continues to get bid up, but so are rental rates. Class B rates and values are all over the board depending on the submarket. There are still opportunities in each asset class. Phoenix’s long term economic future remains bright.
I look forward to finishing the year strong with more office users growing their businesses. Please call me to discuss the market in greater detail or help you with your next office transaction.