The Metro Phoenix office market continued on its eight-year positive course, albeit at a slower pace, for the 3rd quarter of 2017. As any athlete will tell you, a win is a win and all the [market] players will take it. The 216,037 SF of office space absorbed fell short of expectations, however, some large leases were signed in Q3 and tenant activity is strong as we close out the year.
Despite a seemingly high 19.6% vacancy across the entire market, sustained confidence from developers has 2.1 million SF of new space under construction. Note that only 31% of that figure has been built at the request of users. The rest is speculative development in high-performing projects or submarkets.
Below is the link to our Lee & Associates Arizona 3rd Quarter 2017 Office Report and as usual, I’ve included my top takeaways, but expanded them to 5.
1. Big Deals Return – 3 of the top 5 leases signed were 130,000 SF or larger. Hopefully this trend continues. The biggest deal, Union Bank, adds 173,000 SF of net new jobs to the Greater Phoenix market.
2. Speculative Development – I believe this is prevalent even in a market with 19.6% vacancy, because companies continue to value new real estate as a great recruiting/retention tool.
3. Sublease Space is Significant – For the first time in years, sublease space is making a comeback. Some of it has been caused by contraction (e.g. University of Phoenix). But State Farm and many other companies have sublet space due to growth, consolidations and the desire for newer buildings. In total, there is now 2.5 million SF of sublease space available in Greater Phoenix. This is concerning for landlords but an opportunity for tenants.
4. Amenities Will Cost You – The highest average rental rates (over $30/SF/YR) can be found in Downtown, Scottsdale South and the Camelback Corridor; home of some of the highest concentration of restaurants and shopping in the Valley.
5. Chandler Makes a Comeback – Previously quiet over the past couple years, Chandler now leads all other submarkets in net absorption with 538,000 SF, year to date.
Please call me if I can help you with your office lease or a building you own.
P.S. This week on The Bachelor-NAIOP Edition, Season 2, the guys test their tennis skills on a group date. Nothing like a little competition to reveal who’s there for the right reasons.
Click Here to Read the Full Report