Phoenix, AZ. According to Gordon Rasmussen, CCIM, principal of ITRA Global / Martin Property Advisors, “the Metro Phoenix office statistics have been dismal, and reflect one of the highest vacancy factors in the 20 largest US markets.” The overall vacancy factor for Class A & B office space is currently around 20%, which translates into almost 27 million square feet of vacant space. Given the current market conditions and net absorption of approximately 1.5 million square feet in 2013, it could take years before the supply of office space is reduced sufficiently to mandate an increase in effective rents.
In spite of the anemic pace of net absorption, certain submarkets such as Tempe and Chandler are significantly outperforming the averages, and property owners have increased their asking rents by more than 10%. Quality buildings in excellent locations, with financially capable ownership appear to be leading the way to the resurgence of the Phoenix office market. A number of recent announcements of big projects (State Farm’s 2 million SF in Tempe; Shutterfly’s 200,000 SF in Tempe; Wells Fargo’s 410,000 SF expansion in Chandler; GM’s 170,000 SF innovation center in Chandler), are certainly positive indicators and are great news for Phoenix’s economy. However, since these projects are build-to-suits and/or consolidation of existing Arizona operations, the net effect on the office market remains to be seen.
Mr. Rasmussen went on to say, “the Phoenix office market is definitely trending in a positive direction. Landlords are becoming less generous with incentives, and in spite of the current high vacancy factors, the pendulum is moving away from an absolute tenant’s market.” Other factors that will contribute to Arizona’s job growth and increase demand for office space include: proactive economic development agencies such as the Arizona Commerce Authority; the $113 million purchase of a manufacturing facility in Mesa by an entity controlled by Apple; and, of course, Arizona’s year around favorable climate with virtually zero exposure to weather related natural disasters. Nonetheless, well-represented credit worthy tenants will fair quite well in most lease negotiations, and should be able to secure leases for space in very good properties with turn-key tenant improvement allowances (landlord pays 100% of TI costs), with initial annualized full service rents in the low $20.00 per square foot range.
For more information regarding the corporate real estate market in metro Phoenix, contact Gordon Rasmussen at Martin Property Advisors, 480-368-1899.
ITRA Global is one of the largest commercial real estate organization devoted to corporate representation of tenants and buyers. With coverage in major markets around the world, ITRA Global consists of seasoned professionals with an average of twenty years’ experience and is differentiated by its focus on advocacy for the corporate tenant and buyer. Clients benefit by having an experienced professional as their trusted advisor — conflict-free representation with total objectivity. To learn more about ITRA Global, please contact Beth Wade, Executive Director, ITRA Global at 706.654.3201.