Cushman & Wakefield Announces Q3 Office Market Conditions
Cushman & Wakefield, a global leader in commercial real estate services, announced today that the Metro Phoenix office vacancy dropped to 18.9% in the third quarter, largely due to demand for prestigious, Class A space.
The metropolitan area has added nearly 45,000 jobs in the past 12 months with almost one-third of those being office sector jobs. Demand for office space led to the overall vacancy rate dropping from 19.3% at mid-year 2015 to 18.9% at the end of September. The market absorbed more than 880,000 square feet (SF) of space this past quarter, marking the largest net gain for a single quarter since Q4 2012. Year-to-date, Metro Phoenix has absorbed approximately 1.8 million square feet (MSF) spread throughout most of the city’s submarkets.
“Phoenix has experienced a notable amount of existing business expansion as well as the attraction of some companies new to the metro area,” said Bryon Carney, Cushman & Wakefield Managing Principal . “The Southeast Valley has boomed with technology growth and other corporate office users. The business expansion in that area of town is driving economic growth in areas ranging from housing to retail.”
Chandler/Gilbert/202 led the city’s submarkets last quarter with 160,000 SF of net absorption, led by Isagenix’s occupancy of its 150,000-square-foot build-to-suit at Rivulon Business Park.
Price Corridor and Tempe North placed second and third in terms of net absorption for the quarter, which indicates how strong demand in the East Valley has been.
Metro Phoenix has had six months of net absorption gains in all classes of office product. Class A space has led this absorption, accounting for 62% (1.1MSF) of the occupancy growth in 2015 and 55% (481,000SF) of the absorption in Q3. A shortage of large, contiguous space has led large national credit tenants into the build-to-suit arena. Three new projects were completed in third quarter, adding 511,000 SF to the local inventory. These projects were 93% preleased, which also shows the strength of the leasing market. Four speculative projects were started in third quarter, which will add another 470,000 SF to the city. These four projects and others account for the current 4.4 MSF currently under construction in Metro Phoenix. This is the highest level of construction the Phoenix market has experienced since 2001.
Rental rates in the city continue to rise as a result of limited construction and growing demand. The current average asking rent is $22.69 per square foot (PSF), which is a 2.1% increase quarter-over-quarter and a 5.6% increase year-over-year. The Camelback Corridor ($29.39 PSF) and Scottsdale South ($27.69 PSF) post the highest average asking rents.
“Increasing demand has eroded the vacant inventory and helped lower vacancy rates,” said Curtis Hornaday, Research Analyst with Cushman & Wakefield. “While the overall rate has not dropped significantly, we see individual submarkets benefiting greatly from higher demand. Class A vacancy has dropped approximately two percentage points since a year ago. However, until Class B and Class C space attract more leasing, the market will continue to post overall vacancies in the high teens.”
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