Construction is still going strong:
- More than 2.2 million square feet of office space (including 439,530 square feet of speculative space) is currently under construction in Greater Phoenix. An impressive 80 percent of that space is pre-leased.
- Almost 82 percent of space under construction (1.8 million square feet) is represented in three projects: Marina Heights, Arizona Department of Economic Security (build-to-suit in Chandler) and Skysong 4.
Expansion and absorption continue:
- A healthy 423,748 square feet of office space was absorbed in Phoenix during Q1, a 48.5 percent increase from one year prior.
- Overall vacancy is expected to decline in 2016 as office-using employers continue to expand and relocate to the Valley.
But the dynamics of spec development may be shifting:
- Speculative office development is declining as developers assess the market, taking note of how long the over 1.0 million square feet of vacant space delivered in 2015 stays on the market before kicking off new projects.
Here’s what JLL Managing Director Karsten Peterson says about Q1 office market trends from the landlord’s perspective:
“This recovery has seen a greater percentage of build-to-suits than previous Phoenix market rebounds,” said JLL Managing Director Karsten Peterson. “We are hearing loud and clear that Corporate America wants buildings that meet the needs of today’s tenants – larger floorplate buildings with higher parking ratios and finished with a creative interior improvements including open ceiling environments, indoor/outdoor connectivity and walkable amenities. Expansions, consolidations and relocations still support the speculative office development pipeline, but that side of the market may begin to slow as capital becomes harder to secure.”