The Metro Phoenix Office market continued its trend of positive net absorption this quarter in a BIG way. Fresh off a year of posting 2.8 million SF of net absorption (job growth) in all of 2018, Metro Phoenix hit 1.1 million SF in just the first quarter 2019, sending vacancy down to 16.9% from 17.57%. If this, or something close to this, rate of absorption continues for the rest of the year, tenant demand will substantially outpace the 2.2 million SF of new building supply delivering this year.
Aside from one major lease over 150,000 SF (Voya Financial), the transactions in the first quarter underscored steady, medium-sized growth in the Valley. We love this consistent growth. Many businesses expanded operations here while several groups continued to plant their first flag in the region. Greater Phoenix clearly holds an unfair advantage over other metropolitan markets with its quality of life, quality of workforce and it doesn’t hurt to have the nation’s most innovative university, Arizona State University (ASU), in our backyard.
Similar previous trends continued over the past three months including Tempe (home to ASU) remaining the hottest submarket with high demand and single-digit vacancy. All other areas south and east of Sky Harbor airport captured the most leasing activity.
Below is a link to our Lee & Associates Arizona First Quarter Office Report and as usual, I’ve included my top 3 takeaways:
- New Product Leases- Digging deep into the 1.1 million SF of net absorption in the first quarter, 889,000 SF of it took place in buildings constructed in 2010 or later. This means 80% of employers want the buildings being built this cycle.
- Camelback Corridor turns the Corner- After a negative absorption of 110,000 SF in 2018, The Camelback Corridor posted 155,000 SF of positive net absorption in Q1 2019. By the way, this submarket holds the highest average lease rates across all classes at $35.56/SF.
- WeWork Continues to Make a Splash- WeWork signed the 2nd biggest lease in Q1 at 68,968 SF, three months after it signed 54,000 SF in another submarket. Time will tell how well the co-working giant competes with traditional landlords in this market.
Want to talk more about these trends or how I can help you with your office space? Give me a call.