It’s time for us to look back at the Metro Phoenix Office Market for 2019. Readers of this narrative know that I am an office broker who works every day with tenants and landlords as they navigate real estate nuances and opportunities. I (along with my incredible team) am based in Phoenix but work around the country, and internationally as well. We are hired for all kinds of reasons that go well beyond just saving time and money.
It’s easy to think the industrial market took all of the glory in 2019 due to the e-commerce boom. But the Metropolitan Phoenix Office market scored its second best year of net absorption (think net jobs added) ever at 3.9 million SF. How did this happen? Our business-friendly climate, talented labor force and quality of life helped attract:
1) Significant out-of-state relocations from groups like Voya, Deloitte and DoorDash.
2) National companies with a presence here that chose to expand in Greater Phoenix in lieu of other hot spots around the country.
3) Organic growth of local and regional based companies.
Vacancy in 2019 dropped 800 basis points to 16.1% while average asking rates (all classes combined) rose by $0.58/SF/YR to $25.18/SF/YR. Construction now stands at 2 million SF underway around the Valley. Keep reading below for what the tea leaves say about how construction will affect vacancy in 2020. The trend in Class A properties dominating tenant demand continues. 78% of all the net absorption in 2019 occurred in Class A properties. Virtually the rest of job growth went into Class B buildings.
Below is a link to our Lee & Associates Arizona 4th Quarter 2019 Office Report and as usual, I’ve included my top 3 takeaways:
1) Demand Outpacing Supply– Of the 2 million SF of construction underway, 57% of it has been pre-leased or leased during construction. If demand in 2020 is anything like it was in 2019, vacancy will continue to fall due to lack of supply.
2) New Product Value- The Grand Phase 1 sold at $422/SF. This is only a 4-story suburban building. On a ground lease! This is a testament to the value of new product built this cycle, in a hot submarket.
3) Chandler Absorption– Chandler’s net absorption surpassed 1 million SF in 2019, underscoring both the strong demographics in the Southeast Valley and the need for a price break from Tempe.
Want to talk more about these trends or how I can help you with your office space? Give me a call.