CBRE has released its 1Q 2012 market analysis of the metro Phoenix area office, industrial and retail sectors. Report highlights include:
- The overall office market vacancy rate increased modestly in the first quarter of the year, rising from 25.5% at year-end 2011 to 26.1%. While vacancy remains high, the Phoenix area ranked fifth among major U.S. metropolitan markets in terms of absorption in 2011.
- The average asking lease rate for existing office space continued to decline, ending the first quarter at $20.72 per SF. This marks the eighth consecutive quarter in which rates have decreased.
- Just 959 SF of positive absorption was recorded throughout Metro Phoenix in the first quarter of the year. This was due, in part, to favorable market conditions causing tenants to renew early or trade up in terms of building class. Class A buildings had 266,875 SF of positive absorption, while Class B assets had 320,297 SF of negative absorption. Class C buildings reported positive absorption of 54,381 SF.
- Speculative construction has returned, with a 92,109 SF office building breaking ground in the Chandler submarket. However, new product is not predicted to significantly impact the Valley’s vacancy rate in the near term.
- The industrial market recorded 1.5 MSF of positive net absorption in the first quarter. Leading the way was the Southeast submarket, reporting 795,912 SF of positive absorption. Conversely, the Northeast area reported negative absorption of 42,903 SF.
- The overall industrial vacancy rate has dropped by slightly more than two full percentage points year-over-year to end the first quarter at 12.1%. Distribution product experienced the greatest improvement, declining from 16% to 11.4% during the same period. However, general industrial space has increased in vacancy, climbing to 17.2% from 15% one year ago.
- The average asking industrial lease rate for existing product has remained flat since the end of 2009, hovering fairly consistently between $0.55 and $0.54 per SF. The average rate at the end of the first quarter stayed at $0.55 per SF.
- Build-to-suits continue to dominate the market, representing 97.6% of all current construction activity or 3.25 MSF. Yet, it is expected that speculative construction on the first large-scale distribution building will occur this year, due to continued demand for space and a lack of product greater than 500,000 SF.
- The Phoenix area retail market recorded 663,337 SF of positive absorption in the first quarter, which is the largest quarterly gain of occupied space in the past three years. Of its 12 submarkets, only Scottsdale recorded negative absorption in the first quarter, with a loss of 23,319 SF.
- The overall retail vacancy rate in Metro Phoenix declined half a percentage point in the first quarter to 11.7%. The Mesa/Chandler/Gilbert submarket, which has the largest rentable area, reported the highest vacancy, 14.7%, while Apache Junction had the lowest vacancy rate, 6.4%.
- The average net asking lease rate for existing retail space throughout the Phoenix area continued to decline in the first quarter of the year, dropping from $15.90 per SF at year-end 2011 to $15.71 per SF. By comparison, the current rate is identical to the average net asking lease rate one year ago.
- While the total amount of available big box space decreased in the first quarter, leaving the market with 295 spaces and 8.1 MSF, it remains a concern for property owners. Much of this space, 71.5%, is classified as class C or D, which remains the most challenging product to backfill.