Market Analysis

CB Richard Ellis 2Q 2011 Market Analysis

CB Richard Ellis released its 2Q 2011 market analysis of the Phoenix area office, industrial and retail sectors and report highlights include:

Office

The office market vacancy rate decreased slightly in the second quarter, declining to 26.0 percent from 26.3 percent at the end of the first quarter. During the same time period, vacancy among class A buildings declined by one and a half percentage points to 22.8 percent.

The average asking lease rate for existing office space declined for the fifth consecutive quarter to $21.21 per square foot. However, market rents appear to have bottomed out and there is modest rental growth in class A space.

At the end of the second quarter, the Valley’s office market had 556,772 square feet of positive absorption. Class A and B assets accounted for 524,441 square feet and 127,082 square feet of occupied space, respectively, while class C properties had 94,751 square feet of negative absorption.

The office market will not be impacted by the addition of speculative product. The only reported construction are build-to-suits, consisting of two buildings totaling 439,070 square feet in Tempe and a 225,000-square-foot building in the Deer Valley submarket.

Industrial

The industrial market had its fifth consecutive quarter of positive absorption, recording 848,042 million square feet. This compares to 1.1 million square feet of positive absorption for the same period last year.

The industrial vacancy rate has dropped by more than a full percentage point in the past two years, declining to 13.9 percent from 15.2 percent in the second quarter of 2009.

An increasing number of companies are looking at the metro Phoenix industrial market as an alternative to locating or expanding in California. In addition to solar-related companies, there has been an increase in distribution and logistics activity primarily in the Southwest Valley.

There has been considerable improvement in the metropolitan Phoenix distribution market, pushing its vacancy down to 15.9 percent from 21.1 percent one year ago.

Retail

In the second quarter, the metropolitan Phoenix retail market posted 450,151 square feet of negative absorption. A contributing factor was the closing of a number of Borders Books and Ultimate Electronics stores, which collectively vacated 448,938 square feet of occupied space.

In the past 12 months, the retail vacancy rate has risen 40 basis points to end the second quarter at 12.6 percent. However, vacancy has increased 510 basis points from year-end 2008, when the rate was 7.5 percent.

The average net asking lease rate for existing retail space throughout the Phoenix area increased in the second quarter of 2011, up to $15.86 per square foot from $15.71 at the end of the first quarter and $15.53 per square foot at the end of 2010. Yet, the rate is 2.7 percent lower than one year ago when it was $15.95 per square foot.

The availability of big box space remains a concern for property owners Valley-wide. There were 326 big box spaces greater than 10,000 square feet, totaling 8.9 million square feet of available space at the end of the second quarter. This compares to 99 big box spaces and 2.4 million square feet of available space at the same time in 2006.

For more information about CB Richard Ellis, visit cbre.com.