Cushman & Wakefield of Arizona reported the following analysis of the Phoenix office market in 2013.
The Metro Phoenix office market posted net absorption of 1,955,355 SF in 2013, compared to net absorption totaling 2,217,348 SF in 2012. The best-performing office submarkets were the Scottsdale Airpark with 461,616 SF, the Camelback Corridor with 389,394 SF, and Tempe with 385,306 SF of positive net absorption.
Those three submarkets collectively posted 1.236 MSF of positive net absorption, which translated to 63 percent of the entire Metro Phoenix market activity for 2013. Top of market rental rates in each of these submarkets exceeded $30 per SF.
“Two consecutive years of solid net absorption have helped decrease the overall vacancy rate in the Phoenix office market,” said Jerry Noble of Cushman & Wakefield’s Office Properties Group. “We continue to see improved activity on the street, and there are several large office requirements in the market. Tech and insurance companies have been significant drivers of demand. We expect 2014 to be another good year.”
Notable Metro Phoenix office sales included 111 W. Rio Salado Parkway, Tempe, $41.765M; 4343 N. Scottsdale Road, Scottsdale, $68.6M; and 6811 E. Mayo Blvd., Scottsdale, $38.6M. Notable Metro Phoenix office leases included 15111 N. Pima Road., Scottsdale, 148,732 SF; 16260 N. 71st Street, Scottsdale, 121,123 SF; and 60 E. Rio Salado Parkway, Tempe, 85,000 SF.
The Metro Phoenix office market vacancy rate decreased as well in 2013. The direct vacancy rate fell from 23.0 percent at year-end 2012 to 20.8 percent at the end of 2013.
The lowest direct vacancy rates in 2013 were posted in North Tempe and South Scottsdale at 6.9 percent and 12.8 percent, respectively.
The direct average asking rental rate for office space in Metro Phoenix increased year-over-year from $20.25 per SF in 2012 to $20.60 per SF in 2013.
Looking ahead to 2014, the most active construction will continue in the Tempe submarket as Marina Heights (the State Farm Insurance campus) and Hayden Ferry Lakeside III come out of the ground.
“Scottsdale, Tempe, and Camelback are rapidly improving,” said Noble, who added that properties along the Loop 101 are some of the more sought after in the Valley. “The real story line for 2014 is already underway. With very little new construction underway, tenants seeking efficient large blocks of space in these areas have limited options available. This will drive rents, help support new construction, and also drive activity to other submarkets. Rents in these pockets have already increased and will continue to do so. It has been over 10 years since tenants have been forced to look for space more than a year in advance of their target occupancy dates due to limited supply.”