CBRE 4Q09 Analysis Metro Phoenix Markets

Phoenix – Jan. 7, 2009

CB Richard Ellis (CBRE) has released its fourth quarter 2009 market analysis of the Phoenix metro area office, industrial and retail sectors. 

Report highlights:

Office

• After four consecutive quarters of negative absorption, the office market experienced an uptick in occupied space, posting 230,587 square feet of positive net absorption in the last three months of the year—yet overall absorption for 2009 was negative 667,329 square feet.
• The vacancy rate rose slightly, from 24.2 percent at the end of the third quarter to 24.5 percent at the end of the fourth quarter.  This is 5.4 percentage points higher than at the end of 2008, when vacancy was 19.1 percent.
• The average asking lease rate for existing product continued to weaken.  Rates at the end of the fourth quarter averaged $23.05 per square foot, down from $23.44 per square foot at the end of the third quarter and $25.57 per square foot at the end of 2008.  
• While construction activity has consistently declined throughout 2009, there is still more than 1.4 million square feet of new product under construction, all of which is scheduled for completion in first quarter 2010.  Little to no significant office product construction is planned to begin after that time.  

Industrial

• Economic uncertainty has significantly affected tenant activity in the metropolitan Phoenix industrial market, which experienced its fifth consecutive quarter of negative absorption with a loss of 572,779 square feet of occupied space.  For the year, net absorption of industrial space was a negative 4.6 million square feet.
• The vacancy in industrial buildings has continued to rise, ending the fourth quarter at 16.1 percent.  This compares to 15.8 percent at the end of the third quarter and 13.3 percent one year ago.
• The net direct average asking lease rate for existing industrial product was essentially unchanged from the third quarter, ending the year at $0.56 per square foot. This, however, is 10 cents less than the end of 2008, when the average asking lease rate was $0.66 per square foot. 
• A number of build-to-suit projects caused construction activity to increase in the fourth quarter.  Currently 1.8 million square feet of new industrial product is under construction, of which 52 percent is build-to-suits.

Retail

• The retail market ended 2009 with negative absorption of 1.1 million square feet, marking the first full year of negative absorption since tracking of the market began in 1990.
• The average net asking lease rate for existing retail centers has declined by more than $2 over the past 12 months, from $19.68 per square foot at the end of 2008 to $17.33 at the end of 2009.
• The availability of big box space has more than doubled in the past two years.  At year-end, there were 288 spaces greater than 10,000 square feet, totaling 8.3 million square feet of available big box space.  At the end of 2007, there were only 132 spaces and 3.9 million square feet of available big box space Valley-wide.
• Driven, in part, by store closings and changes in consumer and business spending, the vacancy rate among retail centers rose for the 11^th consecutive quarter to end the year at 11.4 percent.  One year ago, the vacancy rate was 7.9 percent.

For detailed market data and charts on each sector, visit www.cbre.com/phoenix