Tag Archives: office market

Q2 Phoenix Market Report: Voit

VOIT REPORT:  PHOENIX OFFICE LEASE RATES RISE FOR THE SIXTH CONSECUTIVE QUARTER; RETAIL MARKET POSTS LOWEST VACANCY RATE SINCE 2008

Jennifer Farino, Voit Real Estate Services

Jennifer Farino, Voit Real Estate Services

By Jennifer Farino
The Phoenix office market continued to convey strong signs of recovery in 2014, and marked its sixth consecutive quarter of rising lease rates.  The average asking full-service gross lease rate finished the second quarter at $21.12 per square foot, an increase of 3.23% from 2013’s second quarter average asking lease rate, according to a new Second Quarter Market Report  from Voit Real Estate Services.

“This is good news for the Phoenix market overall,” explains Jennifer Farino, Market Research Analyst at Voit.  “The rise in lease rates demonstrates that the market continues to improve, which further supports the recovery we’ve been forecasting for the past 12 to 24 months.”

Demand for Office Product Increases
As a whole, the Phoenix office market posted just over 7.1 million square feet of positive absorption since the second quarter of 2011, 5.8 million of that in the last nine quarters, according to Voit’s report.

Another trend to note, according to Farino, is the continued decrease in the amount of vacant and available space in Phoenix.  “We should see a very slight increase in construction in the coming quarters, with just under 20.0 million square feet waiting in the wings as planned projects throughout the Valley.”
As the recovery continues, Farino notes that Phoenix is poised for growth in the new niche of high-tech manufacturing. This, in addition to a high demand for back office workers, will help lead the charge of positive absorption in the Phoenix office market.

Vacancy and Availability in Retail Market Reach Pre-Recession Levels
The Phoenix Retail market took significant strides toward continued improvement in 2014 with positive absorption for the year thus far, a twenty-one cent or one and a half percent increase in asking lease rates, and drops in both vacancy and availability, compared to the first quarter of 2014.

“Overall in the Phoenix Retail market over the last two and a half years, vacancy has decreased over 16 percent while availability has decreased 13 percent,” says Farino.  “The substantial drops in vacancy and availability are contributing to the gains in asking lease rates.”

Both vacancy and availability continued trending downward throughout 2014. Vacancy ended the second quarter of 2014 at 10.26 percent, a drop just over 6 percent from 2013’s second quarter.  Likewise, availability posted a rate of 11.43 percent at the close of the quarter, a substantial decrease of almost 6.4 percent from a year ago.

As lease rates rise, sale prices are also ticking up, notes Farino, who attributes this trend to the diminishing supply of product under construction in the Phoenix Metro area, leaving the existing product to take in new retailers opening businesses.

“Overall, we continue to be cautiously optimistic about the Phoenix Retail market,” says Farino. “We continue to see improvement in both the office and retail markets, and we anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes.”

Marcus Millichap Office Shot, WEB

Marcus & Millichap Releases Office Market Report

“Continued economic strength has begun to lift office performance, staging the sector for dramatic gains in 2014. Steady employment growth over the last several years has been slow to translate into absorption, but much of the extra space held by companies is rapidly filling up. As a result, many markets may reach a tipping point in 2014 that will rapidly drop vacancies – particularly with construction remaining limited.” — Marcus & Millichap Research Services

 

Read the full report here.

6811 E Mayo ELC Export030

Phoenix Office Market Posts 2MSF Net Absorption in 2013

Cushman & Wakefield of Arizona reported the following analysis of the Phoenix office market in 2013.

Phoenix Industrial Market Statistics

Click for enlarged view of Phoenix office market statistics.

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.”

 

rsz_allred_park_place

Office Market Gains Strength As Absorption Numbers Shine

The Phoenix office market continues to push forward by shaking off its multi-year decline by posting several successful quarters with promising market data.

Phoenix, the king of the boom-and-bust market, saw feverish overbuilding in the middle of the last decade and players in the market have been paying the price for it ever since. Even though the road back has been slow, the office market is making steady strides. That has helped to shore up a renewed optimism in this market.

For the first time since 2006, there have been strong, back-to-back quarterly absorption totals of over 500K SF. Three submarkets: 44th St. Corridor, Camelback Corridor and Deer Valley Airport have the highest positive absorption of all submarkets year-to-date. Midtown Phoenix, Airport Area and Northwest Phoenix show the weakest absorption year-to-date.

Tenants continue their march up the quality ladder to secure historically low rates for the medium-to-long term. Lease activity has slowed this quarter but a healthy momentum over the past few quarters has strengthened absorption totals.

“Rent concessions continue but are lessening in tighter sectors where a few landlords have greater leeway,” said Matt DePinto, Senior Research Analyst with Lee & Associates. “Overall rental rates are inching up slowly. In fact, steady or rising rental rates are reported in 15 submarkets compared with last quarter’s 8.”

Sales activity remained sluggish this quarter. Availability of Class A properties is limited and many attractive top-tier properties have already transacted. Some investors consider moving to Class B assets, a less attractive option. Some of those investors could be looking elsewhere for the kind of product and ROI that meet their investment goals.

A positive trend, according to analysis by Real Capital Analytics is distressed transactions are becoming a smaller part of overall sales volume. In their August capital review, distressed deals amounted to just 7% of total transaction volume nationally. The rate is no doubt higher here, but still in decline as the economic recovery takes hold.

The Phoenix office vacancy rate for the third quarter posted at 25.4%, a strong 90 basis points lower than last quarter. Net absorption settled at 724,866 SF for the quarter, just slightly off second quarter totals. Year-to-date absorption stands at a positive 1,070,773 SF.

Construction activity remains extremely low by historical standards with only one non-medical building. The fully-pre leased, Class A, 92,109 SF Allred Park Place is under construction in Chandler and is expected to deliver in the fourth quarter of this year.

The lack of construction gives the market a breather and allows for absorption of existing space. A building trigger is not fully anticipated until 2014 with several proposed high-rise projects for Phoenix and Tempe downtowns. There were no buildings delivered this quarter.

Asking rental rates settled at $20.42 PSF this quarter, up $0.1 PSF from last quarter. With little movement overall, more individual submarkets are starting to see greater rate increases, in fact, more than double last quarter. The Airport Area had the highest increase of 2.7% over last quarter. The North Scottsdale/ Carefree submarket saw the biggest decline at (-$5.6%).

The largest lease transaction of the quarter was the Aetna lease of 138,404 SF of Class A space at Liberty Cotton Center, 4500 E. Cotton Center Blvd., Phoenix.

The largest sales transaction was the purchase of 2900 S. Diablo Way, Tempe for an allocated price of $24,531,274. The transaction was part of a 4-property portfolio. The two, Class B office buildings totaled 217,798 SF and posted a price per square foot of $112.83. Walton Street Capital LLC of Chicago, IL was the buyer.

The year ahead should bring increased vigor to areas of the office market that have not seen much movement so far, including rising rental rates and greater leasing velocity. “Still, with only three submarkets out of 28 with sub- 20% vacancy rates, there’s still much work to be done,” DePinto said.

The upcoming election should provide investors the market certainty they crave, regardless of outcome. Declining unemployment rates are expected to continue and perhaps accelerate, providing the fuel companies’ need to begin hiring in office sector jobs. This increased need for space and the urgency it could bring, should help struggling rental rates move higher and push vacancies lower providing the foundation for a healthy Phoenix office market going forward.

 

Office Market

Office Market Rebounds From Past Quarter Absorption Slump

The Phoenix office market has made genuine progress over last quarter’s disappointing retreat by posting strong absorption and vacancy figures. Vacancy rates this quarter are the lowest since 4Q 2009 and absorption for the quarter is at the highest rate since 4Q 2006. Even with an anemic recovery and the of lack of new product, the Phoenix office market appears to be building momentum.

With all the good news, some challenges still persist. Commercial rental rates are still declining as significant vacancies remain. Business is still reluctant to hire and add additional space and uncertaintly in the market creates a wait-and-see approach which is detrimental to market momentum. One certainty is restored, inventories will begin to tighten, as they already have in several submarkets. Add to that, a significant amount of obsolete product that will need to be replaced will finally put pressure on rates to move higher.

Vacancy has dropped 90 basis points to 26.2%, down from 27.1% last quarter. Absorption has increased by 735,052 SF. This significant uptick is in stark comparison to over 300,000 SF decline of last quarter. The 44th St. and S. Tempe/Ahwatukee submarkets have both increased absorption by more than 100,000 SF each this quarter. Deer Valley Airport and Northwest Phoenix submarkets are struggling the most with absorption losses.

“Last quarter’s retreat took everyone by surprise. However, absorption has rebounded nicely and we’re expecting that momentum to continue throughout the remainder of the year,” said Matt DePinto, Senior Research Analyst with Lee & Associates.

Rental rates again retreated for the fourth straight quarter and for the past 16 out of 17 quarters to $20.41 PSF. Higher quarterly absorption rates will help to slow rate decline until a rising trend can take hold. Only 6 out of 28 submarkets have seen lease rate increases this quarter.

Sales activity posted a total of $182.2M in 122 transactions. Total dollar volume is down from last quarter’s $247M. Price per SF was reported as $103.72, also down from last quarter. Cap rates were calculated at 6.74%, down from 7.83% last quarter. Leasing activity remains well within historic norms for number of transactions at 382. That is an increase of 35 over last quarter. However, SF leased is down about 6% from last quarter.

The Phoenix office market is expected to see better outcomes as the year goes forward. With progress on macroeconomic questions such as long term interest rates and health care cost containment efforts, companies should begin to see stability returning to the market and should begin hiring at a quicker pace.

European economic concerns still continue to put stress on the overall economy, but local dynamics in this market are returning and should have a greater impact on the health of this sector.

Metro Phoenix 1Q Market Analysis

CBRE Releases 1Q 2012 Analysis Of Metro Phoenix Office, Industrial And Retail Markets

CBRE has released its 1Q 2012 market analysis of the metro Phoenix area office, industrial and retail sectors.  Report highlights include:

Office

  • 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.

 

Industrial

  • 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.

 

Retail

  • 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.