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