Greater Phoenix experienced its largest investment transaction on record during 4th quarter of 2017, continuing robust market conditions. The sale of more than two-million square feet at Marina Heights for $928 million finished the year strong.
According to a 2017 Q4 Greater Phoenix Investment Report by Colliers International, investment performance has been strengthening across all sectors in the Greater Phoenix area.
Sales generally accelerated during fourth quarter 2017 with shopping centers and industrial properties posting the largest increases in activity. Medical office was the only sector that did not gain momentum during the three-month period.
Sales of office buildings rose by 10 percent from third to fourth quarter. Dollar volume surged as a result of the Marina Heights project sale in Tempe. Prices rose in 2017, which was highlighted by a spike in the last few months of the year. The median price paid for an office property in 2017 was $138 per square foot, up six percent from 2016. Cap rates fell below seven percent during fourth quarter, bringing the 2017 average cap rate in office properties to 7.5 percent. Cap rates fell approximately 30 basis points from the average in 2016.
Sales of industrial buildings surged 13 percent higher in the last quarter of 2017. Sales velocity in 2017 overall was up 16 percent from the year prior. More industrial buildings were sold in 2017 than in any year since 2007. The median price for industrial space sold in 2017 was $83 per square foot. This was up 15 percent from median pricing in 2016. Cap rates in industrial sales averaged approximately seven percent in 2017, which was down 30 basis points from the 2016 average.
Shopping center sales accelerated during fourth quarter 2017, up 35 percent from the previous quarter. Sales velocity throughout 2017 was down four percent from 2016 totals. The median price for all of 2017 was $114 per square foot, which is six percent lower than the median price posted in 2016. Cap rates averaged 7.4 percent in the retail sector last year, which was approximately 40 basis points higher than the 2016 average.
Sales of medical office condos were flat from third to fourth quarter of 2016. The pace of sales slowed in the second half of the year and total transaction activity during 2017 fell approximately 30 percent from 2016. Despite fewer sales, the prices for medical office condos are rising. The median price during 2017 was $181 per square foot, which marks an eight percent increase from 2016.
Traditional, non-condo medical office buildings also experienced a slowing in sales volume by nearly 30 percent in 2017 as compared to 2016. Prices rose in the fourth quarter to $225 per square foot. The highest prices are being paid for buildings larger than 40,000 square feet. These larger buildings commanded an average of $220 per square foot in 2017, as compared to $148 per square foot for smaller buildings. Cap rates fell 100 basis points in this sector in 2017 to approximately seven percent.
The Greater Phoenix investment market is expected to maintain momentum throughout 2018. Rents are on the rise, allowing buyers to accept lower cap rates today in anticipation of stronger cash flows in the future.
