Last night, AZ Big Media hosted the AZRE Forum, where a packed crowd of commercial real estate pros listened in on a mid-year market update from some of the Valley’s premiere experts.
Photos by Shannon Finn and Mike Mertes
About 300 people were in attendance and they heard a breakdown on the state of the commercial real estate industry in Arizona and how the brokerage markets are doing in Arizona.
Some of the evening’s highlights include:
- The panelists are optimistic about multifamily and infill developments in Arizona. Rents have been growing and there is a lot of optimism for 2017.
- In recent years, healthcare has been seeing many changes and that includes the type of space providers need. The panelists have been seeing a rise in needs for build-to-suit spaces as vacancy in older medical spaces has been rising.
- Construction costs have been high and a lack of skilled labor in Arizona is cause for a lot of concern in the industry.
- The panelists also talked about the possibility of a recession in the next couple of years, but since Arizona never experienced any kind of hockey stick growth, they hope the next recession will be a manageable one, closer to the 2001 recession than the Great Recession.
To see more details on the Forum, check out last night’s live blog below:
And that concludes tonight’s Live Blog. Generally the panelists are very optimistic about the commercial real estate industry in the short term. There are some clouds on the horizon, specifically with education, but the panelists offered great insights throughout the evening.
After having been removed from the Phoenix market, Herrington is astounded to see how much urban vibrancy there has been since 2008 – it’s so attractive to Millennials. The state needs to do a lot to retain and attract young workers and break out of this pattern of being the home of call and distribution centers, instead be a place where lots of start ups are calling home.
Now we’re talking about the presidential election that’s upcoming and what would be better for business. Some of the panelists are leaning more towards a candidate that would be more stable, without mentioning any names.
Hearing some interesting talk on the changes of healthcare. Kip Edwards has been talking about Banner’s transition from sick-based care to well-based care. They don’t want folks in hospitals any more, but the greatest challenge is keeping the current system working while they transition into a wellness-based system.
Hoffman says if you have a city that has a business friendly climate, you’re in a good position – we’ve been very fortunate – we’ve created many jobs in the west valley region as a result of the Foreign Trade Zone, it’s been a tremendous tool, Hoffman says.
There has been a lot of success in education. Arizona has been doing great with attracting tech talent. Skilled workers though, is one of the biggest issues. Need these skilled workers, Zito says, so we can “continue to bolster our economy.” Our community college system doesn’t even get state aide, Zito says. The Maricopa Community College system is one of the best in the country, but has no state aid, which is its biggest challenge. The newly appointed chancellor plans to forge partnerships with the business community, and we can start to see CRE folks doing the same too with that.
Arizona has had a lot of education woes in recent years. Our skilled labor force has especially been lacking since the Great Recession. Zito says the single biggest issue facing the state is turning around the education perception – we need to work on school infrastructure to be able to compete with neighboring states.
“It’s downtown’s time,” Carson said about Phoenix. It’s the employees that want the urban lifestyle, they want a community, a mixed use feeling, 100 percent of the time. Downtown Phoenix offers all of that. This is pushing companies to build facilities that have those amenities or go infill to areas that already have that.
Now we’re talking about masterplanned communities. Herrington says: “We’re a maturing market,” regarding Phoenix. It’s a matter of geography – we’ve sprawled as far as we can sprawl. He finds it laughable that families are going to want to go out as far as Casa Grande and the like to live in these masterplan communities. The focus will be more on Greater Phoenix, and Herrington thinks that the current situation might be a golden age.
“I am so freaking excited about Greater Phoenix. I think we’re going to look back on this time as a golden age for this market for growth,” Herrington said.
Carson doesn’t completely agree with the panel. “We have a little more runway” than the others suggest. She agrees that the infill and general construction needs to be more selective and only pick the cream of the crop when this economic down time hits. Carson also commented on how everyone needs to promote Arizona much more. Companies are moving here, and doing businesses here and we need to continue those efforts.
Our panel is talking about the possibility of another recession. Most of them think we’re close to another recession, but not a bad one compared to 2008. We didn’t see any kind of hockey stick growth after the Great Recession, so we won’t fall as much this next time around. The panel says the next recession would be closer to the 2001 recession.
Everyone knows that Arizona has been late to the recovery compared to the rest of the country. Zito believes we’re a lot closer to another recession or a plateau than a continued recession. The near term, Zito says, is looking good, but there are some financial issues, labor issues and other clouds on the horizon.
“If we’re not at the peak, we’re close to the peak.” Zito refers to the stage we’re at in the economic resurgence as the 8th inning. “Slowly but surely, we’re going to see a tempering of the enthusiasm.”
The third and final panel is starting, featuring:
We’re going to be especially interested to hear what our panelists have to say on the lack of skilled labor in Arizona, and challenges in that space. Also, Hoffman will be talking about the West Valley’s Foreign Trade Zone, which was approved in 2011, and now we’re starting to see the benefits of it. And finally the panel will talk about how companies have been making homes in order to secure top talent.
Right now we’re taking a quick break in between the second and third panel. The panelists have agreed, compared to last year the commercial real estate industry is looking to be in better shape. There have been some issues with access to capital, but generally the state seems to be in a build mode. Stay tuned for the next panel that should be starting shortly that will discuss the state of Arizona’s commercial real estate industry.
The next few years are looking good for the medical, office and industrial markets. Office may be lagging a bit because there isn’t enough investors. Offices are not generating the same level of interest from investors, unless it is in a good walkable area such as Old Town or Camelback corridor, said Toci.
Investors haven’t been moving quickly in Arizona because Phoenix is a tier 2 city, according to Toci. Investors want the “smile markets.” San Francisco is attractive to techies, “Investors don’t know what a saguaro cactus is.” – Toci said. Difficult for Phoenix to attract investors for this reason.
We’re now focusing back on medical. A lot of the older spaces around the valley have been vacant, Johnson said, because they’re outdated and not meeting modern medical needs. Less class B and C – increase in technology making these obsolete – will probably be taken down or be repurposed if it’s in a good location. In general needs for medical offices have been changing in recent years.
Office users have been using bigger spaces. Lots of offices are coming to Phoenix for many reasons – Tempe and Southeast valley have been driving the market in that sense, Garlick said. He’s very bullish on the market for the rest of the year.
Doctors have been going from independent practices to working with hospitals. The main reason has been because medicare reimbursement decreases, high rents, electronic medical records. So doctors have been moving away from private practices and are now working as employees so they have a space under their feet. And this has been making them move into new types of spaces, focusing on build-to-suits.
“Hospitals are driving the market. They’re also driving what’s going on in healthcare real estate.” said Julie Johnson.
Our second panel is starting with:
- Pat Feeney, CBRE
- Julie Johnson, Avison Young
- Mike Garlick, Newmark Grubb Knight Frank
- Christopher Toci, Cushman & Wakefield
We’re going to be talking about medical, office and industrial. for the panel.
“You need different concepts – restaurants, fitness centers – rent growth is happening. There’s more confidence in the market, in 2017 we’ll be good,” said Simon.
Overall the developers have been seeing a lot of green arrows in the multifamily market and in infill development. Folks have been more confident and there has been a lot of growth. The panel agrees that 2017 will be a good year. There will be rent growth, economic growth and people are generally starting to move forward.
The cities have been very supportive of infill product in recent years. Some cities like Chandler are starting to to see if they need more. Developers haven’t been getting a lot resistance from cities when it comes to zoning.
When it comes to housing and jobs the numbers the numbers aren’t adding up right now – jobs to housing, population to housing, relatively full, but demand is picking up. Rents are starting to go up, because there isn’t enough supply.
The panel has been talking about construction and infill development, and challenges around that space. They see a lot more infill development coming forward in the future. It’s tough out there when it comes to permitting and getting the land.
Welcome to the AZRE Forum Live Blog. Tonight we’ve got a full house at The Camby, and we’re talking commercial real estate. Our expert panelists will be giving you the low down with a mid-year market update on the commercial real estate industry. The AZRE team will be covering the event on Facebook, Twitter and this live blog. Our Digital Editor Jesse Millard, Reporters Alana Doyle, Matt Durack and Jesse Canales will be bringing you constant updates tonight.
Follow any Tweets from the event with the hashtag #AZREforum, and feel free to join in on the conversation from at home, or the event. We have three panels tonight, the first panel will go over land, retail and multifamily. The second panel will discuss medical, office and industrial. Last, the third panel tonight will talk about the state of Arizona’s commercial real estate industry,.
Meet the panelists
Tonight, we have thirteen panelists with two moderators from various sectors in the industry.
- Chapin Bell, P.B. Bell
- Steve Betts, Betts Real Estate Advisors
- Pete Bolton, Newmark Grubb Knight Frank
- Molly Carson, Ryan Companies US, Inc.
- Kip Edwards, Banner Health
- Patrick Feeney, CBRE
- Mike Garlick, Newmark Grubb Knight Frank
- Brent Herrington, DMB Associates, Inc.
- Sintra Hoffman, WESTMARC
- Julie Johnson, Avison Young – Arizona, LTD
- Jay Kramer, Fennemore Craig, P.C.
- Joshua Simon, Simon CRE
- Christopher Toci, Cushman & Wakefield
- Greg Vogel, Land Advisors Organization
- Ed Zito, Alliance Bank of Arizona